<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 2000
REGISTRATION NO. 333-94403
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
<TABLE>
<S> <C>
PAGING NETWORK, INC. ARCH COMMUNICATIONS GROUP, INC.
As Co-Issuer
</TABLE>
(Exact name of registrants as specified in their charters)
<TABLE>
<S> <C> <C> <C>
DELAWARE 4812 DELAWARE 4812
(State or other jurisdiction of (Primary Standard Industrial (State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number) incorporation or organization) Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
04-2740516 31-1358569
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
ARCH COMMUNICATIONS GROUP, INC.
PAGING NETWORK, INC. 1800 WEST PARK DRIVE, SUITE 250
14911 QUORUM DRIVE WESTBOROUGH, MASSACHUSETTS 01581
DALLAS, TEXAS 75240 (508) 870-6700
(972) 801-8000
(Address, including zip code, and telephone number,
(Address, including zip code, and telephone number, including
including area code, of area code, of registrant's principal executive
registrant's principal executive offices) offices)
</TABLE>
-------------------------
RUTH WILLIAMS
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND ASSISTANT SECRETARY
14911 QUORUM DRIVE
DALLAS, TEXAS 75240
(972) 801-8000
(Name, address, including zip code and telephone number, including area code, of
agent for service)
C. EDWARD BAKER, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
(508) 870-6700
(Name, address, including zip code and telephone number, including area code, of
agent for service)
-------------------------
Copy to:
JOHN R. SCHMIDT
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603-3441
(312) 782-0600
Copies to:
EDWARD YOUNG, ESQ.
JAY E. BOTHWICK, ESQ.
DAVID A. WESTENBERG, ESQ.
C/O HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 526-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ] __________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
-------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 2000
REGISTRATION NO. 333-94403-01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
VAST SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 75-2852196
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
14131 MIDWAY ROAD, SUITE 500
ADDISON, TEXAS 75001
972-801-8800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-------------------------
MARK A. KNICKREHM
PRESIDENT AND CHIEF OPERATING OFFICER
14131 MIDWAY ROAD, SUITE 500
ADDISON, TEXAS 75001
972-801-8800
(Name, address, including zip code and telephone number,
including area code, of agent for service)
-------------------------
Copies to:
JOHN R. SCHMIDT
DAVID A. SCHUETTE
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603-3441
312-782-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 3
EXPLANATORY NOTE
The registration statement on Form S-4 being filed by PageNet includes the
S-4 facing page, the prospectus relating to the exchange offer to PageNet's
senior subordinated noteholders and the consent solicitation of PageNet
stockholders and senior subordinated noteholders to approve a prepackaged
bankruptcy plan, including the Annexes thereto, and Part II to the S-4. Arch is
a co-issuer to the registration statement on Form S-4.
The registration statement on Form S-1 being filed herewith by Vast
includes the S-1 facing page, the prospectus relating to the Class B common
stock of Vast which is also included as Annex A to the PageNet prospectus, and
Part II to the S-1.
<PAGE> 4
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 12, 2000
PROSPECTUS
EXCHANGE OFFER FOR PAGENET NOTEHOLDERS
-------------------------
CONSENT SOLICITATION AND DISCLOSURE STATEMENT FOR PREPACKAGED
BANKRUPTCY PLAN FOR PAGENET NOTEHOLDERS AND STOCKHOLDERS
PAGENET LOGO
616,830,757 SHARES COMMON STOCK
PAGING NETWORK, INC.
We are offering to exchange 616,830,757 shares of PageNet common stock and
13,780,000 shares of Class B common stock of Vast Solutions, Inc., PageNet's
wholly owned subsidiary, for all of our outstanding:
- 8.875% senior subordinated notes due 2006;
- 10.125% senior subordinated notes due 2007; and
- 10% senior subordinated notes due 2008.
The exchange offer is part of an overall transaction in which PageNet will
merge into Arch Communications Group, Inc. In the merger, each share of PageNet
common stock, including the shares to be issued to PageNet noteholders in this
exchange offer, will be converted into 0.1247 shares of Arch common stock. We
will not exchange PageNet and Vast shares for PageNet senior subordinated notes
unless all conditions to the merger are satisfied.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
, 2000 UNLESS EXTENDED.
We are also asking the holders of our senior subordinated notes and our
stockholders to approve a consensual or "prepackaged" bankruptcy plan of
PageNet. The prepackaged bankruptcy plan provides an alternative means for
PageNet to implement the merger and provides for the exchange of Arch and Vast
shares for PageNet senior subordinated notes and PageNet common stock and the
merger of PageNet into Arch on the same terms as set forth in the merger
agreement.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"PAGEE."
WE URGE YOU TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE
14 BEFORE YOU MAKE ANY INVESTMENT DECISION.
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED OR
DISAPPROVED THE SHARES OR THE EXCHANGE OFFER OR DETERMINED IF THIS PROSPECTUS IS
ACCURATE OR ADEQUATE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
The date of this prospectus is , 2000
<PAGE> 5
QUESTIONS AND ANSWERS
Q: WHAT ARE YOU ASKING HOLDERS OF PAGENET SENIOR SUBORDINATED NOTES TO DO?
A: PageNet is requesting that the holders of senior subordinated notes:
- exchange their senior subordinated notes for shares of PageNet common
stock and Class B common stock of Vast;
- consent to amendments to the indenture for the senior subordinated notes
which will remove substantially all of the rights of those senior
subordinated notes that are not tendered in the exchange offer except the
right to receive payments of principal and interest; and
- consent to a prepackaged bankruptcy plan providing for the
recapitalization of PageNet and the merger of PageNet and Arch on the
same terms provided in the merger agreement.
Q: WHY ARE YOU ASKING NOTEHOLDERS TO TENDER THEIR NOTES AND TO CONSENT TO THE
PREPACKAGED BANKRUPTCY PLAN?
A: PageNet prepared the prepackaged bankruptcy plan as an alternative means to
implement the recapitalization and the merger if less than 97.5% of
PageNet's senior subordinated notes are tendered in the exchange offer. If
less than 97.5% of the PageNet senior subordinated notes are tendered in
the exchange offer but PageNet obtains consents to the prepackaged
bankruptcy plan from holders of at least 66 2/3% in amount of PageNet's
senior subordinated notes that vote on the prepackaged bankruptcy plan and
at least a majority of all such voting noteholders, PageNet expects to file
the prepackaged bankruptcy plan.
Q: WHY IS PAGENET OFFERING TO EXCHANGE SENIOR SUBORDINATED NOTES FOR PAGENET
SHARES IN THE EXCHANGE OFFER?
A: The PageNet exchange offer is part of a larger transaction in which PageNet
will merge with Arch. The purpose of the exchange offer is to reduce the
indebtedness of the combined company. Shares of PageNet common stock
received by noteholders tendering their notes in the exchange offer will be
immediately converted into shares of Arch common stock.
Q: WHY IS PAGENET SEEKING CONSENTS TO AMEND THE INDENTURE GOVERNING THE SENIOR
SUBORDINATED NOTES?
A: At the completion of the PageNet exchange offer, it is expected that only a
small amount of senior subordinated notes will remain outstanding. PageNet
is requesting that tendering noteholders agree to these amendments to
remove restrictive covenants affecting the operations of PageNet. These
amendments will not remove PageNet's obligation to pay the principal and
interest on the remaining senior subordinated notes.
Q: WHAT ARE YOU ASKING HOLDERS OF PAGENET COMMON STOCK TO DO?
A: PageNet is requesting that PageNet stockholders consent to a prepackaged
bankruptcy plan providing for the merger of PageNet and Arch on the same
terms provided in the merger agreement.
Q: WHY ARE PAGENET STOCKHOLDERS ALSO RECEIVING A JOINT PROXY
STATEMENT/PROSPECTUS?
A: In addition to this prospectus, PageNet stockholders are receiving a joint
proxy statement/prospectus for a special meeting of stockholders of PageNet
to vote upon a proposal to approve the merger of PageNet and Arch. The
approval of holders of a majority of PageNet's common stock is required for
the merger under Delaware law. However, if PageNet files the prepackaged
bankruptcy plan, the stockholders will no longer have corporate voting
rights and PageNet will not hold the special meeting of stockholders.
Q: WHY IS PAGENET DISTRIBUTING SHARES OF VAST TO NOTEHOLDERS AND STOCKHOLDERS?
A: The distribution of Vast was negotiated as part of the overall transaction
to enable PageNet noteholders and stockholders to retain a substantial
portion of any future value in Vast.
ii
<PAGE> 6
TRANSACTION DIAGRAM
The following diagrams illustrate in general terms the pre-merger structure
and capital stock ownership percentages of Arch and PageNet prior to the
announcement of the merger and the post-merger structure and capital stock
ownership percentages of the combined company and Vast.
CURRENT STRUCTURE AND STOCK OWNERSHIP PERCENTAGE GRAPH
POST-MERGER STRUCTURE AND STOCK OWNERSHIP PERCENTAGE GRAPH
iii
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBERS
-------
<S> <C>
Summary
The Overall Transaction................................... 1
PageNet and Arch.......................................... 1
The Exchange Offer........................................ 2
The Merger................................................ 2
Prepackaged Bankruptcy Plan............................... 3
Federal Income Tax Considerations......................... 4
Summary Financial and Operating Data...................... 5
Capitalization............................................ 10
Stock Ownership in Combined Company....................... 11
Noteholder and Stockholder Actions........................ 11
Procedure for Tendering Senior Subordinated Notes and
Delivery of Consents................................... 11
Voting Procedures with Respect to the Prepackage
Bankruptcy Plan........................................ 12
Risk Factors................................................ 14
Risks Related to Exchanging Senior Subordinated Notes for
Common Stock........................................... 14
Risks Related to the Merger............................... 15
Risks Related to Arch's Business.......................... 18
Risks Related to PageNet's Business....................... 23
Risks Related to Vast..................................... 24
Risks Relating to the Possible Prepackaged Bankruptcy
Filing................................................. 24
Forward Looking Statements.................................. 27
The Exchange Offer.......................................... 28
Proposed Amendments......................................... 37
The Merger.................................................. 43
General................................................... 43
Background of the Merger.................................. 43
PageNet's Reasons for the Merger.......................... 47
Opinions of Financial Advisors to PageNet................. 49
Opinion of Houlihan Lokey Howard & Zukin Capital....... 49
Opinion of Goldman, Sachs & Co......................... 55
Opinion of Morgan Stanley Dean Witter.................. 65
Vast Valuation Analysis................................... 73
Interests of Certain Persons in the Merger................ 74
Treatment of PageNet's Stock.............................. 76
The Exchange Offers....................................... 76
Regulatory Approvals...................................... 77
Material Federal Income Tax Considerations of the
Merger................................................. 77
Accounting Treatment of the Merger........................ 78
Quotation on Nasdaq National Market System................ 78
Resales of Arch Common Stock Issued in Connection with the
Merger;
Affiliate Agreements................................... 78
Appraisal Rights.......................................... 78
The Merger Agreement........................................ 79
Structure of the Merger................................... 79
The Exchange Ratio and Treatment of PageNet Common
Stock.................................................. 79
Exchange Procedures....................................... 79
</TABLE>
iv
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
NUMBERS
-------
<S> <C>
Treatment of PageNet Stock Options........................ 79
Representations and Warranties............................ 80
Covenants................................................. 81
Conditions to Completion of the Merger.................... 85
Termination of the Merger Agreement....................... 87
Termination Fee........................................... 88
Modification or Amendment of the Merger Agreement......... 89
The Vast Distribution....................................... 90
General................................................... 90
Manner of Effecting the Vast Distribution................. 90
Determination of the Distribution Ratio................... 90
Material Federal Income Tax Considerations of the Vast
Distribution........................................... 90
The Prepackaged Bankruptcy Plan............................. 91
General................................................... 91
Voting Instructions and Procedures........................ 92
Classification of Claims and Equity Interests under the
Prepackaged Bankruptcy Plan............................ 95
Summary of Treatment under the Prepackaged Bankruptcy
Plan................................................... 96
Summary of Other Provisions of the Prepackaged Bankruptcy
Plan................................................... 98
Conditions to Consummation................................ 101
Effect of Consummation of the Prepackaged Bankruptcy
Plan................................................... 101
Modification of the Prepackaged Bankruptcy Plan........... 102
Intended Actions During the Chapter 11 Cases.............. 102
Confirmation Standards.................................... 104
Confirmation of the Prepackaged Bankruptcy Plan Without
Acceptance by All Classes of Impaired Claims........... 105
Consequences of Insufficient Vote In Favor of the
Prepackaged Bankruptcy Plan............................ 106
Best Interests Test/Liquidation Analysis.................. 106
Material Federal Income Tax Considerations.................. 109
Scope and Limitation........................................ 109
Qualification of the Merger as a Tax Free Reorganization.... 110
Federal Income Tax Consequences to Exchanging Noteholders... 111
Federal Income Tax Consequences to Nontender Noteholders.... 113
Federal Income Tax Consequences to PageNet Common
Stockholders.............................................. 114
Federal Income Tax Consequences to Arch and Pagenet......... 116
Capitalization.............................................. 117
Stock Ownership in the Combined Company..................... 118
Unaudited Pro Forma Consolidated Financial Data of the
Combined Company.......................................... 119
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ 121
Unaudited Pro Forma Condensed Consolidated Balance Sheets... 122
Unaudited Pro Forma Condensed Consolidated Statements of
Operations................................................ 123
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... 124
Selected Historical Consolidated Financial and Operating
Data -- PageNet........................................... 128
PageNet Management's Discussion and Analysis of Financial
Conditions and Results of Operation....................... 131
Selected Historical Consolidated Financial and Operating
Data -- Arch.............................................. 142
Arch Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 145
</TABLE>
v
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
NUMBERS
-------
<S> <C>
Market Price Information and Dividend Policy................ 155
PageNet and Arch Common Stock............................. 155
PageNet Notes............................................. 156
Dividend Policy........................................... 157
Comparative Historical and Unaudited Pro Forma Per Share
Data...................................................... 158
Industry Overview........................................... 159
Arch's Business............................................. 164
Arch's Management........................................... 172
Arch's Principal Stockholders............................... 178
PageNet's Business.......................................... 182
PageNet's Management........................................ 187
PageNet's Principal Stockholders............................ 195
The Combined Company........................................ 197
Description of PageNet's Common Stock....................... 200
Description of Arch's Equity Securities..................... 200
Description of Indebtedness................................. 207
Arch...................................................... 207
PageNet................................................... 211
Comparison of Rights of PageNet Stockholders and Arch
Stockholders.............................................. 213
Legal Matters............................................... 218
Experts..................................................... 219
Where You Can Find More Information......................... 219
Index to Financial Statements............................... F-1
Annex A -- Prospectus of Vast Solutions, Inc................ A-1
Index to Financial Statements............................... F-1
Annex B -- Agreement and Plan of Merger..................... B-1
Annex C -- The Prepackaged Plan of Reorganization........... C-1
Annex D -- Arch Paging, Inc. Summary of Principal Terms of
the Third Amended and Restated Credit Agreement........... D-1
Annex E -- Unaudited Combined Company Projections........... E-1
Annex F -- Opinion of Houlihan Lokey Howard & Zukin
Capital................................................... F-1
Annex G -- Opinion of Goldman, Sachs & Co................... G-1
Annex H -- Opinion of Morgan Stanley Dean Witter............ H-1
Annex I -- Liquidation Analysis............................. I-1
</TABLE>
vi
<PAGE> 10
SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. We urge you to read the entire prospectus, including "Risk Factors,"
and information contained in PageNet's and Arch's public documents that have
been filed with the Securities and Exchange Commission.
THE OVERALL TRANSACTION
The transactions described in this prospectus are all part of an overall
transaction in which PageNet will merge into Arch under a merger agreement
signed on November 7, 1999.
The merger will be accompanied by recapitalizations of PageNet and Arch
through exchange offers by PageNet and Arch to exchange common stock for debt.
In the PageNet exchange offer, PageNet is offering to exchange shares of PageNet
common stock and shares of Class B common stock of Vast, its wholly owned
subsidiary, for PageNet's outstanding senior subordinated notes. The shares of
PageNet common stock received by PageNet noteholders will immediately be
converted into Arch common stock as a result of the merger. In the Arch exchange
offer, Arch is offering to exchange shares of Arch common stock for each of
Arch's outstanding 10 7/8% senior discount notes.
The merger agreement also provides that PageNet will distribute up to 11.6%
of the total equity of Vast to its current stockholders. As a result of the
related exchange offer, PageNet's noteholders will receive up to 68.9% of the
equity interest in Vast. The combined company will retain up to 19.5% of the
equity interest in Vast following the merger.
The PageNet exchange offer and the Vast distribution will not be
consummated unless the merger is consummated.
PageNet is also seeking consent from its noteholders and its stockholders
to a consensual or "prepackaged" bankruptcy plan which provides for consummation
of the recapitalization and the merger on the same terms provided in the merger
agreement. PageNet expects to file the prepackaged bankruptcy plan if less than
97.5% of PageNet's senior subordinated notes are tendered in the exchange offer
but PageNet obtains consents to the prepackaged bankruptcy plan from holders of
at least 66 2/3% in amount of PageNet's senior subordinated notes that vote on
the prepackaged bankruptcy plan and at least a majority of all such voting
noteholders.
PAGENET AND ARCH
PageNet. PageNet is a provider of wireless communications services
throughout the United States and Canada, with approximately 9.0 million units in
service as of December 31, 1999. PageNet primarily provides traditional paging
services which enable subscribers to receive messages on their pagers composed
entirely of numbers, such as a phone number, or, on some pagers, numbers and
letters which enable the subscriber to receive text messages. Both kinds of
services are commonly referred to as messaging services. PageNet has also begun
to market and sell "advanced" messaging services which enable subscribers to
receive acknowledgments that their messages were delivered or to respond to
messages. PageNet also offers enhanced or complementary wireless communications
services, such as voice mail, personalized greetings, stock quotes, news and
other wireless information delivery services. Through its wholly owned
subsidiary Vast, PageNet is commencing operations that use wireless technology
to connect businesses with their employees, customers and remote assets, such as
vending machines, automobiles and storage tanks. For a description of Vast, see
the prospectus of Vast attached as Annex A. PageNet's principal office is
located at Corporate Centre, 14911 Quorum Drive, Dallas, Texas 75240. PageNet's
telephone number is (972) 801-8000.
Arch. Arch is a leading provider of wireless communications services in the
United States, with approximately 6.9 million units in service. Arch primarily
provides messaging services and has recently begun offering "advanced" messaging
services. Arch also offers enhanced or complementary wireless communication
services, such as stock quotes, news and other wireless information delivery
services, voice mail, personalized greeting, message storage and retrieval,
equipment loss protection and equipment maintenance. Arch's principal office is
located at 1800 West Park Drive, Suite 250, Westborough, Massachusetts 01581.
Arch's telephone number is (508) 870-6700.
Arch has supplied all information contained in this prospectus relating to
Arch, and PageNet has supplied all information in this prospectus relating to
PageNet and Vast.
1
<PAGE> 11
THE EXCHANGE OFFER
In order to carry out the recapitalization required under the merger
agreement with Arch, PageNet is offering to exchange shares of PageNet common
stock and Class B common stock of Vast for each of PageNet's senior subordinated
notes. The following table shows the number of PageNet and Vast shares that
noteholders will be entitled to receive, and the number of Arch shares that the
PageNet common shares will be immediately converted into, if the exchange offer
and merger occur on June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
PER $1000 PRINCIPAL AMOUNT OF OF PAGENET OF ARCH OF VAST CLASS B
SENIOR SUBORDINATED NOTES COMMON STOCK COMMON STOCK COMMON STOCK
----------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
8.875% notes due 2006....................... 514.329 64.137 11.490
10.125% notes due 2007...................... 519.969 64.840 11.616
10% notes due 2008.......................... 509.089 63.483 11.373
</TABLE>
Interest accrued through the expiration date of the exchange offer on senior
subordinated notes that are exchanged will affect the exact exchange ratios
depending on the actual date of closing but will not change the total number of
shares issued in the exchange offer.
The exchange offer will expire at 12:00 midnight, New York City time, on
, 2000 unless PageNet and Arch jointly extend the expiration date.
The exchange offer is conditioned upon:
- the tender and non-withdrawal of at least 97.5% of the total principal
amount of PageNet's outstanding senior subordinated notes, including at
least a majority of the outstanding principal amount of each series of
PageNet's senior subordinated notes; and
- the satisfaction or waiver of the other conditions to the closing of the
merger.
Amendments to Remaining Notes. As a condition to tendering notes in the
exchange offer, PageNet noteholders will be required to approve amendments to
the indentures for the senior subordinated notes. The amendments require the
approval of a majority in principal amount of each series of senior subordinated
notes and will remove substantially all of the rights of those senior
subordinated notes that are not tendered, other than their right to receive
payments of principal and interest.
THE MERGER
The merger agreement provides that each share of PageNet common stock,
including shares issued to PageNet noteholders in the PageNet exchange offer,
will be converted into 0.1247 shares of Arch common stock. On November 5, 1999,
the last trading day before the public announcement of the proposed merger,
PageNet's common stock had a closing price of $0.96875 per share, compared to
$0.84952 for 0.1247 shares of Arch common stock. On , the last trading
day for which information was available prior to the first mailing of this
prospectus, PageNet's common stock had a closing price of $ per share compared
to $ for 0.1247 shares of Arch common stock.
The merger is conditioned upon the consummation of the PageNet and Arch
exchange offers and the declaration by the PageNet board of directors of a
distribution of Vast shares to PageNet stockholders.
Board of Directors. After the merger, the Arch board of directors will
consist of 12 directors. Six directors will be designated by the current Arch
directors and three directors will be designated by the current PageNet
directors. Each of the three largest holders of PageNet senior subordinated
notes may designate one director. To the extent any of these three largest
holders do not designate directors, the Arch directors will designate additional
directors.
Required Stockholder Approvals. The merger requires the affirmative vote of
the holders of a majority of Arch's outstanding common stock and a majority of
PageNet's outstanding common stock. Current Arch and PageNet stockholders will
receive a separate joint proxy statement/prospectus for the
2
<PAGE> 12
merger. However, if PageNet files for reorganization under chapter 11 of the
Bankruptcy Code, the approval of the merger by holders of PageNet common stock
would no longer be required. However, the approval by PageNet stockholders of
the prepackaged bankruptcy plan is being solicited. Holders of senior
subordinated notes who receive PageNet common stock in the exchange offer will
not be entitled to vote on the merger.
Stockholder meetings for PageNet and Arch will be held on , 2000
and , 2000, respectively.
Exclusivity and Termination. Subject to directors' fiduciary obligations,
both PageNet and Arch have agreed not to solicit or encourage any proposal from
a third party involving an acquisition, business combination or other similar
proposal, prior to the merger.
PageNet and Arch can mutually agree to terminate the merger agreement and
either PageNet or Arch can terminate the merger agreement if:
- the other party breaches and fails to cure any material representation,
warranty or covenant in the merger agreement; or
- the merger does not take place by September 30, 2000; or
- Arch stockholders do not approve the merger; or
- PageNet stockholders do not approve the merger and no bankruptcy plan is
filed.
Either PageNet or Arch may be required to pay a termination fee of $40 million
if the merger agreement is terminated after it pursues an alternative offer.
PREPACKAGED BANKRUPTCY PLAN
PageNet is also soliciting the vote of its noteholders and its stockholders
to a consensual or "prepackaged" bankruptcy plan of PageNet. The prepackaged
bankruptcy plan provides for the merger of PageNet into Arch and the related
transactions on the same terms provided in the merger agreement.
PageNet expects to file the prepackaged bankruptcy plan if less than 97.5%
of the PageNet senior subordinated notes are tendered in the PageNet exchange
offer but PageNet obtains sufficient consents to the prepackaged bankruptcy plan
to satisfy the Bankruptcy Code. The Bankruptcy Code requires consents from the
holders of at least 66 2/3% in amount of PageNet's senior subordinated notes
that vote on the prepackaged bankruptcy plan, and that constitute at least a
majority of all such voting noteholders.
If the prepackaged bankruptcy plan is confirmed by the Bankruptcy Court,
the terms of the plan will be binding upon all of PageNet's noteholders and
stockholders regardless of whether any individual noteholder or stockholder
consented to the prepackaged bankruptcy plan. Although the prepackaged
bankruptcy plan provides for the treatment of PageNet's noteholders and
stockholders on the same terms as provided in the merger agreement, it is
possible that the Bankruptcy Court will refuse to confirm the plan on those
terms. If a modified plan is approved, the treatment of the noteholders or
stockholders could be different.
As stated above, PageNet is soliciting consents to the prepackaged
bankruptcy plan from its stockholders as well as its noteholders. The Bankruptcy
Code requires consents from the holders of 66 2/3% of PageNet's outstanding
shares that are voted with respect to the prepackaged plan. If the requisite
number and amount of noteholders consent to the prepackaged bankruptcy plan but
holders of 66 2/3% of the PageNet common stock that have voted with respect to
the prepackaged bankruptcy plan do not consent, PageNet nonetheless expects to
file under chapter 11 and seek to confirm the prepackaged bankruptcy plan over
the dissent of the stockholders. In order to do so, PageNet will be required to
demonstrate that none of its creditors, including the noteholders, will receive
under the prepackaged bankruptcy plan property with a value greater than the
amount owed to them by PageNet. If the prepackaged bankruptcy plan is not
confirmed, PageNet would evaluate its strategic alternatives while
3
<PAGE> 13
under the protection of the Bankruptcy Court. These alternatives could include,
but are not limited to, a stand-alone restructuring, transactions with other
merger partners, or liquidation.
FEDERAL INCOME TAX CONSIDERATIONS
We expect that, for federal tax purposes, an exchanging noteholder in the
PageNet exchange offer will not recognize loss and will recognize gain, if any,
in an amount equal to the lesser of:
- the fair market value of the shares of Class B common stock of Vast
received; and
- the amount by which the fair market value of the Vast shares received
plus the fair market value of the Arch common stock received exceeds the
noteholder's tax basis in the notes surrendered.
In addition, amounts allocable to accrued but unpaid interest may be considered
ordinary income, and gain or loss may be recognized with respect to cash paid
instead of fractional Arch shares. See "Material Federal Income Tax
Considerations."
We also expect that, for federal income tax purposes, the merger will
qualify as a tax-free transaction to PageNet and Arch stockholders except for
cash received by PageNet stockholders instead of fractional shares of Arch
common stock. We expect that the distribution of Class B common stock of Vast
will be taxable to PageNet stockholders.
Although this treatment is expected, there is a risk that the merger and
exchange will not qualify as tax-free exchanges. See "Risk Factors -- Volatility
of Arch and Vast stock prices could adversely affect tax consequences of the
merger to PageNet stockholders and noteholders."
4
<PAGE> 14
SUMMARY FINANCIAL AND OPERATING DATA
The following summary historical financial and operating data for PageNet
for each of the years in the five year period ended December 31, 1999 has been
derived from PageNet's audited consolidated financial statements and notes. The
following summary historical financial and operating data for Arch for each of
the years in the five year period ended December 31, 1999 has been derived from
Arch's audited consolidated financial statements and notes. The following
unaudited pro forma condensed consolidated balance sheet data has been prepared
to reflect the merger assuming it had occurred on December 31, 1999 and using
the purchase method of accounting. Under the purchase method of accounting the
purchase price is allocated to assets acquired and liabilities assumed based on
their estimated fair values at the time of the merger. Income of the combined
company will not include income or loss of PageNet prior to the merger. The
following summary pro forma statement of operations data gives effect to the
merger and Arch's acquisition of MobileMedia Communications, Inc., which closed
on June 3, 1999, as if such transactions had been consummated on January 1,
1999. The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the MobileMedia acquisition and the merger had been
consummated as of the dates mentioned above or of future operating results or
financial position of the combined companies following both transactions. You
should read the following consolidated financial information in conjunction with
"PageNet Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Arch Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes of PageNet and Arch.
Adjusted earnings before interest, income taxes, depreciation and
amortization, as determined by PageNet and Arch, does not reflect:
- restructuring charges;
- provision for asset impairment;
- other non-operating income (expense)
- extraordinary items; and
- cumulative effect of changes in accounting principles.
Adjusted earnings before interest, taxes, depreciation and amortization may not
necessarily be comparable to similarly titled data of other wireless
communications companies. Earnings before interest, income taxes, depreciation
and amortization is commonly used by analysts and investors as a principal
measure of financial performance in the wireless communications industry.
Earnings before interest, income taxes, depreciation and amortization is also
one of the primary financial measures used to calculate whether PageNet and Arch
are in compliance with financial covenants under their debt agreements that
restrict their operations.
Earnings before interest, income taxes, depreciation and amortization is
also one of the financial measures used by analysts to value PageNet and Arch.
Therefore management believes that the presentation of adjusted earnings before
interest, income taxes, depreciation and amortization provides relevant
information to investors. Adjusted earnings before interest, income taxes,
depreciation and amortization should not be construed as an alternative to
operating income as an indicator of operating performance or as an alternative
to cash flows from operating activities as determined in accordance with
generally accepted accounting principles or as a measure of liquidity. Amounts
reflected as earnings before interest, income taxes, depreciation and
amortization or adjusted earnings before interest, income taxes, depreciation
and amortization are not necessarily available for discretionary use as a result
of restrictions imposed by the terms of existing indebtedness and limitations
imposed by applicable law upon the payment of dividends or distributions, among
other things. See "PageNet Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Arch Management's Discussion and
Analysis of Financial Condition and Results of Operations".
5
<PAGE> 15
Adjusted earnings before interest, income taxes, depreciation and
amortization margin is calculated by dividing adjusted earnings before interest,
income taxes, depreciation and amortization by total revenues less cost of
products sold. Earnings before interest, income taxes, depreciation and
amortization margin in a measure commonly used in the wireless communications
industry to evaluate a company's earnings before interest, income taxes,
depreciation and amortization relative to total revenues less cost of products
sold as an indicator of the efficiency of a company's operating structure.
6
<PAGE> 16
PAGENET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Services, rent and maintenance revenues.......... $ 532,079 $ 685,960 $ 818,461 $ 945,524 $ 897,348
Product sales.................................... 113,943 136,527 142,515 100,503 92,375
---------- ---------- ----------- ----------- ----------
Total revenues................................... 646,022 822,487 960,976 1,046,027 989,723
Cost of products sold............................ (93,414) (116,647) (121,487) (77,672) (57,901)
---------- ---------- ----------- ----------- ----------
552,608 705,840 839,489 968,355 931,822
Depreciation and amortization expense............ 148,997 213,440 289,442 281,259 327,101
Provision for asset impairment................... -- 22,500 12,600 -- 17,798
Restructuring charge............................. -- -- -- 74,000 (23,531)
Operating income (loss).......................... 52,134 20,897 7,508 (22,320) (115,388)
Interest and other income (expense).............. (96,335) (125,217) (148,911) (139,689) (146,168)
Loss before extraordinary item and cumulative
effect of a change in accounting principle..... (44,201) (104,320) (141,403) (162,009) (261,556)
Extraordinary loss............................... -- -- (15,544) -- --
Cumulative effect of a change in accounting
principle...................................... -- -- -- -- (37,446)
Net loss......................................... (44,201) (104,320) (156,947) (162,009) (299,002)
Per common share data (basic and diluted):
Loss before extraordinary item and cumulative
effect of a change in accounting principle... $ (0.43) $ (1.02) $ (1.38) $ (1.57) $ (2.52)
Extraordinary loss............................. -- -- (0.15) -- --
Cumulative effect of a change in accounting
principle.................................... -- -- -- -- (0.36)
---------- ---------- ----------- ----------- ----------
Net loss per share............................. $ (0.43) $ (1.02) $ (1.53) $ (1.57) $ (2.88)
========== ========== =========== =========== ==========
OTHER OPERATING DATA:
Capital expenditures............................. $ 312,289 $ 437,388 $ 328,365 $ 268,183 $ 234,926
Cash flows provided by operating activities...... 160,629 110,382 150,503 248,101 77,866
Cash flows used in investing activities.......... (589,387) (601,122) (459,929) (285,586) (237,319)
Cash flows provided by financing activities...... 624,489 296,335 308,573 37,638 188,520
Adjusted earnings before interest, income taxes,
depreciation and amortization.................. $ 201,131 $ 256,837 $ 309,550 $ 332,939 $ 205,980
Adjusted earnings before interest, income taxes,
depreciation and amortization margin........... 36.4% 36.4% 36.9% 34.4% 22.1%
Units in service at end of period................ 6,738,000 8,588,000 10,344,000 10,110,000 8,991,000
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1999
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Current assets.............................................. $ 130,930
Total assets................................................ 1,422,560
Long-term debt in default................................... 1,945,000
Long-term obligations, less current maturities.............. 58,127
Total shareowners' deficit.................................. (789,839)
</TABLE>
7
<PAGE> 17
The following table reconciles net loss to the presentation of PageNet's
adjusted earnings before interest, income taxes, depreciation and amortization:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net loss.............................................. $ (44,201) $(104,320) $(156,947) $(162,009) $(299,002)
Interest expense...................................... 102,846 128,014 151,380 143,762 150,921
Interest income....................................... (6,511) (3,679) (3,689) (2,070) (3,902)
Depreciation and amortization expense................. 148,997 213,440 289,442 281,259 327,101
Other non-operating (income) expense.................. -- 882 1,220 (2,003) (851)
Provision for asset impairment........................ -- 22,500 12,600 -- 17,798
Restructuring charge.................................. -- -- -- 74,000 (23,531)
Extraordinary loss.................................... -- -- 15,544 -- --
Cumulative effect of a change in accounting
principle........................................... -- -- -- -- 37,446
--------- --------- --------- --------- ---------
Adjusted earnings before interest, income taxes,
depreciation and amortization....................... $ 201,131 $ 256,837 $ 309,550 $ 332,939 $ 205,980
========= ========= ========= ========= =========
</TABLE>
8
<PAGE> 18
ARCH
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
---------- ---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Service, rental and maintenance revenue............ $ 138,466 $ 291,399 $ 351,944 $ 371,154 $ 591,389 $ 1,651,502
Product sales...................................... 24,132 39,971 44,897 42,481 50,435 152,017
---------- ---------- ---------- ---------- ---------- -----------
Total revenues..................................... 162,598 331,370 396,841 413,635 641,824 1,803,519
Cost of products sold.............................. (20,789) (27,469) (29,158) (29,953) (34,954) (111,034)
---------- ---------- ---------- ---------- ---------- -----------
141,809 303,901 367,683 383,682 606,870 1,692,485
Depreciation and amortization expense.............. 60,205 191,871 232,347 221,316 309,434 653,707
Operating income (loss)............................ (13,019) (86,070) (102,015) (94,429) (97,739) (186,832)
Interest and other income (expense)................ (26,499) (77,895) (101,031) (109,902) (191,449) (212,833)
Net income (loss).................................. (36,602) (114,662) (181,874) (206,051) (285,586) (399,874)
Basic/diluted loss per common share before
extraordinary item and accounting change.......... $ (7.79) $ (16.59) $ (26.31) $ (29.34) $ (9.21) $ (2.35)
Extraordinary item per basic/diluted common
share............................................. (0.37) (0.27) -- (0.25) 0.22 --
Cumulative effect of accounting change per
basic/diluted common share........................ -- -- -- -- (0.11) --
---------- ---------- ---------- ---------- ---------- -----------
Basic/diluted net loss per common share............ $ (8.16) $ (16.86) $ (26.31) $ (29.59) $ (9.10) $ (2.35)
---------- ---------- ---------- ---------- ---------- -----------
OTHER OPERATING DATA:
Capital expenditures, excluding acquisitions....... $ 60,468 $ 165,206 $ 102,769 $ 113,184 $ 113,651 $ 354,808
Cash flows provided by operating activities........ 14,749 37,802 63,590 83,380 99,536 324,832
Cash flows provided by investing activities........ (192,549) (490,626) (102,769) (82,868) (627,166) (420,044)
Cash flows provided by (used in) financing
activities........................................ 179,092 452,678 39,010 (2,207) 529,158 (340,638)
Adjusted earnings before interest, income taxes,
depreciation and amortization..................... $ 47,186 $ 105,801 $ 130,332 $ 141,587 $ 209,495 $ 473,880
Adjusted earnings before interest, income taxes,
depreciation and amortization margin.............. 33% 35% 35% 37% 35% 28%
Units in service at end of period.................. 2,006,000 3,295,000 3,890,000 4,276,000 6,949,000 15,500,000
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.............................................. $ 85,803 $ 205,797
Total assets................................................ 1,353,045 2,931,865
Long-term debt, less current maturities..................... 1,322,508 1,776,718
Stockholders' equity (deficit).............................. (217,559) 714,451
</TABLE>
The following table reconciles net loss to the presentation of Arch's
adjusted earnings before interest, income taxes, depreciation and amortization:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net loss....................................... $(36,602) $(114,662) $(181,874) $(206,051) $(285,586) $(399,874)
Interest and other income (expense)............ 26,499 77,895 101,031 109,902 191,449 212,833
Income tax (benefit) provision................. (4,600) (51,207) (21,172) -- -- 209
Depreciation and amortization.................. 60,205 191,871 232,347 221,316 309,434 653,707
Provision for asset impairment................. -- -- -- -- -- 17,798
Restructuring and bankruptcy
expenses..................................... -- -- -- 14,700 (2,200) (10,793)
Extraordinary item............................. 1,684 1,904 -- 1,720 (6,963) --
Cumulative effect on accounting charge......... -- -- -- -- 3,361 --
-------- --------- --------- --------- --------- ---------
Adjusted earnings before interest, income
taxes, depreciation and amortization......... $ 47,186 $ 105,801 $ 130,332 $ 141,587 $ 209,495 $ 473,880
======== ========= ========= ========= ========= =========
</TABLE>
9
<PAGE> 19
CAPITALIZATION
The PageNet and Arch exchange offers and the merger of PageNet and Arch
will reduce overall debt by approximately $1.6 billion and increase stockholders
equity by approximately $1.5 billion. The following table sets forth: (1) the
capitalization of PageNet and Arch at December 31, 1999; (2) the capitalization
of PageNet as adjusted to give effect to the PageNet exchange offer, assuming
that 100% of the PageNet senior subordinated notes are exchanged, and the
distribution of Vast; and (3) the capitalization of Arch as adjusted to give
effect to the consummation of the Arch exchange offer and merger, assuming 100%
of the currently outstanding Arch discount notes are exchanged, the repurchase
of $157.4 million accreted value of discount notes by Arch during February and
March 2000 in exchange for Arch common stock, and the repurchase of $91.1
million accreted value of discount notes that were under binding agreement at
March 31, 2000. You should read this table together with the other financial
information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED
----------------------- -----------------------
PAGENET ARCH PAGENET ARCH(1)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ARCH CURRENT MATURITIES OF LONG-TERM DEBT................... $ -- $ 8,060 $ -- $ 8,060
---------- ---------- ---------- ----------
PAGENET LONG-TERM DEBT IN DEFAULT:
Credit agreement.......................................... 745,000 -- 745,000 --
8.875% Senior Subordinated notes due February 1, 2006..... 300,000 -- -- --
10.125% Senior Subordinated notes due August 1, 2007...... 400,000 -- -- --
10% Senior Subordinated notes due October 15, 2008........ 500,000 -- -- --
---------- ---------- ---------- ----------
1,945,000 -- 745,000 --
---------- ---------- ---------- ----------
PAGENET OTHER LONG-TERM OBLIGATIONS......................... 58,127 -- 58,127 --
ARCH LONG-TERM DEBT, LESS CURRENT MATURITIES:
Senior bank debt.......................................... -- 430,880 -- 1,220,880
10 7/8% senior discount notes due in 2008................. -- 393,917 -- --
6 3/4% convertible subordinated debentures due 2003....... -- 4,459 -- 4,459
12 3/4% senior notes due 2007............................. -- 127,887 -- 127,887
13 3/4% senior notes due 2008............................. -- 140,365 -- 140,365
9 1/2% senior notes due 2004.............................. -- 125,000 -- 125,000
14% senior notes due 2004................................. -- 100,000 -- 100,000
Other..................................................... -- -- -- 58,127
---------- ---------- ---------- ----------
Total long-term debt (including long-term debt in
default), less current maturities..................... 2,003,127 1,322,508 803,127 1,776,718
---------- ---------- ---------- ----------
PAGENET STOCKOWNERS' EQUITY:
Preferred stock -- $.01 par value, authorized 25,000,000
shares, no shares issued or outstanding...................
Common stock -- $.01 par value, authorized 250,000,000
shares (0 as adjusted), issued and outstanding 103,960,240
shares (720,340,997 as adjusted).......................... 1,040 -- 7,208 --
Additional paid-in capital.................................. 134,161 -- 675,560 --
Accumulated other comprehensive income...................... 745 745 --
Accumulated deficit......................................... (925,785) -- (265,378) --
ARCH STOCKHOLDERS' EQUITY:
Preferred stock -- $.01 par value, authorized 10,000,000
shares, issued and outstanding 250,000 shares ($27,618
aggregate liquidation preference)......................... -- 3 -- 3
Common stock and Class B common stock -- $.01 par value,
authorized 75,000,000 shares (225,000,000 as adjusted),
issued and outstanding 51,231,664 shares (170,766,285 as
adjusted)................................................. -- 512 -- 1,706
Additional paid-in capital.................................. -- 661,413 -- 1,459,515
Accumulated deficit......................................... -- (879,487) -- (746,773)
---------- ---------- ---------- ----------
Total shareholders' equity.............................. (789,839) (217,559) 418,135 714,451
---------- ---------- ---------- ----------
Total capitalization.................................... $1,213,288 $1,113,009 $1,221,262 $2,499,229
========== ========== ========== ==========
</TABLE>
- ---------------
(1) If 1% of the outstanding Arch discount notes are exchanged, total long-term
debt, less current maturities would be $1.9 billion, total stockholders'
equity would be $557.5 million and total capitalization would be $2.5
billion.
10
<PAGE> 20
STOCK OWNERSHIP IN COMBINED COMPANY
The following table sets forth the expected beneficial ownership of Arch
common stock following the merger and the PageNet and Arch exchange offers,
assuming the conversion of all convertible preferred stock of Arch into common
stock:
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP OF
ARCH COMMON STOCK
OUTSTANDING
--------------------------
MAY 10, 2000 AS ADJUSTED
------------ -----------
<S> <C> <C>
Arch stockholders........................................... 100.0% 42.4%
Arch discount noteholders................................... -- 6.5
PageNet stockholders........................................ -- 7.4
PageNet senior subordinated noteholders..................... -- 43.7
----- -----
100.0% 100.0%
===== =====
</TABLE>
Arch stockholders include current noteholders and former noteholders who have
exchanged their notes for common or preferred stock. This table assumes that all
of Arch's discount notes and all of PageNet's senior subordinated notes are
exchanged for common stock prior to the merger. The actual capitalization of
Arch upon closing of the merger may vary from the foregoing table.
NOTEHOLDER AND STOCKHOLDER ACTIONS
PROCEDURE FOR TENDERING SENIOR SUBORDINATED NOTES AND DELIVERY OF CONSENTS
Each holder of senior subordinated notes will receive a letter of
transmittal and other materials and instructions for tendering its notes.
Noteholders holding more than one series of senior subordinated notes will
receive additional materials in order to tender their respective other series of
notes. Such letter of transmittal and other materials will be distinguished by
color as follows:
- 8.875% senior subordinated notes due 2006 in blue;
- 10.125% senior subordinated notes due 2007 in green; and
- 10% senior subordinated notes due 2008 in yellow.
Holders who tender senior subordinated notes in the exchange offer in
accordance with the procedures described below will be deemed to have delivered
a consent to the proposed amendments to the respective indentures.
A registered holder of senior subordinated notes can tender senior
subordinated notes by:
- delivering a properly completed and duly executed letter of transmittal
or manually-signed facsimile thereof, or an agent's message in connection
with a book-entry transfer and any other documents required by the letter
of transmittal, to the exchange agent at the address set forth on the
back cover page of this document; and
- either delivering certificates representing the senior subordinated notes
to the exchange agent or complying with the book-entry transfer
procedures described under "The Exchange Offer -- Book-Entry Transfers,"
on or prior to the expiration date. A registered holder who cannot comply
with these procedures on a timely basis or whose senior subordinated notes
are not immediately available may tender senior
11
<PAGE> 21
subordinated notes pursuant to the guaranteed delivery procedures described
under "The Exchange Offer -- Guaranteed Delivery Procedures."
If the certificates for senior subordinated notes are registered in the
name of a person other than the signer of a letter of transmittal, then, in
order to tender such notes pursuant to the exchange offer, the certificates
representing such senior subordinated notes must be endorsed or accompanied by
appropriate bond powers, signed exactly as the name or names of such holder or
holders appear on the certificates, with the signatures on the certificates or
bond powers guaranteed. In the event such procedures are followed by a
beneficial owner tendering senior subordinated notes, the registered holder or
holders of such senior subordinated notes must sign a valid consent pursuant to
the letter of transmittal, because senior subordinated notes may not be tendered
without also consenting to the proposed amendments to the indenture, and only
holders are entitled to deliver consents.
Any beneficial owner whose senior subordinated notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominees, or
held through a book-entry transfer facility, and who wishes to tender its senior
subordinated notes and deliver a consent to the proposed amendments should
contact such registered holder promptly and instruct such registered holder to
tender its senior subordinated notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such senior subordinated notes himself or
herself, such beneficial owner must either make appropriate arrangements to
register ownership of the notes in such beneficial owner's name prior to
completing and executing the letter of transmittal (and, where applicable,
delivering such notes,) or follow the procedures described in the immediately
preceding paragraph.
To effectively tender senior subordinated notes that are held through The
Depository Trust Company, participants in The Depository Trust Company should
transmit their acceptance through The Depository Trust Company's Automated
Tender Offer Program, for which the transaction will be eligible, and The
Depository Trust Company will then edit and verify the acceptance and send an
agent's message to the exchange agent for its acceptance. Delivery of tendered
senior subordinated notes held through The Depository Trust Company must be made
to the exchange agent pursuant to the book-entry delivery procedures or the
tendering Depository Trust Company participant must comply with the guaranteed
delivery procedures.
VOTING PROCEDURES WITH RESPECT TO THE PREPACKAGED BANKRUPTCY PLAN
PageNet prepared the prepackaged bankruptcy plan as an alternative means to
implement the recapitalization and merger if less than 97.5% of PageNet's senior
subordinated notes are tendered in the exchange offer. THE VALID TENDER OF
SENIOR SUBORDINATED NOTES PURSUANT TO THE EXCHANGE OFFER DOES NOT CONSTITUTE A
VOTE TO ACCEPT THE PREPACKAGED BANKRUPTCY PLAN. For a description of the
procedures for tendering senior subordinated notes and delivery of consents with
respect to the exchange offer see "The Exchange Offer -- Procedures for
Tendering Senior Subordinated Notes and Delivery of Consents."
For the prepackaged bankruptcy plan to be approved by the bankruptcy court,
the Bankruptcy Code requires, among other things, that it be accepted by holders
of two-thirds in amount of, and more than one-half in number of, PageNet's
outstanding senior subordinated notes that are voted in connection with the
prepackaged bankruptcy plan, and by holders of two-thirds of the outstanding
shares of PageNet common stock that are voted in connection with the prepackaged
bankruptcy plan. Because only votes cast for or against the prepackaged
bankruptcy plan are counted, a failure to vote will not be counted, and it is
therefore possible that PageNet may obtain the necessary acceptances of the
prepackaged bankruptcy plan by the votes of substantially less than two-thirds
in amount of and one-half in number of the aggregate outstanding senior
subordinated notes and substantially less than two-thirds of the aggregate
outstanding PageNet common stock.
12
<PAGE> 22
Noteholder procedures for voting to accept or to reject the prepackaged
bankruptcy plan
IT IS IMPORTANT THAT EACH HOLDER OF A SENIOR SUBORDINATED NOTE EXERCISE ITS
RIGHT TO VOTE TO ACCEPT OR TO REJECT PAGENET'S PREPACKAGED BANKRUPTCY PLAN. TO
VOTE TO ACCEPT OR REJECT PAGENET'S PREPACKAGED BANKRUPTCY PLAN EACH NOTEHOLDER
MUST EXECUTE AND DELIVER A BALLOT.
As a PageNet noteholder you will receive from your broker, bank, proxy
intermediary or other nominee, together with this prospectus, a ballot and
related materials and instructions to be used by you to vote to accept or to
reject the prepackaged bankruptcy plan. You will receive a separate ballot and
related voting materials and instructions for each series of PageNet senior
subordinated notes that you own. These ballots and related materials will be
distinguished by color as follows:
- 8.875% senior subordinated notes due 2006 in blue;
- 10.125% senior subordinated notes due 2007 in green; and
- 10% senior subordinated notes due 2008 in yellow.
To vote for or against the prepackaged bankruptcy plan each senior
subordinated noteholder must complete the enclosed ballot and deliver it to your
broker, bank, proxy intermediary or other nominee, or to the information agent,
as indicated on the enclosed return envelope, before the , 2000 voting
deadline. If you have been instructed to return your ballot to your bank,
broker, proxy intermediary or other nominee, or to their agent, you must return
your ballot to them in sufficient time for them to process it and return it to
the information agent before the voting deadline. For purposes of voting to
accept or reject the prepackaged bankruptcy plan, the beneficial owners of the
senior subordinated notes will be deemed to be the "holders" of the claims
represented by such senior subordinated notes. Any senior subordinated note
claim that is voted by a beneficial owner must be voted in its entirety either
to accept or reject the prepackaged bankruptcy plan and may not be split by the
beneficial owner. For a detailed description of voting procedures applicable to
the prepackaged bankruptcy plan, see "The Prepackaged Bankruptcy Plan -- Voting
Instructions and Procedures" and the enclosed ballot.
Stockholder procedures for voting to accept or to reject the prepackaged
bankruptcy plan
SINCE PAGENET MAY SEEK TO IMPLEMENT THE RECAPITALIZATION AND MERGER BY
FILING A CHAPTER 11 CASE AND CONFIRMING THE PREPACKAGED BANKRUPTCY PLAN IT IS
IMPORTANT THAT EACH PAGENET STOCKHOLDER EXERCISE ITS RIGHT TO VOTE TO ACCEPT OR
REJECT PAGENET'S PREPACKAGED BANKRUPTCY PLAN. TO VOTE TO ACCEPT OR REJECT
PAGENET'S PREPACKAGED BANKRUPTCY PLAN EACH STOCKHOLDER MUST EXECUTE AND DELIVER
A BALLOT.
As a PageNet stockholder, if you are the record and beneficial owner of
your PageNet shares, you will receive from the information agent, together with
this prospectus, a ballot and related voting materials and instructions to be
used by you to vote to accept or to reject the prepackaged bankruptcy plan. If
you hold your PageNet stock through a broker, bank, proxy intermediary or other
nominee, you will receive this prospectus and your ballot and related voting
materials and instructions from your broker, bank, proxy intermediary or other
nominee.
To vote for or against the prepackaged bankruptcy plan each PageNet
stockholder must complete the enclosed ballot and deliver it to your bank,
broker, proxy intermediary or other nominee, or to the information agent, as
provided in the enclosed return envelope, before the , 2000 voting
deadline. If you have been instructed to return your ballot to your broker,
bank, proxy intermediary or other nominee, or to their agent, you must return
your ballot to them in sufficient time for them to process it and return it to
the information agent before the voting deadline. For purposes of voting to
accept or reject the prepackaged bankruptcy plan, the beneficial holders of
PageNet common stock will be deemed to be the "holders" of the interests
represented by such common stock. Any stockholder interest that is voted by a
beneficial owner must be voted in its entirety either to accept or reject the
prepackaged bankruptcy plan and may not be split by a beneficial owner. For a
detailed description of voting procedures applicable to the prepackaged
bankruptcy plan, see "The Prepackaged Bankruptcy Plan -- Voting Instructions and
Procedures" and the enclosed ballot.
13
<PAGE> 23
RISK FACTORS
RISKS RELATED TO EXCHANGING SENIOR SUBORDINATED NOTES FOR COMMON STOCK
PageNet noteholders will lose all of their contractual rights and will be more
vulnerable if future adverse developments in Arch's business occur
PageNet noteholders who exchange their notes and ultimately receive Arch
common stock will lose the senior position and the specific rights that they had
as holders of PageNet debt securities. As holders of Arch common stock, the
PageNet noteholders will suffer more from future adverse developments relating
to the combined company's financial condition or results of operations than they
would as holders of debt securities.
The exchange ratio used in the exchange offer may prove to be unfavorable to
PageNet noteholders
The exchange ratio for senior subordinated notes used in the exchange offer
was determined by PageNet, after consultation with its financial advisor,
Houlihan Lokey Howard & Zukin Capital, on the basis that PageNet should use an
exchange ratio reasonably expected to result in acceptance by the required
number of noteholders. No negotiation took place between PageNet and any of the
holders of senior subordinated notes. The exchange ratio is not necessarily
related to trading prices for PageNet's or Arch's common stock or other
recognized criteria of value for common stock such as assets, net worth or
results of operations, or to trading prices for the notes or the principal
amount of the notes. The market value of the shares of Arch common stock
ultimately issued in the merger may fall below their current market value and
below the valuation that may be implied for them by the exchange ratio. Prices
may fall during the period between the time PageNet noteholders tender notes and
the time PageNet noteholders take delivery of the Arch common stock. Prices may
also fall at any time afterwards.
Trading prices of Arch's common stock may continue to be volatile
The market price of Arch's common stock has fluctuated substantially since
1998. Between January 1, 1998 and May 10, 2000, the reported sale price of
Arch's common stock on the Nasdaq National Market System ranged from a high of
$20.8125 per share in April 1998 to a low of $2.0625 per share in October 1998.
On May 10, 2000, the closing price of Arch's common stock was $6.0625 per share.
The trading price of Arch common stock following the closing of the exchange
offers and the merger will be affected by many factors. These include the risk
factors described in this prospectus, as well as prevailing economic and
financial trends and conditions in the public securities markets. Share prices
of wireless communications companies such as Arch have exhibited a high degree
of volatility during recent periods. Shortfalls in revenues or in earnings
before interest, income taxes, depreciation and amortization from the levels
anticipated by the public markets could have an immediate and significant
adverse effect on the trading price of Arch's common stock in any given period.
Shortfalls may result from events that are beyond Arch's control and can be
unpredictable. The trading price of Arch's shares may also be affected by
developments which may not have any direct relationship with Arch's business or
long-term prospects. These include reported financial results and fluctuations
in the trading prices of the shares of other publicly held companies in the
wireless communications industry.
Approximately 31.7 million shares of Arch's common stock may be issued in the
future. This could cause the market price of Arch common stock to drop
significantly, even if Arch's business is doing well
On May 10, 2000, 66.4 million shares of Arch common stock and Arch Class B
common stock were issued and outstanding. In addition, 28.1 million shares of
Arch common stock were issuable upon conversion of convertible securities and
exercise of warrants and stock options, including PageNet options to be assumed
by Arch and 3.6 million shares of Arch common stock were issuable in a
transaction that has not yet closed. Arch's issuance of these shares will
substantially dilute the proportionate equity interests of the holders of Arch
common stock. Having these shares available for resale in the public securities
markets, and particularly the perception that substantial numbers of shares
might be resold, could depress prevailing market prices of Arch common stock.
14
<PAGE> 24
Arch's charter provisions may impede takeovers of Arch that might benefit Arch
stockholders
Arch's certificate of incorporation and bylaws provide for:
- a board of directors divided into three classes which are elected for
three-year terms;
- the issuance of "blank check" preferred stock whose terms may be fixed by
Arch's board of directors without further stockholder approval;
- a prohibition on stockholder action by written consent in lieu of a
meeting; and
- procedural requirements governing stockholder meetings.
Arch also has a stockholders rights plan. In addition, Section 203 of the
Delaware corporations statute will, with some exceptions, prohibit Arch from
engaging in any business combination with any "interested stockholder" for a
three-year period after such stockholder becomes an interested stockholder.
These provisions may have the effect of delaying, making more difficult or
preventing a change in control or acquisition of Arch even though a transaction
like that might be beneficial to Arch's stockholders.
If a PageNet noteholder does not tender its notes, the notes that it retains
will have substantially fewer rights than they currently have and may leave
the noteholder unprotected in the future.
We are soliciting the approval of the holders of senior subordinated notes
to amendments that include the elimination of substantially all rights of the
notes other than the right to receive payments of principal and interest.
Approval of these amendments is a condition to the merger and the exchange
offer. If PageNet noteholders decide not to tender all or some of their notes,
the notes that they retain will no longer have any of these additional rights if
the merger and the exchange offer are completed. Their position as noteholders
may suffer if any developments occur which these additional rights were designed
to protect them against, such as distributions to stockholders or unfavorable
business combinations.
RISKS RELATED TO THE MERGER
Challenges involved in integrating Arch and PageNet may strain Arch's
capacities and may prevent the combined company from achieving intended
synergies
Arch may not be able to successfully integrate PageNet's operations. The
combination of the two companies will require, among other things, coordination
of administrative, sales and marketing, customer billing and services
distribution and accounting and finance functions and expansion of information
and management systems. The difficulties of such integration will initially be
increased by the need to coordinate geographically separate organizations and to
integrate personnel with disparate business backgrounds and corporate cultures
and by the fact that PageNet has suspended a significant restructuring of its
own operations. The fact that Arch is still engaged in the process of
integrating the operations of MobileMedia Communications Inc., a paging and
wireless messaging company it acquired in June 1999, into those of Arch will
increase the difficulty of integrating PageNet's operations.
The integration process could cause the disruption of the activities of the
two businesses that are being combined. Arch may not be able to retain key
employees of PageNet. The process of integrating the businesses of Arch and
PageNet may require a disproportionate amount of time and attention of Arch's
management and financial and other resources of Arch. Even if integrated in a
timely manner, there is no assurance that Arch will operate smoothly or that it
will fulfill management's objective of achieving cost reductions and synergies.
Until integration is complete, PageNet's business will continue to operate with
some autonomy. This degree of autonomy may blunt the implementation of Arch's
operating strategy.
PageNet's operations may be disrupted by a bankruptcy filing
Some customers and potential customers and vendors may be reluctant to do
business with PageNet if it commences a chapter 11 proceeding. Any significant
loss of customers or vendors, or other
15
<PAGE> 25
deterioration in PageNet's business could adversely effect PageNet's revenues
and operations, which, in turn, would adversely impact Arch if the merger is
consummated through a chapter 11 proceeding.
Costs of the merger may exceed the levels that Arch and PageNet anticipate
Arch estimates that it will incur direct transaction and closing costs of
approximately $45.0 million associated with the merger and related transactions.
This amount is a preliminary estimate and is therefore subject to change. It is
quite possible that Arch will incur significant additional unforeseen costs in
connection with the merger which will impose an added burden on the combined
company.
The combined company may not achieve the level of cash flow that management
projects
The managements of PageNet and Arch have jointly prepared the combined
company financial projections contained in Annex E to this prospectus because
they are required for the filing under chapter 11 that PageNet may make in order
to implement the merger. These projections assume that the merger and related
transactions will be implemented in accordance with their current terms and
present the projected effects of the prepackaged bankruptcy plan on future
operations if the exchange offers and merger are consummated. The assumptions
and estimates underlying the projections are inherently uncertain and are
subject to significant business, economic and competitive risks and
uncertainties. Accordingly, future financial condition and results of operations
of the combined company following the merger may vary significantly from those
set forth in the projections. Consequently, the projections should not be
regarded as a representation by PageNet, Arch, their advisors or any other
person that the projections will be achieved. See "Forward-Looking Statements."
If the projected results are not achieved, Arch's operating losses may be larger
and the trading price of Arch's common stock may suffer.
Pro forma assumptions about results of the exchange offers and trading prices
may prove to be too optimistic
For purposes of presenting the projections and the pro forma condensed
consolidated financial statements included in this prospectus, Arch and PageNet
have assumed that 100% of Arch discount notes and 100% of PageNet senior
subordinated notes will be tendered and accepted in the exchange offer. However,
the tender of the Arch notes is not a condition to the merger and the merger may
still take place if a smaller amount of PageNet notes are tendered. If some of
the notes remain outstanding, Arch will be more leveraged than is indicated in
the projections and pro forma financial statements. In addition, the pro forma
financial statements value PageNet's assets based on a trading value of $6.02
per share, which was the average closing price of Arch common stock for the four
trading days prior to and the four trading days following the announcement of
the merger. Trading prices for common stock fluctuate, and no prediction can be
made as to what prices will prevail before or after the merger takes place. On
May 10, 2000, the closing market price of Arch's common stock was $6.0625. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements." If trading
prices after the merger are less than $6.02 per share, the recorded value of
Arch's assets will not be modified, and their recorded value will be greater
than their value would be if that value were to be based on trading prices after
the merger.
Amortization charges from the PageNet merger and Arch's earlier acquisition of
MobileMedia may reduce Arch's earnings sooner than management expects
Under purchase accounting treatment for the PageNet merger and the
acquisition of MobileMedia in 1999, Arch must record a substantial amount of
goodwill and other intangible assets. This will result in substantial
amortization charges to the consolidated income of Arch over the useful lives of
those assets. Arch estimates the amount of those charges will total
approximately $54.4 million per year for ten years. However, actual charges in
the early years could be greater, and could adversely affect reported results of
operations more than is currently anticipated, if the underlying assets are
impaired or if the useful lives of the assets are less than currently estimated.
16
<PAGE> 26
Volatility of Arch and Vast stock prices could adversely affect tax
consequences of the merger to PageNet stockholders and noteholders
As described above, stock prices of both Arch and Vast may be subject to
high volatility. Tax counsels' opinions that the merger will constitute a
tax-free reorganization are conditioned on the accuracy of representations from
PageNet and Arch that the value of the Arch common stock to be issued in the
merger will represent more than half of the value of all consideration to be
received in the transaction, considering the following factors:
- the value of the Class B common stock of Vast;
- cash paid to dissenters with respect to perfected appraisal rights;
- cash paid instead of fractional shares; and
- any other property received in connection with the merger.
If Arch common stock is materially less than 50 percent in value of the
total consideration, based on actual trading values on the closing date of the
merger, it is possible that the merger would be fully taxable to PageNet
stockholders and noteholders. Also, if values of Arch or Vast are higher than
expected, tax obligations of Arch and PageNet could be materially greater. See
"Material Federal Income Tax Considerations".
The merger will probably eliminate corporate tax benefits that Arch might
otherwise utilize in the future
It is anticipated that the merger and the PageNet and Arch exchange offers
will result in the elimination of substantially all of the tax benefit of net
operating loss carryforwards and certain other tax attributes available to
PageNet and Arch, and also will result in some out-of-pocket tax liability. See
"Material Federal Income Tax Considerations." If Arch generates any taxable
income in the future, the net operating loss carryforwards will no longer be
available to shelter it.
The merger may not take place. If it does not take place, PageNet will incur
substantial costs and its investors will not enjoy the anticipated benefits of
the merger
The merger will not take place unless many conditions are satisfied or
waived. These conditions include stockholder and noteholder approvals,
governmental approvals and the availability of senior credit facilities. See
"The Merger Agreement -- Conditions to Obligations to Effect the Merger."
Moreover, PageNet may be required to file a prepackaged bankruptcy plan to
implement the merger. There can be no assurance that the prepackaged bankruptcy
plan would be approved by the bankruptcy court if filed. If the merger does not
take place, the contemplated benefits of the merger will not be realized, and
PageNet noteholders and stockholders will retain their interest as senior
subordinated noteholders or stockholders in a company which will not enjoy the
anticipated benefits of the merger despite incurring substantial transaction
costs. If the merger does not take place for certain specified reasons and Arch
decides to terminate the merger agreement, PageNet may be required to pay a $40
million termination fee to Arch. See "The Merger Agreement -- Termination Fee."
In addition, if the merger is not consummated, PageNet will have to pursue other
alternatives which could include liquidation of PageNet under chapter 7 or
chapter 11 of the Bankruptcy Code or confirmation of an alternative plan of
reorganization under chapter 11 of the Bankruptcy Code. The recovery to
noteholders and stockholders under such alternative scenarios cannot be
predicted.
17
<PAGE> 27
RISKS RELATED TO ARCH'S BUSINESS
Continued net losses are likely and Arch cannot predict whether it will ever
be profitable
PageNet and Arch have reported net losses in the past. Arch expects that
the combined company will continue to report net losses and cannot give any
assurance about when, if ever, it is likely to attain profitability.
PageNet and Arch have reported net losses in all of the periods shown in
the table below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income (loss):
PageNet........................................... $(156.9) $(162.0) $(299.0)
Arch.............................................. $(181.9) $(206.1) $(285.6)
</TABLE>
These historical net losses have resulted principally from substantial
depreciation and amortization expense, primarily related to intangible assets
and messaging device depreciation, interest expense, the impairment of
long-lived assets, and other costs of growth and, in the case of PageNet,
significant restructuring costs.
Many of the factors that will determine whether or not Arch attains
profitability are inherently difficult to predict. These include competition,
subscriber turnover, new service developments and technological change, both
before and after the merger.
Arch's revenues and operating results may fluctuate, leading to fluctuations
in trading prices and possible liquidity problems
Arch believes that future fluctuations in its revenues and operating
results may occur due to many factors. Arch's current and planned expenses and
debt repayment levels are, to a large extent, fixed in the short term, and are
based in part on its expectations as to future revenues and cash flow growth.
Arch may be unable to adjust spending in a timely manner to compensate for any
revenue or cash flow shortfall. It is possible that, due to future fluctuations,
Arch's revenue, cash flow or operating results may not meet the expectations of
securities analysts or investors. This may have a material adverse effect on the
price of Arch's common stock. If shortfalls were to cause Arch not to meet the
financial covenants contained in its debt instruments, the debtholders could
declare a default and seek immediate repayment.
18
<PAGE> 28
Arch's leverage may continue to burden its operations
Arch has been highly leveraged, and will remain leveraged to a substantial
degree following the merger. The following table compares the total debt, total
assets and latest three-month annualized adjusted earnings before interest,
income taxes, depreciation and amortization of PageNet and Arch as of December
31, 1999 and the pro forma total debt, total assets and adjusted earnings before
interest, income taxes, depreciation and amortization of the combined company as
of December 31, 1999, assuming the exchange of all PageNet senior subordinated
notes.
<TABLE>
<CAPTION>
PRO PRO
FORMA FORMA
COMBINED COMBINED
PAGENET ARCH COMPANY(1) COMPANY(2)
-------- -------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Total debt.................................... $2,003.1 $1,330.6 $1,928.8 $1,784.8
Total assets.................................. $1,422.6 $1,353.0 $2,931.9 $2,931.9
Cash flows from operating activities.......... $ 77.9 $ 99.5 $ 324.8 $ 324.8
Cash flows from investing activities.......... $ (237.3) $ (627.2) $ (420.0) $ (420.0)
Cash flows from financing activities.......... $ 188.5 $ 529.2 $ (340.6) $ (340.6)
Adjusted earnings before interest, income
taxes, depreciation and amortization........ $ 206.0 $ 209.5 $ 473.9 $ 473.9
</TABLE>
- ---------------
(1) Assumes exchange of 1% of Arch's currently outstanding discount notes for
Arch common stock, as well as notes which have been exchanged in negotiated
transactions since December 31, 1999.
(2) Assumes exchange of all of Arch's discount notes for Arch common stock.
Adjusted earnings before interest, income taxes, depreciation and
amortization is not a measure defined in generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. Adjusted earnings before interest, income taxes,
depreciation and amortization, as determined by PageNet and Arch, may not
necessarily be comparable to similarly titled data of other wireless messaging
companies.
Leverage may have the following adverse consequences for Arch:
- This leverage may impair Arch's ability to obtain additional financing
necessary for acquisitions, working capital, capital expenditures or
other purposes on acceptable terms, if at all.
- A substantial portion of Arch's cash flow will be required to pay
interest expense; this will reduce the funds which would otherwise be
available for operations and future business opportunities.
- Arch's credit facilities and indentures contain financial and restrictive
covenants; the failure to comply with these covenants may result in an
event of default which could have a material adverse effect on Arch if
not cured or waived.
- Any degree of leverage will make Arch more vulnerable to a downturn in
its business or the economy generally than if it were not as leveraged.
Arch may not be able to reduce its financial leverage as it intends, and may not
be able to achieve an appropriate balance between growth which it considers
acceptable and future reductions in financial leverage. If Arch is not able to
achieve continued growth in earnings before interest, income taxes, depreciation
and amortization, it may be precluded from incurring additional indebtedness due
to cash flow coverage requirements under existing or future debt instruments.
19
<PAGE> 29
Arch may need additional capital to expand its business which could be
difficult to obtain
Arch's business strategy requires substantial funds to be available to
finance the continued development and future growth and expansion of its
operations, including possible acquisitions. Arch's future capital requirements
will depend upon factors that include:
- subscriber growth;
- the type of wireless communications devices and services demanded by
customers;
- technological developments;
- marketing and sales expenses;
- competitive conditions;
- the scope and timing of Arch's strategy for developing technical
resources to provide advanced messaging services; and
- acquisition strategies and opportunities.
Arch cannot be certain that additional equity or debt financing will be
available to Arch when needed on acceptable terms, if at all. If sufficient
financing is unavailable when needed, Arch may be unable to develop or enhance
its products, take advantage of future opportunities, grow its business or
respond to competitive pressures or unanticipated needs.
Competition and technological change may undermine Arch's market position and
adversely affect its results of operations
The combined company may not be able to compete successfully with current
and future competitors in the wireless communications business or with
competitors offering alternative communication technologies. In particular:
- Competition from large companies may intensify and may reduce Arch's
revenues and operating margins
The combined company may face significant additional competition in
the future. This could have a material adverse effect on its revenues and
earnings before interest, income taxes, depreciation and amortization. Some
competitors possess greater financial, technical and other resources than
those available to the combined company. Increased competition from
companies like MCI WorldCom and AT&T, which have traditionally provided
telephone service, and from cellular, PCS and other companies, like Nextel,
which have historically provided telephone services to mobile subscribers,
has led to competition from increasingly larger and better capitalized
competitors. In addition, competition from other well capitalized service
providers such as BellSouth Wireless Data and American Mobile Satellite
Corporation is also increasing. The combined company will also compete with
other paging companies that continue to offer messaging and advanced
messaging services. If any of such competitors were to devote additional
resources to their wireless communications business or focus on PageNet's
or Arch's historical business segments, they could secure the combined
company's customers and reduce demand for its products. This could
materially reduce the combined company's revenues and operating margins.
- New send-and-receive wireless messaging technology may adversely affect
Arch's competitive position
Competitors are currently using and developing a variety of wireless
messaging technologies which allow subscribers to both send-and-receive
messages from the same device. Arch and PageNet currently resell
send-and-receive messaging services over the network of a competitor, and
PageNet recently began selling such services over its own advanced wireless
messaging network. Due to the relatively recent availability of
send-and-receive messaging products and services, there have not yet
20
<PAGE> 30
been sales which would be sufficient to indicate a proven demand for such
services among business or consumer subscribers. Such services will compete
with other available mobile wireless services which have already
demonstrated high levels of market acceptance, including cellular, PCS and
other mobile phone services, such as those offered by Nextel, whose
hand-held devices can send and receive messages. Many of these other mobile
wireless phone services now include wireless messaging as an adjunct
service or may replace send-and-receive messaging services entirely. It is
less expensive for an end user to obtain a cellular, PCS or other mobile
phone with modest data capability than to use both a mobile phone and a
pager. This is because the nationwide cellular, PCS and other mobile phone
carriers have subsidized the purchase of mobile phones and because prices
for mobile wireless services have been declining rapidly. In addition, the
availability of coverage for these services has increased, making the two
types of services and product offerings more comparable.
Future technological advances in the telecommunications industry,
including these send-and-receive messaging technologies, could increase the
number and type of new services or products which compete with the wireless
messaging services historically offered by Arch and PageNet. Companies
seeking to provide wireless communications through these and other
technologies may bring their products to market faster or in packages of
products that consumers and businesses find more valuable than those which
Arch and PageNet propose to provide.
- Obsolescence in company-owned units may impose additional costs on Arch
Technological change may also adversely affect the value of the units
owned by PageNet and Arch that are leased to their subscribers. If
PageNet's or Arch's current subscribers request more technologically
advanced units, including send-and-receive units, the combined company
could incur additional inventory costs and capital expenditures if required
to replace units leased to its subscribers within a short period of time.
Such additional costs or capital expenditures could have a material adverse
effect on the combined company's results of operations.
All of these factors could reduce Arch's market share and adversely affect
its revenues and operating margins.
Government telecommunications regulation may burden Arch's operations and
undermine Arch's competitive position. The combined company will be required to
relinquish some of its narrowband PCS licenses unless current regulations are
modified.
The Federal Communications Commission has granted licenses to both PageNet
and Arch which enable each company to provide messaging services using radio
spectrum referred to as "narrowband PCS." Once the merger takes place, the
combined company will hold a total of five narrowband PCS licenses in violation
of the Federal Communications Commission's three-channel narrowband PCS limit.
The Federal Communications Commission has required the combined company to
divest 2 of its 5 nationwide narrowband PCS channels within 90 days after the
merger takes place. The Commission is currently considering whether to eliminate
its three-channel limit. If the limit is revised, the combined company may be
allowed to retain all 5 of its narrowband PCS licenses. If the restriction is
not removed and the combined company is required to divest two of its narrowband
PCS channels, the company will have less spectrum to use to provide the services
it needs to provide to compete with other wireless messaging providers such as
cellular and PCS providers.
Arch's licenses may not be automatically renewed
Arch's Federal Communications Commission paging licenses are for varying
terms of up to 10 years. Before the end of each license term, renewal
applications must be approved by the Federal Communications Commission. To date,
the Commission has approved each assignment and transfer of control for which
Arch has sought approval, but no assurance can be given that any future renewal
applications will be free of challenge or will be granted by the Commission.
Loss of licenses would impair Arch's operations.
21
<PAGE> 31
Because Arch depends on third parties that it does not control for products
and services, Arch's operations may be disrupted
Arch does not manufacture any of the equipment customers need to take
advantage of its services. It is dependent primarily on Motorola, Inc. and NEC
America Inc. to obtain sufficient equipment inventory for new subscribers and
replacement needs and on Glenayre Electronics, Inc. and Motorola for sufficient
terminals and transmitters to meet its expansion and replacement requirements.
Significant delays in obtaining equipment, terminals or transmitters, such as
MobileMedia experienced before its bankruptcy filing, could lead to disruptions
in operations and adverse financial consequences. Motorola has announced its
intention to discontinue manufacturing transmitters and other paging
infrastructure during 2000, although it will continue to maintain and service
existing infrastructure into the future. Arch's purchase agreement with Motorola
expires on March 17, 2001. There can be no assurance that the agreement with
Motorola will be renewed or, if renewed, that the renewed agreement will be on
terms and conditions as favorable to the combined company as those under the
current agreement.
Arch relies on third parties to provide satellite transmission for some
aspects of its wireless communications services. To the extent there are
satellite outages or if satellite coverage is impaired in other ways, Arch may
experience a loss of service until such time as satellite coverage is restored,
which could have a material adverse effect due to customer complaints.
Declines in Arch's units in service are likely
Cancellation of units in service can significantly affect the results of
operations of wireless communications service providers. The sales and marketing
costs associated with attracting new subscribers are substantial compared to the
costs of providing service to existing customers. Because the wireless
communications business is characterized by high fixed costs, cancellations
directly and adversely affect earnings before interest, income taxes,
depreciation and amortization. In 1999, Arch experienced a decrease of 89,000
units in service, excluding the addition of subscribers from the MobileMedia
acquisition. Arch believes that the traditional paging industry grew only 4%
during 1999, that demand for basic paging services will decline in 2000 and in
the following years and that any significant future growth in the paging
industry will be attributable to advanced messaging services. As a result, Arch
believes that it will experience a net decline in the number of its units in
service in 2000, excluding the addition of subscribers from the PageNet
acquisition, as Arch's addition of advanced messaging subscribers is likely to
be exceeded by its loss of basic paging subscribers.
Loss of key personnel could adversely impact Arch's operations
Arch's success will depend, to a significant extent, upon the continued
services of a relatively small group of executive personnel. Arch does not have
employment agreements with any of its current executive officers, or maintain
life insurance on their lives, although all executive officers have entered into
executive retention agreements with Arch. The loss or unavailability of one or
more of its executive officers or the inability to attract or retain key
employees in the future could have a material adverse effect on Arch.
Restrictions under Arch's debt instruments may prevent Arch from taking
actions which its management considers beneficial
Various debt instruments impose operating and financial restrictions on
Arch. Arch's senior credit facility requires various Arch operating subsidiaries
to maintain specified financial ratios, including a maximum leverage ratio, a
minimum interest coverage ratio, a minimum debt service coverage ratio and a
minimum fixed charge coverage ratio. The senior credit facility was amended and
restated on March 23, 2000 to permit the PageNet merger and includes a
restriction on capital expenditures and a minimum revenue test. In addition, the
senior credit facility limits or restricts, among other things, Arch's operating
subsidiaries' ability to:
- declare dividends or repurchase stock;
- incur or pay back indebtedness
22
<PAGE> 32
- engage in mergers, consolidations, acquisitions and asset sales; or
- alter its lines of business or accounting methods.
Arch's ability to comply with such covenants may be affected by events
beyond its control, including prevailing economic and financial conditions. A
breach of any of these covenants could result in a default under the senior
credit facility and/or other debt instruments. Upon the occurrence of an event
of default, the creditors could elect to declare all amounts outstanding to be
immediately due and payable, together with accrued and unpaid interest. If Arch
were unable to repay any such amounts, the senior creditors could proceed
against any collateral securing the indebtedness. If the lenders under the
senior credit facility or other debt instruments accelerated the payment of such
indebtedness, there can be no assurance that the assets of Arch would be
sufficient to repay in full such indebtedness and other indebtedness of Arch. In
addition, because the senior credit facility and other debt instruments limit
Arch's ability to engage in some types of transactions, Arch may be prohibited
from entering into transactions that could be beneficial to Arch.
RISKS RELATED TO PAGENET'S BUSINESS
PageNet faces many of the same risks that Arch faces. In addition, PageNet
is subject to these particular risks:
PageNet may be required to restructure its obligations under the Bankruptcy
Code
If PageNet is unable to improve its operating results, it may not have
sufficient cash to meet its obligations through the consummation of the merger.
While PageNet is currently managing its operations in an effort to ensure that
it has sufficient liquidity through the consummation of the merger, there can be
no assurance that such efforts will be successful. If PageNet's strategies to
maintain liquidity are not successful, or the merger is delayed, PageNet may be
required to commence a proceeding under chapter 11 of the Bankruptcy Code to
restructure its obligations, including its obligations under the PageNet senior
subordinated notes. Such a proceeding would likely have a different result than
the prepackaged bankruptcy filing contemplated by the merger and prepackaged
bankruptcy plan.
Further, on February 2, 2000, PageNet failed to make the semi-annual
interest payments on two series of its senior subordinated notes. As of March 2,
2000, the non-payment of interest constituted a default under the indentures for
those notes. On April 17, 2000, PageNet failed to make the semi-annual interest
payment on the other series of its senior subordinated notes, and does not
expect to make additional cash interest payments on any of its senior
subordinated notes. As a result of these defaults, the holders of the senior
subordinated notes could demand at any time that PageNet immediately pay $1.2
billion of outstanding senior subordinated notes in full. Should this happen,
PageNet would be required to file for protection under chapter 11 of the
Bankruptcy Code.
Finally, based upon PageNet's operating results for the fourth quarter of
1999, PageNet is no longer in compliance with the covenants in its bank credit
facility. As a result, the lenders have various rights, including the right to
accelerate all outstanding indebtedness and institute an involuntary bankruptcy
proceeding against PageNet.
The restructuring of PageNet's back office field operations has been suspended
and will not result in the cost savings that were originally contemplated
Beginning in 1998, PageNet began restructuring its decentralized back
office field operations into centralized processing facilities. In January 2000,
PageNet suspended future conversions of its back office field operations, at
which time PageNet had converted 100% of its customer units placed in service
indirectly through PageNet's resellers, and approximately 50% of its directly
marketed customer units, to its centralized facilities. The suspension of future
conversions, combined with the impact of the contemplated merger on operations,
will make it difficult for PageNet to determine the amount of potential
23
<PAGE> 33
cost savings resulting from the restructuring initiative or to realize the full
benefits intended to be achieved.
Continued declines in PageNet's units in service are likely
PageNet had approximately 8,991,000 units in service at December 31, 1999,
down from its high of approximately 10,604,000 units in service at June 30,
1998. PageNet has had a net reduction in the number of units in service during
each of the six previous quarters ended December 31, 1999, and the amount of
such net reduction has increased during each quarter. Units in service further
declined significantly in the first quarter of 2000 and are expected to continue
to decline throughout 2000. The net reduction of units in service with
subscribers is due to a combination of factors, including customer service
problems, the impact of various price increases by PageNet, increased sales
activity by competitors since the merger announcement, and an increasing number
of paging customers who are choosing cellular, PCS and other mobile phone
services instead of paging services. The sales and marketing efforts associated
with attracting new subscribers are substantial compared to the costs of
providing service to existing customers. Because the wireless messaging business
is characterized by high fixed costs, cancellations directly and adversely
affect earnings before interest, income taxes, depreciation and amortization.
The continued failure to reverse this trend of accelerating customer
cancellations will have a material adverse effect on PageNet's business.
PageNet may be delisted from the Nasdaq SmallCap Market prior to the
completion of the merger, reducing trading liquidity for its shares of common
stock.
On April 20, 2000, PageNet was notified by Nasdaq that it would be delisted
from the Nasdaq SmallCap Market on May 1, 2000 unless its Form 10-K was filed
with the Securities and Exchange Commission by April 27, 2000. PageNet filed its
Form 10-K on May 4, 2000. PageNet has requested an oral hearing before the
Nasdaq Listing Qualifications Panel and delisting has been stayed pending such
hearing. The hearing is scheduled for June 1, 2000.
RISKS RELATED TO VAST
If PageNet completes its merger with Arch, PageNet noteholders who
participate in the exchange offer, as well as all PageNet stockholders, will
receive Class B common stock of Vast, currently a wholly owned subsidiary of
PageNet. An investment in Vast involves numerous risks. These risks are
described under "Risk Factors" in the prospectus relating to Vast attached as
Annex A.
RISKS RELATING TO THE POSSIBLE PREPACKAGED BANKRUPTCY FILING
Confirmation of the prepackaged bankruptcy plan could be delayed
The Bankruptcy Code provides that votes by creditors and stockholders to
accept or reject a plan of reorganization obtained before the filing of a
chapter 11 case are binding so long as the solicitation of such votes complied
with applicable nonbankruptcy law governing the adequacy of disclosure in
connection with such solicitations. The Bankruptcy Court could conclude that
this prospectus does not meet the disclosure requirements of the Bankruptcy Code
and require PageNet to resolicit acceptances of the prepackaged bankruptcy plan
from PageNet noteholders and stockholders after PageNet's commencement of the
prepackaged chapter 11 case. In such event, confirmation of the prepackaged
bankruptcy plan, and the receipt by noteholders and stockholders of the
distributions to be made to them under the prepackaged bankruptcy plan, would be
delayed.
The prepackaged bankruptcy plan may not be confirmed
- The prepackaged bankruptcy plan may not be confirmed if the noteholders
or stockholder classes do not vote to accept it
24
<PAGE> 34
Under the Bankruptcy Code, a class of claims accepts a plan if at
least 66 2/3% in amount and a majority of the number of claims voted in the
class, vote to accept the plan. A class of stockholders accepts a plan if
at least 66 2/3% of the shares voted in the class vote to accept the plan.
If PageNet's noteholders or stockholders do not vote to accept the
prepackaged bankruptcy plan, PageNet nevertheless could seek to confirm the
prepackaged bankruptcy plan. The Bankruptcy Court may confirm the
prepackaged bankruptcy plan at PageNet's request pursuant to the "cramdown"
provisions of the Bankruptcy Code which allow the Bankruptcy Court to
confirm a plan that has been rejected by an impaired class of claims or
equity interests if it determines that the rejecting class is being treated
appropriately given the relative priority of the claims or equity interests
in such class. In order to confirm a plan against a dissenting class, the
Bankruptcy Court must also find that at least one impaired class has
accepted the plan, with such acceptance being determined without including
the acceptance of any "insider" in such class.
Specifically, to confirm the prepackaged bankruptcy plan through a
cramdown against PageNet's noteholders or stockholders, the Bankruptcy
Court must determine:
- if the noteholder class does not accept the prepackaged bankruptcy
plan -- that the noteholders will receive under the plan property with a
value as of the effective date of the prepackaged bankruptcy plan equal
to 100% of the allowed noteholder claims and that, absent a proper
business justification, no claims in another class of equal priority, if
any, will receive more value on account of their claims than the
noteholders will receive on account of their claims; and
- if the stockholder class does not accept the prepackaged bankruptcy
plan -- that no class of claims, including the noteholder claims, will
receive under the prepackaged bankruptcy plan property of a value as of
the effective date of the prepackaged bankruptcy plan that exceeds 100%
of the allowed claims in such classes.
See "The Prepackaged Bankruptcy Plan -- Confirmation of the
Prepackaged Bankruptcy Plan Without Acceptance by All Classes of Impaired
Claims." There can be no assurance that the Bankruptcy Court will make the
factual findings and reach the legal conclusions required to permit
confirmation of the prepackaged bankruptcy plan through a cramdown.
- The prepackaged bankruptcy plan may not be confirmed if the Bankruptcy
Court finds it does not meet the confirmation requirements of the
Bankruptcy Code
Even if the requisite acceptances to the prepackaged bankruptcy plan
are received from PageNet's noteholders and its stockholders, there can be
no assurance that the Bankruptcy Court will confirm the prepackaged
bankruptcy plan. A non-accepting noteholder or stockholder of PageNet might
object to confirmation by asserting that the disclosure with respect to the
solicitation of acceptances was not adequate, the solicitation procedures
and results were inadequate or improper, or the terms of the prepackaged
bankruptcy plan do not comply with any of the confirmation requirements of
the Bankruptcy Code. Even if the prepackaged bankruptcy plan is accepted by
all classes of claims and equity interests, confirmation standards require,
among other things:
- a finding by the Bankruptcy Court that the prepackaged bankruptcy plan
was filed in good faith;
- that confirmation of the prepackaged bankruptcy plan is not likely to be
followed by a liquidation or a need for further financial reorganization;
and
- that the value of distributions to each holder of a claim or interest
will not be less than the value of any distribution that such holder
would receive if PageNet were liquidated under chapter 7 of the
Bankruptcy Code.
See "The Prepackaged Bankruptcy Plan -- Confirmation of the
Prepackaged Bankruptcy Plan Without Acceptances by All Classes of Impaired
Claims" and "The Prepackaged Bankruptcy Plan -- Confirmation Standards." It
could be argued that certain provisions of the prepackaged bankruptcy plan
providing releases by PageNet to the holders of senior secured bank claims
against PageNet, to Arch and to the officers and directors of PageNet are
broader than permitted under certain case law.
25
<PAGE> 35
There can be no assurance that the Bankruptcy Court will conclude that the
statutory confirmation requirements have been met.
The confirmation and consummation of the prepackaged bankruptcy plan
are also subject to a number of other conditions including satisfaction of
all conditions to the merger. See "The Prepackaged Bankruptcy
Plan -- Summary of Other Provisions of the Prepackaged Bankruptcy Plan."
If the prepackaged bankruptcy plan is not confirmed, the ultimate recovery by
noteholders and stockholders cannot be predicted
If the prepackaged bankruptcy plan is not confirmed in a timely manner, the
merger might not be consummated and implemented.
If the merger is not consummated, PageNet will have to pursue other
alternatives which could include (1) liquidation of PageNet under chapter 7 or
chapter 11 of the Bankruptcy Code and (2) confirmation of an alternative plan of
reorganization under chapter 11 of the Bankruptcy Code. The recovery to
noteholders and stockholders under such alternative scenarios cannot be
predicted.
If a plan of reorganization for PageNet is not confirmed, the PageNet
chapter 11 filing could be converted to chapter 7 of the Bankruptcy Code. In a
chapter 7 case, a trustee would be elected or appointed to liquidate the assets
of PageNet for distribution to creditors in accordance with the priorities
established by the Bankruptcy Code. A discussion of the potential effects that a
chapter 7 liquidation would have on the recovery of creditors and stockholders
is set forth under "The Prepackaged Bankruptcy Plan -- Best Interests Test/The
Liquidation Analysis." Based upon PageNet's analysis, liquidation under chapter
7 would result in smaller distributions to the noteholders and stockholders as
compared to those provided for in the prepackaged bankruptcy plan. In addition,
a chapter 7 liquidation is likely to result in substantial litigation and delays
in ultimate distributions.
In a liquidation under chapter 11, PageNet's assets could be sold in an
orderly fashion over a more extended period of time than in a liquidation under
chapter 7. However, no liquidation would realize the full going concern value of
PageNet's business. Instead, PageNet's assets would be sold separately.
Consequently, a liquidation under chapter 11 is a less attractive alternative to
noteholders and stockholders than the prepackaged bankruptcy plan.
26
<PAGE> 36
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are made under the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
You should consider any statements that are not statements of historical fact to
be forward-looking statements. These include statements to the effect that
PageNet, Arch or any of their affiliates, management or directors, "believe",
"expect", "anticipate", "plan" and similar expressions. A number of important
factors could cause actual results to differ materially from those expressed in
any forward-looking statements. See "Risk Factors." If new information becomes
available or other events occur in the future, PageNet and Arch will update any
forward-looking statements to the extent required by the securities laws, but
not otherwise.
Forward-looking statements contained in the Vast prospectus attached as
Annex A to this prospectus are not entitled to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.
27
<PAGE> 37
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
PageNet will accept all senior subordinated notes validly tendered and not
withdrawn before the expiration date, upon the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal which
accompanies this prospectus. PageNet will issue a pro rata portion of
616,830,757 shares of PageNet common stock and a pro rata portion of 13,780,000
shares of Class B common stock of Vast, representing up to 68.9% of the equity
ownership of Vast, in exchange for each of PageNet's outstanding:
- 8.875% senior subordinated notes due 2006;
- 10.125% senior subordinated notes due 2007; and
- 10% senior subordinated notes due 2008.
The pro rata portion is to be computed immediately prior to the time when the
merger occurs by dividing:
- the principal amount, together with all accrued interest through the
expiration date of the exchange offer, of each PageNet senior
subordinated note validly tendered and not withdrawn; by
- the principal amount, together with all accrued interest through the
expiration date of the exchange offer, of all outstanding PageNet senior
subordinated notes.
As of the date of this prospectus, $1.2 billion in aggregate principal amount at
maturity of senior subordinated notes are outstanding. As of March 31, 2000,
accrued and unpaid interest on the senior subordinated notes totaled
$68,116,817. The following table sets forth the accrued and unpaid interest on
each series of senior subordinated notes.
<TABLE>
<S> <C>
8.875% notes due 2006....................................... $17,880,005
10.125% notes due 2007...................................... $27,225,302
10% notes due 2008.......................................... $23,011,510
-----------
Total............................................. $68,116,817
</TABLE>
The following table sets forth the number of shares of PageNet common stock
and Class B common stock of Vast PageNet noteholders would be entitled to
receive if the exchange offer and merger occurs on June 30, 2000. The table also
shows the number of Arch shares that the PageNet shares would be immediately
converted into at the ratio of 0.1247 Arch shares for each one PageNet share.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
PER $1000 PRINCIPAL AMOUNT OF PAGENET OF ARCH OF VAST CLASS B
OF SENIOR SUBORDINATED NOTES COMMON STOCK COMMON STOCK COMMON STOCK
- ---------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
8.875% notes due 2006....................... 514.329 64.137 11.490
10.125% notes due 2007...................... 519.969 64.840 11.616
10% notes due 2008.......................... 509.089 63.483 11.373
</TABLE>
All accrued interest on the PageNet notes through the expiration date of
the exchange offer or the filing date of the prepackaged bankruptcy case, as
applicable, will be transferred with the notes and will not be paid separately.
Calculations of share amounts with respect to Arch common stock will be rounded
down to the nearest whole share and no fractional shares of Arch common stock
will be issued. Instead PageNet noteholders will receive cash for such
fractional shares of Arch common stock. Shares of Class B common stock of Vast
will be issued to PageNet noteholders in fractions. Senior subordinated notes
may be tendered only in whole multiples of $1,000.
28
<PAGE> 38
Only a registered holder of senior subordinated notes, or a registered
holder's legal representative or attorney-in-fact, as reflected on the records
of the trustee under the respective indenture, may participate in the exchange
offer. There will be no fixed record date for determining the registered holders
of the senior subordinated notes entitled to participate in the exchange offer.
A fixed record date will be established for the purpose of voting on the
prepackaged bankruptcy plan.
Holders of senior subordinated notes do not have any appraisal or
dissenters' rights under the indentures or otherwise in connection with the
exchange offer and will not be entitled to any such rights in the merger with
Arch. PageNet intends to conduct the exchange offer in accordance with the
provisions of the merger agreement and the applicable requirements of the
Securities Act of 1933, the Securities Exchange Act of 1934, and the rules and
regulations of the Securities and Exchange Commission.
Holders who tender senior subordinated notes in the exchange offer will not
be required to pay brokerage commissions or fees with respect to the exchange of
senior subordinated notes pursuant to the exchange offer and will be required to
pay transfer taxes only as provided in the instructions of the letter of
transmittal. PageNet will pay all charges and expenses in connection with the
exchange offer, other than applicable taxes described below.
EXPIRATION DATE; EXTENSIONS
The expiration date will be 12:00 midnight, New York City time, on the
35(th) day after the commencement of the exchange offer, or at a later date
which is mutually agreed upon by PageNet and Arch.
CONDITIONS
PageNet's obligation to consummate the exchange offer will be contingent on
the valid tender of at least 97.5% of the outstanding aggregate principal amount
of the senior subordinated notes and at least a majority of the outstanding
principal amount of each series of senior subordinated notes in accordance with
the terms of the exchange offer. These tenders must be valid and not withdrawn
prior to the expiration date of the exchange offer. PageNet and Arch may agree
to waive the 97.5% required level of tendered notes or any of the other
conditions of the exchange offer.
PageNet will be deemed to have accepted validly tendered senior
subordinated notes only when, and if, PageNet gives oral or written notice of
acceptance to the exchange agent. The exchange agent will act as agent for the
tendering holders of senior subordinated notes for the purposes of receiving the
common stock of Arch and Vast from Arch.
The merger agreement requires that holders of the senior subordinated notes
who tender in connection with the exchange offer must also give their consent
to:
- amend the indentures, if necessary, to permit completion of the merger or
the prepackaged plan;
- amend the indentures to eliminate:
-- any covenants which may be modified or eliminated by a majority vote
of the senior subordinated notes;
-- any events of default which relate to the non-payment or acceleration
of other indebtedness; and
-- any provisions which condition a merger on compliance with any
financial criteria.
These amendments will remove substantially all of the rights of those senior
subordinated notes that are not tendered, other than their right to receive
payment of principal and interest. In addition, each holder will be required to
waive any and all existing defaults with respect to the senior subordinated
notes and any and all rights to rescind their acceptance of the exchange offer
after the expiration date. See "Proposed Amendments."
29
<PAGE> 39
Regardless of any other term of the exchange offer, PageNet will not be
required to accept any senior subordinated notes for exchange if it reasonably
believes that the exchange offer violates applicable laws, rules or regulations
or an applicable interpretation of the staff of the SEC. In that case, PageNet
may:
- refuse to accept any senior subordinated notes and return all untendered
senior subordinated notes to their holders; or
- extend the exchange offer and retain all senior subordinated notes
tendered before the expiration of the exchange offer, subject, however,
to the rights of holders to withdraw those notes described under
"-- Withdrawal."
INFORMATION AGENT
Innisfree M & A Incorporated will act as the information agent for the
exchange offer. All inquiries in connection with the exchange offer should be
addressed to the information agent at the address and telephone number set forth
on the back cover page of this document.
EXCHANGE AGENT
Harris Trust Company of New York will act as exchange agent for the
exchange offer. All correspondence in connection with the exchange offer and the
letter of transmittal should be addressed to the exchange agent as set forth on
the back cover page of this document.
PROCEDURE FOR TENDERING SENIOR SUBORDINATED NOTES AND DELIVERY OF CONSENTS
The following summarizes the procedures to be followed by all holders of
senior subordinated notes in tendering their securities and delivering consents
to the proposed amendments to the respective indentures. Each holder of senior
subordinated notes will receive a letter of transmittal and other materials and
instructions for tendering its notes. Noteholders holding more than one series
of senior subordinated notes will receive additional materials in order to
tender their respective other series of notes. Such letter of transmittal and
other materials will be distinguished by color as follows:
- 8.875% senior subordinated notes due 2006 in blue;
- 10.125% senior subordinated notes due 2007 in green; and
- 10% senior subordinated notes due 2008 in yellow.
The following does not describe the procedures for delivering ballots or
master ballots to vote to accept or reject the prepackaged bankruptcy plan.
PageNet prepared the prepackaged plan as an alternative means to implement the
recapitalization and the merger if less than 97.5% of PageNet's senior
subordinated notes are tendered in the exchange offer. THE VALID TENDER OF
SENIOR SUBORDINATED NOTES DOES NOT CONSTITUTE A VOTE TO ACCEPT THE PREPACKAGED
BANKRUPTCY PLAN. PageNet urges noteholders to properly complete and deliver a
ballot, or if applicable, a master ballot voting to accept the prepackaged
bankruptcy plan. For a description of the procedures for delivery by beneficial
owners, nominees and securities clearing agencies of ballots and master ballots,
see "The Prepackaged Bankruptcy Plan -- Voting Instructions and Procedures."
Holders who tender senior subordinated notes in the exchange offer in
accordance with the procedures described below will be deemed to have delivered
a consent to the proposed amendments to the respective indentures.
TENDER OF SENIOR SUBORDINATED NOTES; DELIVERY OF CONSENTS
A registered holder of senior subordinated notes can tender senior
subordinated notes by:
- delivering a properly completed and duly executed letter of transmittal
or manually-signed facsimile thereof or an agent's message in connection
with a book-entry transfer and any other documents
30
<PAGE> 40
required by the letter of transmittal, to the exchange agent at the
address set forth below and on the back cover page of this document; and
- either delivering certificates representing the senior subordinated notes
to the exchange agent or complying with the book-entry transfer
procedures described under "-- Book-Entry Transfers" below,
on or prior to the expiration date. A registered holder who cannot comply with
these procedures on a timely basis or whose senior subordinated notes are not
immediately available may tender senior subordinated notes pursuant to the
guaranteed delivery procedures under "Guaranteed Delivery Procedures" described
below.
LETTERS OF TRANSMITTAL AND CERTIFICATES REPRESENTING SENIOR SUBORDINATED
NOTES SHOULD BE SENT ONLY TO THE EXCHANGE AGENT AND NOT TO US, TO THE
INFORMATION AGENT OR TO THE TRUSTEE. The following is the address for hand
deliveries and delivery by overnight courier to the exchange agent:
<TABLE>
<S> <C>
By Mail: By Hand and Overnight Courier:
Harris Trust Company of New York Harris Trust Company of New York
Wall Street Station 88 Pine Street
P.O. Box 1023 19th Floor
New York, New York 10268-1023 New York, New York 10005
</TABLE>
By Facsimile Transmission: (212) 701-7636 or (212) 701-7637
(For Eligible Institutions Only)
Confirm Facsimile by Telephone: (212) 701-7624
For Information Call: (212) 701-7624
If the certificates for senior subordinated notes are registered in the
name of a person other than the signer of a letter of transmittal, then, in
order to tender such notes pursuant to the exchange offer, the certificates
representing such senior subordinated notes must be endorsed or accompanied by
appropriate bond powers, signed exactly as the name or names of such holder or
holders appear on the certificates, with the signatures on the certificates or
bond powers guaranteed as provided below. In the event such procedures are
followed by a beneficial owner tendering senior subordinated notes, the
registered holder or holders of such senior subordinated notes must sign a valid
consent pursuant to the letter of transmittal, because senior subordinated notes
may not be tendered without also consenting to the proposed amendments to the
indenture, and only holders are entitled to deliver consents.
Any beneficial owner whose senior subordinated notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominees, or
held through a book-entry transfer facility, and who wishes to tender senior
subordinated notes and deliver a consent to the proposed amendments should
contact such registered holder promptly and instruct such registered holder to
tender senior subordinated notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such senior subordinated notes himself or
herself, such beneficial owner must either make appropriate arrangements to
register ownership of the notes in such beneficial owner's name prior to
completing and executing the letter of transmittal (and, where applicable,
delivering such notes,) or follow the procedures described in the immediately
preceding paragraph.
To effectively tender senior subordinated notes that are held through The
Depository Trust Company, participants in The Depository Trust Company should
transmit their acceptance through The Depository Trust Company's Automated
Tender Offer Program, for which the transaction will be eligible, and The
Depository Trust Company will then edit and verify the acceptance and send an
agent's message to the exchange agent for its acceptance. Delivery of tendered
senior subordinated notes held through The Depository Trust Company must be made
to the exchange agent pursuant to the book-entry delivery procedures set forth
below or the tendering Depository Trust Company participant must comply with the
guaranteed delivery procedures set forth below.
31
<PAGE> 41
THE METHOD OF DELIVERY OF SENIOR SUBORDINATED NOTES AND ALL OTHER REQUIRED
DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER
TENDERING SENIOR SUBORDINATED NOTES. INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND
THAT YOU USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF DELIVERY IS BY MAIL, WE
SUGGEST THAT YOU USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE OF THE EXCHANGE OFFER TO PERMIT DELIVERY TO THE EXCHANGE AGENT
PRIOR TO SUCH DATE.
A valid tender of your senior subordinated notes will constitute an
agreement with us in accordance with the terms and conditions set forth in this
prospectus and in the letter of transmittal. You should read the letter of
transmittal carefully.
The entire principal amount of senior subordinated notes deposited with the
exchange agent will be deemed to have been tendered unless otherwise indicated.
If less than the entire principal amount of any senior subordinated notes
evidenced by a submitted certificate is tendered, the tendering holder should
fill in the principal amount tendered in the appropriate box on the letter of
transmittal with respect to the deposit being made. Such tender will also
constitute a consent to the proposed amendments to the indenture, but only to
the extent of the principal amount of senior subordinated notes being tendered.
Upon completion of the exchange offer, the exchange agent will then return to
the tendering holder (unless otherwise required under "Special Delivery
Instructions" in the letter of transmittal), as promptly as practicable
following the expiration date of the exchange offer, senior subordinated notes
in principal amount equal to the portion of such delivered senior subordinated
notes not tendered.
SIGNATURE GUARANTEES
All signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office in the United
States (each of which is an "eligible institution") unless the senior
subordinated notes tendered pursuant thereto are tendered:
- by a registered holder of senior subordinated notes (or by a participant
in The Depository Trust Company whose name appears on a security position
listing such participant as the owner of such senior subordinated notes)
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the letter of transmittal; or
- for the account of an eligible institution.
BOOK-ENTRY TRANSFERS
The exchange agent will establish an account with respect to the senior
subordinated notes at The Depository Trust Company promptly after the date of
this prospectus. A financial institution that is a participant in The Depository
Trust Company's system may make book-entry delivery of senior subordinated notes
by causing The Depository Trust Company to transfer such senior subordinated
notes into the exchange agent's account at The Depository Trust Company in
accordance with The Depository Trust Company's procedure for such transfer.
Although delivery of such senior subordinated notes may be effected through
book-entry delivery at The Depository Trust Company, in any case either (1) the
letter of transmittal (or manually-signed facsimile thereof), with any required
signature guarantees, or an agent's message, together with any other required
documents, must be transmitted to and received by the exchange agent on or prior
to the expiration date of the exchange offer or (2) the guaranteed delivery
procedures set forth below must be followed. Delivery of documents to The
Depository Trust Company in accordance with The Depository Trust Company's
procedure does not constitute delivery to the exchange agent.
The term "agent's message" means a message transmitted by The Depository
Trust Company to, and received by, the exchange agent and forming a part of a
book-entry confirmation, which states that The Depository Trust Company has
received an express acknowledgment from the participant in The
32
<PAGE> 42
Depository Trust Company tendering the senior subordinated notes stating (1) the
aggregate principal amount of senior subordinated notes which have been tendered
by such participant and for which consents to the proposed amendments to the
indenture have been thereby delivered, (2) that such participant has received
and agrees to be bound by the terms of the exchange offer and (3) that we may
enforce such agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
If a holder desires to tender senior subordinated notes and consent to the
proposed amendments to the indenture and (1) the holder's senior subordinated
notes are not lost but are not immediately available, (2) time will not permit
the holder's senior subordinated notes or other required documents to reach the
exchange agent before the expiration date of the exchange offer or (3) the
procedures for book-entry transfer cannot be completed on a timely basis, a
tender and consent may be effected if:
- the tender is made through an eligible institution; and
- prior to the expiration date of the exchange offer, the exchange agent
receives from the eligible institution a properly completed Notice of
Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or
hand delivery) substantially in the form we provide which sets forth the
name and address of the holder and the amount of senior subordinated
notes tendered; and
- a letter of transmittal (or a manually signed facsimile thereof),
properly completed and validly executed with any required signature
guarantees, or, in the case of a book-entry transfer, an agent's message,
together with certificates for all senior subordinated notes in proper
form for transfer (or a book-entry confirmation with respect to all
tendered senior subordinated notes), and any other required documents are
received by the exchange agent within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery.
TRANSFERS OF OWNERSHIP OF TENDERED NOTES
Holders may not transfer record ownership of any senior subordinated notes
validly tendered into the exchange offer and not validly withdrawn. Beneficial
ownership in tendered senior subordinated notes may be transferred by the holder
by delivering to the exchange agent, at one of its addresses set forth on the
back cover of this prospectus, an executed letter of transmittal identifying the
name of the person who deposited the notes to be transferred, and completing the
special issuance instructions box with the name of the transferee (or, if
tendered by book-entry transfer, the name of the participant in The Depository
Trust Company whose name appears on the security position listing as the
transferee of such notes) and the principal amount of the senior subordinated
notes to be transferred. If certificates have been delivered or otherwise
identified (through a book-entry confirmation with respect to such senior
subordinated notes) to the exchange agent, the name of the holder who deposited
the senior subordinated notes, the name of the transferee and the certificate
numbers relating to such senior subordinated notes should also be provided in
the letter of transmittal. A person who succeeds to the beneficial ownership of
tendered senior subordinated notes pursuant to the procedures set forth herein
will be entitled to receive the exchange consideration if the senior
subordinated notes are accepted for exchange, or if the exchange is consummated
through the prepackaged bankruptcy plan, or to the receipt of the tendered
senior subordinated notes if the exchange offer is terminated.
BACKUP WITHHOLDING TAX
Each tendering holder must complete and deliver the Substitute Form W-9
provided in the letter of transmittal to us (or the exchange agent) and either:
- provide his correct taxpayer identification number (social security
number, for individuals) and certify that the taxpayer identification
number provided is correct (or that such holder is awaiting a taxpayer
identification number) and that either (A) the holder has not been
notified by the Internal Revenue Service that he is subject to backup
withholding as a result of failure to report all
33
<PAGE> 43
interest or dividends or (B) the Internal Revenue Service has notified
the holder that he is no longer subject to backup withholding; or
- otherwise provide an adequate basis for exemption from backup
withholding.
Holders who do not satisfy these conditions may be subject to a $50 (or
greater) penalty imposed by the Internal Revenue Service and may be subject to
backup withholding (as discussed below). Exempt holders (including, among
others, corporations and certain foreign individuals) are not subject to these
requirements if they satisfactorily establish their status as such. Certain
foreign holders may be required to provide a Form W-8 or Form 1001 (or successor
form) in order to avoid or reduce withholding tax.
Pursuant to the backup withholding provisions of federal income tax law,
unless the conditions described above are satisfied, we or the exchange agent,
as the case may be, will withhold an amount of any cash proceeds payable to a
tendering holder that will enable us or the exchange agent, as the case may be,
to remit the appropriate amount of backup withholding due to the Internal
Revenue Service with respect to the exchange. Backup withholding is 31%. Amounts
paid as backup withholding do not constitute an additional tax and generally
will be credited against the holder's federal income tax liabilities. Different
withholding rates and rules may apply in the case of foreign holders. By
tendering senior subordinated notes pursuant to the exchange offer, a holder
that does not comply with the conditions described in the preceding paragraph
authorizes us or the exchange agent, as the case may be, to pay cash in an
amount sufficient to satisfy the holder's withholding obligations.
ACCEPTANCE OF SENIOR SUBORDINATED NOTES, DELIVERY OF COMMON STOCK AND PAYMENT
The acceptance for exchange and payment of senior subordinated notes
validly tendered and not withdrawn and delivery of Arch common stock and Class B
common stock of Vast in exchange for the senior subordinated notes will be made
as promptly as practicable after the expiration date of the exchange offer. We,
however, expressly reserve the right to delay acceptance of any of the senior
subordinated notes or terminate the exchange offer and not accept for exchange
any senior subordinated notes not accepted if any of the conditions set forth
under "The Exchange Offer -- Conditions" shall not have been satisfied or waived
by us. For purposes of the exchange offer, we will be deemed to have accepted
for exchange validly tendered senior subordinated notes if, as and when we give
oral or written notice of acceptance to the exchange agent. Subject to the
following paragraph and the other terms and conditions of the exchange offer,
delivery of Arch common stock and Vast Class B common stock for senior
subordinated notes accepted pursuant to the exchange offer will be made by the
exchange agent as soon as practicable after receipt of such notice. The exchange
agent will act as agent for the tendering holders for the purposes of receiving
Arch common stock and Vast Class B common stock from Arch and transmitting the
Arch common stock and Vast Class B common stock to the tendering holders. We
will return any tendered senior subordinated notes not accepted for exchange
without expense to the tendering holder as promptly as practicable following the
expiration date of the exchange offer.
Notwithstanding any other provision hereof, delivery of exchange
consideration for senior subordinated notes accepted for exchange pursuant to
the Exchange Offer will in all cases be made only after timely receipt by the
exchange agent of:
- certificates for (or a timely book-entry confirmation with respect to)
such senior subordinated notes;
- a letter of transmittal (or a manually signed facsimile copy), properly
completed and validly executed, with any required signature guarantees,
or, in the case of a book-entry transfer, an agent's message; and
- any other documents required by the letter of transmittal and the
instructions to the letter of transmittal.
Holders tendering pursuant to the procedures for guaranteed delivery
discussed under the caption "-- Guaranteed Delivery Procedures" whose
certificates for senior subordinated notes or book-entry
34
<PAGE> 44
confirmation with respect to senior subordinated notes are actually received by
the exchange agent after the expiration date may be paid later than other
tendering holders.
All tendering holders, by execution of the letter of transmittal (or
facsimile copy), waive any right to receive notice of acceptance of their senior
subordinated notes for exchange.
WITHDRAWAL
You may withdraw tenders of senior subordinated notes at any time before
12:00 midnight, on the expiration date, except as otherwise provided below.
To withdraw a tender of senior subordinated notes, a written or facsimile
transmission notice of withdrawal must be received by the exchange agent at its
address as set forth in this prospectus before 12:00 midnight, New York City
time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the holder who deposited the notes to be withdrawn;
- identify the notes to be withdrawn, including the certificate number(s)
and principal amount of such notes; and
- be signed by such holder in the same manner as the original signature on
the letter of transmittal by which the notes were tendered, including any
required signature guarantees.
If senior subordinated notes have been tendered pursuant to the procedures for
book-entry transfer discussed under the caption "-- Book-Entry Transfers," any
notice of withdrawal must specify the name and number of the account at The
Depository Trust Company to be credited with the withdrawn senior subordinated
notes and must otherwise comply with The Depository Trust Company's procedures.
PageNet will determine, in its sole discretion, all questions as to
validity, form and eligibility of withdrawal notices including the time of
receipt. PageNet's determination will be final and binding on all parties. Any
withdrawn senior subordinated notes will not be deemed to be validly tendered
for purposes of the exchange offer and no shares of common stock will be issued
in exchange for them unless the withdrawn senior subordinated notes are later
validly retendered. Properly withdrawn senior subordinated notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering Senior Subordinated Notes and Delivery of Consents"
at any time before the expiration date.
PRIOR TO THE EXECUTION OF THE SUPPLEMENTAL INDENTURE WITH RESPECT TO ANY
SERIES OF SENIOR SUBORDINATED NOTES, A WITHDRAWAL OF THE TENDER OF A SENIOR
SUBORDINATED NOTE WILL ALSO EFFECT A REVOCATION OF A CONSENT TO THE PROPOSED
AMENDMENTS TO THE RESPECTIVE INDENTURES. Consents to the proposed amendments to
the indentures cannot be revoked after execution of the supplemental indenture
to the respective indenture. See "Proposed Amendments."
REVOCATION OF CONSENTS
Any holder who has delivered a consent, or who succeeds to ownership of
senior subordinated notes in respect of which a consent has previously been
delivered, may validly revoke such consent prior to the execution of the
supplemental indenture to the respective indenture by delivering a written
notice of revocation in accordance with the following procedures. In order to be
valid, a notice of revocation of a consent must contain the name of the person
who delivered the consent and the description of the senior subordinated notes
to which it relates, the certificate number or numbers of such senior
subordinated notes, unless such notes were tendered by book-entry transfer, and
the aggregate principal amount represented by such notes, be signed by the
holder thereof in the same manner as the original signature on the applicable
letter of transmittal, including the required signature guarantees, or be
accompanied by evidence satisfactory to us that the person revoking the consent
has succeeded to the beneficial ownership of the senior subordinated notes and
be received prior to the execution of the amendment to the respective indenture
by the exchange agent, at one of its addresses set forth on the back cover of
this prospectus. A
35
<PAGE> 45
purported notice of revocation that lacks any of the required information or is
dispatched to an improper address will not validly revoke a consent previously
given.
THE VALID REVOCATION OF A HOLDER'S CONSENT WILL CONSTITUTE THE CONCURRENT
VALID WITHDRAWAL OF THE TENDERED SENIOR SUBORDINATED NOTES WITH RESPECT TO WHICH
THE CONSENT WAS DELIVERED. AS A RESULT, A HOLDER WHO VALIDLY REVOKES A
PREVIOUSLY DELIVERED CONSENT WILL NOT RECEIVE ANY CONSIDERATION IN THE EXCHANGE
OFFER.
INTERPRETATION
We, in our sole discretion, will determine all questions as to the form of
all documents and the validly (including time of receipt), eligibility,
acceptance and withdrawal of tendered senior subordinated notes. Our
determination shall be final and binding. We reserve the absolute right to
reject any and all tenders not in proper form or the acceptance of which would,
in the opinion of our legal counsel, be unlawful. Neither we, the exchange agent
nor any other person will be under any duty to give notification of any defects
or irregularities in tenders or withdrawals or will incur any liability for
failure to give any such notification. The exchange agent will return any senior
subordinated notes it receives that are not properly tendered and as to which
irregularities have not been cured or waived. Our interpretation of the terms
and conditions of the exchange offer (including the letter of transmittal and
the instructions thereto) will be final and binding on all parties.
RELEASE OF CLAIMS BY TENDERING HOLDERS OF SENIOR SUBORDINATED NOTES
A holder validly tendering senior subordinated notes will, by tendering
such notes and upon acceptance of such senior subordinated notes for exchange,
on its own behalf and on behalf of its affiliates, release, waive and covenant
not to assert, any claims, debts, obligations, rights, causes of action or
liabilities now existing or hereafter arising out of, or relating to, the senior
subordinated notes or the exchange offer or otherwise relating to us or any of
our subsidiaries, in each case arising from or relating to any fact or
circumstance through the date of consummation of the exchange offer, against any
of us, our subsidiaries, any person who is or was in control of any of the
foregoing, and any of the respective present and former officers, directors,
shareholders, trustees, agents, employees, representatives, financial advisors,
accountants, attorneys and other professionals of the foregoing, other than (A)
claims relating to our obligation to deliver the securities offered pursuant to
the exchange offer in accordance with the terms thereof, (B) claims, if any,
against us or any of our subsidiaries under federal or state securities laws
that the prospectus includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. Holders of senior
subordinated notes are urged to consult their financial and tax advisors in
making their own decisions on what action to take. See "Risk Factors."
PageNet is also soliciting the approval of the holders of senior
subordinated notes to amendments that include the elimination of substantially
all rights of the notes other than the right to receive payments of principal
and interest. If PageNet noteholders decide not to tender all or some of their
notes, the notes that they retain will no longer have any of these additional
rights if the merger and the exchange offer are completed. Their position as
noteholders may suffer if any developments occur which these additional rights
were designed to protect them against, such as distributions to stockholders or
unfavorable business combinations.
36
<PAGE> 46
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS OF THE EXCHANGE OFFER
We expect that, for federal income tax purposes, an exchanging noteholder
will not recognize loss and will recognize gain, if any, in an amount equal to
the lesser of:
- the fair market value of the shares of Class B common stock of Vast
received; and
- the amount by which the fair market value of the Vast shares received
plus the fair market value of the Arch common stock received exceeds the
noteholder's tax basis in the notes surrendered.
In addition, amounts allocable to accrued but unpaid interest may be considered
ordinary income, and gain or loss may be recognized with respect to cash paid
instead of fractional Arch shares. See "Material Federal Income Tax
Considerations -- Federal Income Tax Consequences to Exchanging Noteholders."
PROPOSED AMENDMENTS
CONSENT TO PROPOSED AMENDMENTS
To tender senior subordinated notes for exchange in the PageNet exchange
offer, you must consent to the proposed amendments to the indentures for the (1)
8.875% senior subordinated notes due 2006, (2) 10.125% senior subordinated notes
due 2007, and (3) 10% senior subordinated notes due 2008. The proposed
amendments constitute a single proposal and a tendering holder must consent to
the proposed amendments as an entirety, and may not consent selectively with
respect to some of the proposed amendments.
If the required consents are received, the proposed amendments will be
included in a supplement to each of the indentures that will be signed by
PageNet and the trustee on or promptly following the expiration of the PageNet
exchange offer.
ELIMINATION OF OPERATING COVENANTS
The following is a brief description of the proposed amendments to the
indentures. Unless otherwise specified, the sections listed below refer to the
8.875% indenture, the 10.125% indenture and the 10% indentures. In addition, not
all of the indentures contain every section described below. Copies of the
indenture can be obtained without charge from the exchange agent. These proposed
amendments may have adverse consequences for you if you do not participate in
the PageNet exchange offer.
The proposed amendments would eliminate the following provisions contained
in the indentures.
<TABLE>
<CAPTION>
SECTION OF
INDENTURES TITLE AND DESCRIPTION OF SECTION
- ---------- --------------------------------
<S> <C> <C>
801 Company May Consolidate, Etc., Only on Certain Terms.
Provides that PageNet will not:
- consolidate with or merge with any other person or permit any other person to
consolidate or merge with PageNet or any restricted subsidiary of PageNet;
- transfer, convey, sell, lease or otherwise dispose of all or substantially all
of its assets;
- acquire, or permit any restricted subsidiary of PageNet to acquire, capital
stock of any other person that results in such person becoming a restricted
subsidiary of PageNet if the amount of consideration paid and debt incurred plus
the aggregate amount of consideration paid or debt incurred for all other
acquisitions made during the preceding twelve month period exceeds 5% of the
consolidated tangible assets of PageNet immediately prior to such acquisitions;
or
</TABLE>
37
<PAGE> 47
<TABLE>
<CAPTION>
SECTION OF
INDENTURES TITLE AND DESCRIPTION OF SECTION
- ---------- --------------------------------
<S> <C> <C>
- purchase, lease or otherwise acquire, or permit any restricted subsidiary of
PageNet to purchase, lease or otherwise acquire, all or substantially all of the
assets of any person or entity if the amount of consideration paid and debt
incurred plus the aggregate amount of consideration paid or debt incurred for
all other acquisitions made during the preceding twelve month period exceeds 5%
of the consolidated tangible assets of PageNet immediately prior to such
acquisitions; unless:
- PageNet is the continuing corporation, or the successor or transferee
corporation is organized under the laws of the United States and expressly
assumes the payment of principal and interest on all PageNet notes and the
performance and observance of all covenants and conditions of the indenture,
by supplemental indenture;
- PageNet or any restricted subsidiary of PageNet is not, immediately after
giving effect to the transaction, in default in the performance of any of
those covenants or conditions; and
- the ratio of the aggregate principal amount of debt of PageNet and its
restricted subsidiaries immediately after giving effect to the transaction on
the most recent quarterly or annual balance sheet to four times the preceding
quarter's pro forma consolidated cash flow is less than 6.5 to 1. Pro forma
consolidated cash flow is calculated by giving effect to any asset
dispositions or acquisitions not made in the ordinary course of business as if
such acquisition or disposition had taken place on the first day of such
period.
1005 Existence.
Provides that PageNet will do all things necessary to preserve and keep in full force
and effect its existence, charter and statutory rights and franchises. PageNet is not
required to maintain these rights, however, if the board of directors determines that
such rights are no longer desirable for the conduct of PageNet's business and that the
loss of these rights is not disadvantageous in any material respect to the holders of
the PageNet notes.
1006 Maintenance of Properties.
Provides that PageNet will maintain and keep in good condition, repair and working
order, and make all necessary replacements and improvements to all of the properties
used or useful in PageNet's business or any business of a subsidiary of PageNet.
PageNet may, however, discontinue the operation or maintenance of any such properties
if PageNet determines that such properties are no longer desirable for the conduct of
PageNet's business and that such discontinuance is not disadvantageous in any material
respect to the holders of the PageNet notes.
1007 Payment of Taxes and Other Claims.
Provides that PageNet will pay or discharge or cause to be paid or discharged:
- all taxes, assessments and governmental charges levied or imposed upon PageNet
or any of it subsidiaries or upon the income, profits or property of PageNet or
any of its subsidiaries; and
- all lawful claims for labor, materials and supplies which, if unpaid, could
result in a lien upon the property of PageNet or any of its subsidiaries.
PageNet is not required to pay or discharge or cause to be paid or discharged any tax,
assessment, charge or claim that is being contested in good faith.
</TABLE>
38
<PAGE> 48
<TABLE>
<CAPTION>
SECTION OF
INDENTURES TITLE AND DESCRIPTION OF SECTION
- ---------- --------------------------------
<S> <C> <C>
1008 Limitation on Consolidated Debt.
Provides that PageNet will not, and will not allow any of its restricted subsidiaries
to issue, assume, incur or guaranty any debt unless, after giving effect to such debt,
the ratio of the aggregate principal amount of debt of PageNet and its restricted
subsidiaries on the most recent quarterly or annual balance sheet to four times the
preceding quarter's pro forma consolidated cash flow is less than 6.5 to 1.
1009 Limitation on Certain Debt.
PageNet will not incur any debt that would be subordinate to any senior debt and senior
to any of the PageNet notes. Senior debt includes:
- any debt outstanding pursuant to the credit facility;
- any obligation for borrowed money;
- any obligation evidenced by bonds, debentures, notes or other similar
instruments;
- any reimbursement obligation under letters of credit, bankers' acceptances or
similar facilities;
- any capital lease obligation;
- any of the foregoing obligations that PageNet has guaranteed for another person;
and
- any payment obligations under interest rate swaps or foreign currency hedge
agreements required by the credit facility.
1010 Limitation on Restricted Payments.
Provides that PageNet will not make any restricted payments if (1) an event of default
has occurred and is continuing or (2) after giving effect to the restricted payment,
the total of all restricted payments made after the date of the indenture exceeds the
sum of: (a) the difference between 100% of the cumulative consolidated cash flow
between December 31, 1993 and the last day of the quarter preceding the restricted
payment for which financial statements are available and the product of 1.4 times the
cumulative consolidated interest expense between December 31, 1993 and the last day of
the quarter preceding the restricted payment for which financial statements are
available, and (b) 100% of the net proceeds from the issuance of PageNet capital stock
after the date of the indenture. Restricted payments include:
- the declaration or payment of dividends on PageNet capital stock;
- the purchase or redemption by PageNet or any restricted subsidiary of PageNet of
any capital stock, options, warrants or rights to purchase capital stock of
PageNet or any related person;
- any loans, advances, capital contributions or investments in, or payment on a
guarantee of, any affiliate or a related person, other than PageNet or a wholly
owned restricted subsidiary of PageNet; and
- the redemption or repurchase by PageNet or any restricted subsidiary of PageNet
of any debt that is subordinate to the PageNet notes.
1011 Limitations Concerning Distributions by and Transfers to Restricted Subsidiaries.
Provides that neither PageNet nor any restricted subsidiary of PageNet will allow any
restrictions to be placed on the ability of a restricted subsidiary to:
- pay dividends or pay any debt owed to PageNet;
- make loans to PageNet or any restricted subsidiary of PageNet; or
- transfer any of its assets to PageNet.
</TABLE>
39
<PAGE> 49
<TABLE>
<CAPTION>
SECTION OF
INDENTURES TITLE AND DESCRIPTION OF SECTION
- ---------- --------------------------------
<S> <C> <C>
1012 Limitations on Transactions with Affiliates and Related Persons.
Provides that neither PageNet nor any restricted subsidiary of PageNet will enter into
any transaction with any affiliate or related person. This restriction does not apply
if:
- a majority of the board of directors deem the transaction to be in the best
interests of PageNet or such restricted subsidiary; and
- the terms of the transaction are no less favorable than those that could have
been obtained in an arms length transaction.
1013 Limitation on Certain Asset Dispositions.
Provides that neither PageNet nor any restricted subsidiary of PageNet will make an
asset disposition unless:
- it receives consideration equal to the fair market value of the assets disposed
of;
- the consideration consists of cash, readily marketable cash equivalents or the
assumption of debt; and
- if the net proceeds from such disposition, after any investment made in the
business of PageNet, exceed $5 million, 100% of such proceeds are used to:
- pay down any debt outstanding under the credit facility to the extent the
terms of the credit facility require such payments;
- pay down any senior debt to the extent the terms of the debt require such
payments; and
- make an offer to purchase the 8.875% senior subordinated notes due 2006, the
10.125% senior subordinated notes due 2007 and all other notes and pari passu
debt on a pro rata basis to the extent the net proceeds available exceed $5
million.
1014 Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries.
Provides that PageNet will not permit any of its wholly owned restricted subsidiaries
to transfer any capital stock unless all of the capital stock is transferred and the
net available proceeds from the transfer are applied in accordance with Section 1013
which limits PageNet's ability to make asset dispositions. This section also provides
that PageNet will not allow any of its wholly owned restricted subsidiaries to issue
shares of capital stock, warrants, rights or options to acquire or securities
convertible into shares of capital stock other than to PageNet or another wholly owned
restricted subsidiary of PageNet.
1015 Provision of Financial Statements.
Provides that as long as any of the PageNet notes are outstanding, PageNet will file
with the SEC the annual reports, quarterly reports and other documents required to be
filed under Sections 13(a) and 15(d) of the Exchange Act regardless of whether PageNet
is required to do so. This section also provides that PageNet is to mail to each holder
of the PageNet notes and file with the trustee copies of these reports within fifteen
(15) days of the date PageNet would be required to file these reports if it were
subject to Sections 13(a) and 15(d) of the Exchange Act.
</TABLE>
40
<PAGE> 50
<TABLE>
<CAPTION>
SECTION OF
INDENTURES TITLE AND DESCRIPTION OF SECTION
- ---------- --------------------------------
<S> <C> <C>
1016 Change of Control.
Provides that each holder of PageNet notes has the right to have PageNet repurchase
their notes upon a change of control. Within thirty days following the consummation of
the transaction resulting in a change of control, PageNet must offer to purchase all
outstanding PageNet notes at a price equal to 101% of their aggregate principal amount
plus accrued interest. A "change of control" is defined as the acquisition by any
person or group of at least 50% of the voting power of all classes of voting stock or
any change in the composition of a majority of the board of directors.
1018 of the 10% Compliance with Rule 144A.
indenture Provides that PageNet will use its best efforts to be subject to the reporting
requirements of Sections 13 or 15(d) of the Exchange Act until the third anniversary of
the later of (1) the date of the original issuance of the PageNet notes, and (2) the
last date any of the PageNet notes were acquired from an affiliate of PageNet. If at
any time PageNet is not subject to Sections 13 or 15(d) of the Exchange Act, PageNet
will furnish such information as may be required to be delivered under paragraph (d)(4)
of Rule 144A.
1019 of the 10% Resale of Certain Securities.
indenture Provides that until the third anniversary of the last date of the original issuance of
PageNet notes, PageNet will not, and will use its best efforts not to permit any of its
affiliates, to resell any reacquired PageNet notes to the extent they constitute
"restricted securities" under Rule 144 of the Securities Act.
</TABLE>
ELIMINATION OF EVENTS OF DEFAULT
The proposed amendments would eliminate the following events of default
from Section 501 of the indentures.
<TABLE>
<CAPTION>
SECTION OF
INDENTURES DESCRIPTION OF THE EVENT OF DEFAULT
- ---------- -----------------------------------
<S> <C> <C>
501(3) PageNet's failure to pay any principal or interest pursuant to an
offer to purchase contemplated by Sections 1013 which limits
PageNet's ability to make asset dispositions or 1016 which
specifies PageNet's obligation to repurchase the PageNet notes
upon a changes of control.
501(4) PageNet's breach of Section 801 which limits the ability of
PageNet to consolidate, merge or otherwise dispose of
substantially all of its assets.
501(6) The default by PageNet, or any restricted subsidiary of PageNet,
under any bond, debenture, note or any mortgage, indenture or
instrument with an outstanding principal amount in excess of $5
million which results in such debt becoming due prior to the
stated maturity or the failure to pay any principal when due.
501(7) A final judgement in excess of $5 million entered against PageNet
or any restricted subsidiary of PageNet which remains
undischarged or unbonded for 60 consecutive days after final
judgement.
501(8) The entry of a decree or order for relief in respect of PageNet
or any restricted subsidiary of PageNet in an involuntary case or
proceeding under any federal or state bankruptcy or other similar
law, or the entry of any order or decree that:
- adjudges PageNet or any restricted subsidiary of PageNet a
bankrupt or insolvent;
- approves as properly filed a petition seeking reorganization
of PageNet or any restricted subsidiary of PageNet under any
applicable federal or state law;
</TABLE>
41
<PAGE> 51
<TABLE>
<CAPTION>
SECTION OF
INDENTURES DESCRIPTION OF THE EVENT OF DEFAULT
- ---------- -----------------------------------
<S> <C> <C>
- appoints a custodian or other similar official of PageNet or
any restricted subsidiary of PageNet or of any substantial
part of the property of PageNet or any restricted subsidiary
of PageNet; or
- requires the winding up or liquidation of the affairs of
PageNet or any restricted subsidiary of PageNet, where such
order or decree is continued, unstayed or otherwise remains
in effect for sixty consecutive days.
501(9) The commencement by PageNet, or any restricted subsidiary of
PageNet, of a voluntary case or proceeding under any federal or
state bankruptcy or other similar law, or any other case in which
PageNet or any restricted subsidiary of PageNet is adjudicated to
be a bankrupt or insolvent. This section also includes:
- the consent by PageNet or any restricted subsidiary of
PageNet to the entry of a decree or order for relief in an
involuntary case or proceeding under any federal or state
bankruptcy or other similar law;
- the consent by PageNet or any restricted subsidiary of
PageNet to the commencement of any bankruptcy or insolvency
case against it;
- the filing or consent by PageNet or any restricted
subsidiary of PageNet to a petition or answer or consent
seeking reorganization or relief under any applicable
federal or state law;
- the consent by PageNet to the appointment of a custodian or
other similar official of PageNet or any restricted
subsidiary of PageNet or of any substantial part of the
property of PageNet or any restricted subsidiary of PageNet;
- the making by PageNet or any restricted subsidiary of
PageNet of an assignment for the benefit of creditors; or
- the admission in writing by PageNet or any restricted
subsidiary of PageNet that it is unable to pay its debts as
they become due.
</TABLE>
The proposed amendments would also eliminate any references in the
indentures and the PageNet notes to the sections specified above, including any
sentences or provisions that refer or give effect exclusively to the sections
specified above. The proposed amendments would also eliminate any defined terms
in the indentures that are used solely in those deleted sentences, provisions,
sections and subsections.
42
<PAGE> 52
THE MERGER
PageNet stockholders will receive a joint proxy statement/prospectus in
which PageNet's board of directors will ask them to approve the merger and the
merger agreement. PageNet stockholders should refer to that joint proxy
statement/prospectus for a description of Arch's reasons for the merger and
other information that was considered by Arch's board of directors in reaching
their decision to approve the merger.
GENERAL
Arch and PageNet have agreed to merge on the terms set forth in the merger
agreement. Through the merger, PageNet will become a wholly owned subsidiary of
Arch. The merger will be accompanied by a recapitalization of PageNet and Arch
resulting from the exchange of debt for common stock in the PageNet and Arch
exchange offers.
The merger agreement provides that:
- PageNet will merge with a wholly owned subsidiary of Arch. In the merger,
each share of PageNet common stock, including shares issued to PageNet
senior subordinated noteholders in the PageNet exchange offer, will be
converted into 0.1247 shares of Arch common stock. On November 5, 1999,
the last trading day before the public announcement of the proposed
merger, PageNet's common stock had a closing price of $0.96875 per share,
compared to $0.84952 for 0.1247 shares of Arch common stock. On
, the last trading day for which information was available
prior to the first mailing of this prospectus, PageNet's common stock had
a trading value of $ per share compared to $ for 0.1247 shares of Arch
common stock.
- Arch has agreed to conduct the Arch exchange offer, offering to exchange
66.1318 shares of Arch common stock for each $1,000 principal amount at
maturity of its discount notes. During 2000, Arch has issued 11,640,321
shares of Arch common stock and 1,000,000 shares of Arch Series D
convertible preferred stock that automatically converts into common stock
when the merger closes in exchange for discount notes tendered by Arch
noteholders in negotiated transactions. If all of the remaining
outstanding discount notes are exchanged, Arch will have issued a total
of 29,651,984 shares of its common stock for all of its discount notes
that were outstanding on November 7, 1999;
- PageNet will conduct the PageNet exchange offer, offering to exchange up
to 616,830,757 shares of PageNet common stock, which will be immediately
exchanged for 76,918,795 shares of Arch common stock in the merger, and
up to 68.9% of the equity interest in Vast, for all of PageNet's
outstanding senior subordinated notes.
- PageNet will distribute up to 11.6% of the equity interest in Vast to the
holders of PageNet common stock in connection with the merger.
- The Arch board of directors, after the merger, will consist of 12
directors. Six directors will be designated by the current Arch directors
and three directors will be designated by the current PageNet directors.
Each of the three largest holders of PageNet notes being exchanged for
shares of PageNet common stock may also designate one director. To the
extent any of these three largest holders do not designate directors, the
current Arch directors will designate additional directors.
BACKGROUND OF THE MERGER
At a board of directors meeting on June 10, 1999, the directors of PageNet
discussed the possibility of a combination of PageNet with another major paging
company. The other paging company's chief executive officer had indicated an
interest in pursuing a possible combination with PageNet in a conversation
initiated by John P. Frazee, Jr., PageNet's chief executive officer. During the
preceding year, Mr. Frazee had reported to the directors on preliminary
discussions about a possible combination of PageNet with two other major paging
companies and a paging equipment provider. The directors
43
<PAGE> 53
supported such discussions, but the discussions did not proceed beyond a
preliminary stage. Mr. Frazee advised the directors that he believed such a
combination with the company which had now indicated interest in such a
transaction could offer substantial synergies and cost savings. Mr. Frazee said
he had discussed the possible combination with representatives of Goldman, Sachs
& Co. and Morgan Stanley Dean Witter, which had been acting as PageNet's outside
financial advisors with respect to possible strategic options, and that
representatives of both Goldman Sachs and Morgan Stanley considered such a
transaction to be possible. The directors supported continued discussion with
the other paging company about a possible combination.
On June 10, PageNet entered into a confidentiality agreement with the other
paging company permitting the exchange of confidential information. Management
personnel, lawyers and investment bankers from both companies subsequently met
during June and July to conduct mutual due diligence, to further evaluate and
analyze potential synergies and savings and to discuss various aspects of a
possible combination.
At a meeting on July 22, the PageNet directors again discussed the
possibility of a combination with the other paging company. Representatives of
Goldman Sachs and Morgan Stanley reviewed with the PageNet directors the overall
industry trends, PageNet's strategic and financial position and the prospective
combination. The directors concluded that a combination with the other paging
company appeared to be desirable if acceptable financial terms, which had not
yet been discussed, could be negotiated. After that meeting, due diligence and
other discussions with the other paging company continued.
In early August 1999, representatives of Goldman Sachs and Morgan Stanley
met with the financial advisors for the other paging company to discuss possible
financial and other terms of a combination and reported the outcome of such
discussions to Mr. Frazee. Mr. Frazee then reported the outcome of those
discussions to the directors. The directors concluded, based upon that meeting,
that agreement on acceptable terms would not be possible. Mr. Frazee said that
he continued to believe that a combination of PageNet with another major paging
company was highly desirable and he recommended that PageNet approach Arch about
a possible combination with PageNet. Mr. Frazee said that he believed that Arch
was the only other paging company that offered the prospect for comparable
synergies and cost savings. The directors supported such an approach to Arch.
On August 6, Mr. Frazee met with C. Edward Baker, Jr., chief executive
officer of Arch, to discuss the possibility of a business combination between
PageNet and Arch.
At a meeting on August 10, the Arch directors discussed the possibility of
further consolidation within the wireless communications industry and the role
that Arch might play in such consolidation. It was the consensus of the
directors that Mr. Baker should continue discussions with PageNet concerning a
possible business combination.
On August 17, Mr. Frazee, Edward W. Mullinix, Jr., chief operating officer
of PageNet, and Julian B. Castelli, senior vice president and chief financial
officer of PageNet, met with Mr. Baker and J. Roy Pottle, executive vice
president and chief financial officer of Arch. Mr. Baker and Mr. Frazee agreed
that the two companies should explore the possibility of a combination.
On August 26, PageNet and Arch entered into a confidentiality agreement
permitting the mutual exchange of confidential information. On that date
management of PageNet and Arch, together with representatives of Goldman Sachs
and Morgan Stanley and Arch's financial advisor, Bear Stearns & Co., as well as
outside counsel for both companies, met to review potential cost savings and
synergies and to discuss structural and legal aspects of a possible combination.
In early September, Mr. Frazee and Mr. Baker had further conversations about a
possible combination.
During the week of September 6, the chief executive officer of the other
paging company contacted Mr. Frazee and indicated a strong desire to resume
discussions of a possible combination. Mr. Frazee reported that contact to the
PageNet directors at a board meeting on September 13. Mr. Frazee said that
representatives of Goldman Sachs and Morgan Stanley had talked with the other
paging company's financial advisors and believed there was now serious interest
in a possible combination. The directors
44
<PAGE> 54
discussed the possible combination with the other paging company and also
reviewed the discussions which had occurred with Arch.
At the meeting on September 13, PageNet's directors also discussed
PageNet's financial condition and concluded that PageNet needed additional
outside financial advice because the failure to reverse continued declining
revenues or sufficiently reduce operating costs, based upon preliminary third
quarter results of operations, potentially threatened PageNet's liquidity and
compliance with bank credit agreements and bond indentures. After that meeting,
PageNet engaged Houlihan Lokey Howard & Zukin Capital as an additional financial
advisor to advise PageNet with respect to the possible need for a
recapitalization or other form of debt restructuring on a standalone basis or on
the possibility that PageNet might seek to combine such a recapitalization with
a merger with the other paging company or with Arch. Goldman Sachs, Morgan
Stanley and Houlihan Lokey then resumed discussion with the other paging
company's financial advisors about the possible terms of a combination.
At a meeting of the Arch directors on September 28, Mr. Baker reported on
the status of discussions with PageNet concerning a possible business
combination, noting that such discussions remained very general. It was the
consensus of the directors that Mr. Baker should continue such discussions.
At a meeting of the PageNet board on October 1, representatives of Goldman
Sachs, Morgan Stanley and Houlihan Lokey reviewed with the PageNet directors
various possible alternatives, including PageNet's going forward without
significant change in capital structure, the possibility of a stand-alone
recapitalization, a potential merger without a recapitalization and a potential
merger coupled with a recapitalization. The directors discussed the various
options and concluded that a merger coupled with a recapitalization appeared to
be the best alternative for all of PageNet's stakeholders, including its
noteholders and stockholders. The directors discussed with the financial
advisors the possible structure of such a transaction and the risks and other
difficulties associated with its consummation. The advisors indicated that they
had discussed the possibility of such a combined merger and recapitalization
with the other paging company, which was interested in pursuing such a
transaction. The directors authorized management and the advisors to seek to
negotiate such a transaction with the other paging company, recognizing that,
depending on the course of those negotiations, PageNet might also want to
discuss such a transaction with Arch.
Following that board meeting on October 1, PageNet's management, financial
advisors and lawyers met with management, financial advisors and lawyers for the
other paging company. Negotiations toward possible agreement on the terms of a
transaction that would combine a merger with a recapitalization through exchange
offers by both companies continued actively until the week of October 11, 1999.
During that week, the other paging company communicated to PageNet, through its
financial advisors, revised proposed financial terms of the transaction which
were different and less favorable to PageNet than the terms previously
discussed. In light of that change, and because of continuing uncertainty about
whether agreement on financial and other aspects of the transaction could be
reached and whether the transaction could be consummated, the directors decided
that PageNet should contact Arch to determine if a transaction with Arch might
be possible that would be more favorable to PageNet's stakeholders.
On October 15, Mr. Frazee, Mr. Castelli and representatives of Houlihan
Lokey met with Mr. Baker and representatives of Bear Stearns. Mr. Baker
indicated a strong desire to try to negotiate a combination between PageNet and
Arch. Following that meeting, the financial advisors for PageNet and Arch
continued to discuss proposed financial terms of such a combination transaction.
On an October 17 conference call, Mr. Baker provided an update to certain
Arch directors on discussions with PageNet and its financial advisors. Mr. Baker
noted that the financial advisors had discussed a business combination involving
a simultaneous merger and recapitalization of both companies to be accomplished
through exchange offers with certain existing noteholders. Mr. Baker reported
that no consensus as to the allocation of the equity of a combined entity
between the Arch and PageNet stockholders had emerged. Thereafter, Mr. Baker
contacted other Arch directors and provided similar updates.
45
<PAGE> 55
At a board meeting on October 24, Goldman Sachs, Morgan Stanley and
Houlihan Lokey reviewed with the PageNet directors the proposed terms of a
possible merger with Arch and discussed various factors relating to the
likelihood of successfully consummating such a transaction. The directors
determined that the proposed merger with Arch appeared to be more favorable for
PageNet and all of its stakeholders than the proposed transaction with the other
paging company and also appeared to be more likely to be consummated
successfully. The directors directed management and PageNet's legal and
financial advisors to proceed as rapidly as possible to seek to negotiate an
agreement for such a merger with Arch.
At a meeting of the Arch directors on October 25, Mr. Baker reported on the
status of the continuing discussions with PageNet, including proposed terms of a
possible merger and recapitalization and the allocation of equity between the
Arch and PageNet stakeholders. The directors determined that management and
Arch's advisors should proceed with due diligence investigations and negotiation
of a merger agreement.
During the following week, management teams from PageNet and Arch met to
review potential cost savings and synergies. In addition, financial advisors,
legal counsel and management personnel from both companies carried out mutual
due diligence investigations. Negotiations by the respective managements,
financial advisors and counsel over the terms of a merger agreement between
PageNet and Arch then proceeded intensively until a proposed definitive
agreement was reached.
At meetings held on November 1 and 2, management, Bear Stearns and Arch's
counsel reviewed with the Arch directors the proposed terms of a business
combination with PageNet, including a draft of a proposed merger agreement.
Management and the financial and legal advisors to Arch were directed to seek to
finalize the terms of a definitive agreement relating to the proposed merger.
The directors of PageNet met on November 7 to consider the proposed merger
agreement. At that meeting the directors reviewed:
- the potential benefits and risks associated with the merger;
- the estimated values to be realized by PageNet's stockholders and
bondholders under the merger in comparison to the possible transaction
with the other paging company and standalone alternatives;
- the relative contributions of PageNet and Arch in relation to the shares
in the combined enterprise to be received by their respective
stakeholders;
- the likelihood of consummation of the merger;
- the future prospects of the combined company; and
- various other matters.
At the meeting, representatives of each of Goldman Sachs, Morgan Stanley and
Houlihan Lokey provided their formal analysis regarding the proposed
transaction. After discussion, each of Houlihan Lokey and Morgan Stanley gave
its oral opinion that as of November 7, the consideration to be received by the
holders of PageNet common stock on such date pursuant to the merger and the Vast
distribution, taken as a whole, was fair from a financial point of view and
Goldman Sachs gave its oral opinion that as of November 7, 1999, the exchange
ratio pursuant to the merger agreement was fair from a financial point of view
to the holders of PageNet common stock as of such date. Goldman Sachs, Morgan
Stanley and Houlihan Lokey then indicated that they would confirm their opinions
in writing. Representatives of Mayer, Brown & Platt, outside counsel to PageNet,
reviewed with the PageNet directors the terms of the proposed merger agreement.
After receiving advice from their financial and legal advisors and further
deliberations, and taking into account the various factors described below under
"-- PageNet's Reasons for Merger," the directors unanimously approved the
proposed merger on the evening of November 7.
The directors of Arch met on November 7 to consider the proposed merger
agreement. The Arch directors unanimously approved the proposed merger on the
evening of November 7.
46
<PAGE> 56
Later in the evening of November 7, the merger agreement was executed by
PageNet and Arch.
On January 7, 2000 the parties amended the merger agreement (1) to reduce
the amount of senior secured debt financing that PageNet and Arch must obtain in
order to effect the merger from $1.5 billion to $1.3 billion, and (2) to
increase the percentage of its total common equity that Vast may set aside for
an employee stock option, stock ownership or other similar plan from 15% to 20%.
On May 10, 2000, PageNet and Arch entered into a further amendment of the
merger agreement which, among other things,
- extends the date on which either PageNet or Arch may terminate the merger
agreement if the merger has not been consummated from June 30, 2000 to
September 30, 2000, subject to further extension in certain
circumstances;
- eliminates the requirement that a specified percentage of Arch's 10 7/8%
discount notes due 2008 be exchanged for shares of Arch common stock as a
condition to the merger;
- eliminates the requirement that the outstanding shares of Arch's Series C
convertible preferred stock convert into shares of Arch common stock as a
condition to the merger;
- provides for the conversion, in Arch's discretion, of Arch's Class B
common stock into shares of Arch common stock upon the effectiveness of
the merger; and
- provides that holders of PageNet's common stock outstanding at the date
of the stockholders meeting at which the merger is approved shall have
appraisal rights as required by applicable law.
PAGENET'S REASONS FOR THE MERGER
PageNet's directors believe that the merger represents the best alternative
to maintain and realize value for PageNet and all of its stakeholders, including
its stockholders and noteholders. In reaching its decision to approve the
merger, the directors consulted with PageNet's financial and legal advisors and
took into account, without limitation, the following conclusions and factors:
- A combination of PageNet with another major paging company is highly
desirable, if not essential, to achieve cost savings and other synergies
needed to remain competitive in the wireless communications industry. The
combined company will begin to achieve some savings from the Arch/PageNet
combination immediately. The full amount of such savings, which is
estimated to be approximately $100 million annually, is expected to be
achieved within 18 months after the merger.
- A substantial reduction of PageNet's outstanding debt is highly
desirable, if not essential, to enable PageNet to continue to have the
cash liquidity and other financial resources and flexibility needed to be
a viable enterprise and to compete effectively in the wireless
communications industry. The combined company after the merger will have
a substantially lower ratio of total debt to cash flow.
- Achieving substantial debt reduction in conjunction with a combination
with another major paging company, because of the greater value achieved
through cost savings and synergies, is substantially more beneficial to
PageNet and all of its stakeholders than any reduction of debt on a
standalone basis.
- The combination with Arch is the best alternative available to PageNet
and its stakeholders based upon the financial, managerial and other
characteristics of the combined company and based upon the greater value
expected to be realized by PageNet's noteholders and stockholders under
the Arch transaction in comparison to any alternative.
- While subject to substantial risks and uncertainties, the merger with
Arch is more likely to be consummated than the possible combination
transaction with the other paging company.
- No prospective acquiror or other merger partner, other than Arch and the
other paging company, has expressed interest in discussing a possible
combination transaction with PageNet.
47
<PAGE> 57
- PageNet's failure to reverse its continued decline in revenues, and its
resulting loss of liquidity, makes it critical for PageNet to move
forward to achieve a more viable capital structure.
- The structure of the transaction enables PageNet's current noteholders
and stockholders to retain an equity ownership in Vast, which may have
future value if its wireless solutions business is successful.
- The merger is structured as a "reorganization" for federal income tax
purposes so that stockholders of PageNet will not recognize gain on the
exchange of their shares for Arch's shares although it is expected that
the receipt of Class B common stock of Vast will be taxable.
- The oral opinions of Houlihan Lokey and Morgan Stanley, subsequently
confirmed in writing that, as of November 7, 1999, the consideration to
be received by the holders of PageNet common stock pursuant to the merger
and the Vast distribution, taken as a whole, was fair from a financial
point of view to such holders and the oral opinion of Goldman Sachs,
subsequently confirmed in writing, that, as of November 7, 1999, the
exchange ratio pursuant to the merger agreement was fair from a financial
point of view to the holders of PageNet common stock.
In approving the merger, the directors also took into account factors such as:
- the relative contributions of PageNet and Arch to the revenues and cash
flow of the combined company;
- the historical and current trading prices of the common stock of PageNet
and Arch;
- valuations of other comparable companies; and
- overall trends in the paging business and the telecommunications
industry.
PageNet's directors also considered various potential risks relating to the
merger, including, without limitation, the following:
- Various conditions of the merger may not be satisfied, including the need
to consummate the exchange offers, to obtain continued bank financing
following the merger, and to receive required regulatory approvals, and
the merger may therefore not be consummated.
- It may be impossible to consummate the merger except through a
prepackaged chapter 11 bankruptcy plan, and such plan may require
consents which cannot be obtained or may not be approved by the
Bankruptcy Court or, even if successful, may cause serious disruption of
PageNet's business.
- PageNet may not have sufficient cash to maintain its operations during
the time necessary to consummate the merger.
- A termination fee of $40.0 million is payable to Arch if the agreement is
terminated as a result of a superior offer, potentially imposing a
substantial financial burden on PageNet.
- The anticipated cost savings and other synergies may not be achieved, or
management or other aspects of the two companies may not be successfully
integrated, resulting in substantial reduction in the projected value of
the combined enterprise.
- The merger agreement restricts some of PageNet's actions with respect to
conducting its business prior to the merger, which may make it more
difficult for PageNet to respond to changing competitive or financial
circumstances.
The directors concluded that the risks were outweighed by the advantages of the
merger.
The discussion of the information and factors considered by PageNet's board
of directors is not intended to be exhaustive but includes all material factors
considered by PageNet's board of directors. In reaching its determination to
adopt and recommend the merger, PageNet's board of directors did not
48
<PAGE> 58
assign any relative or specific weights to these factors, and individual
directors may have given differing weights to differing factors.
OPINIONS OF FINANCIAL ADVISORS TO PAGENET
The directors of PageNet received the opinions of their financial advisors
described below as to the fairness of the consideration to be received by the
current common stockholders of PageNet in the merger. The directors did not
receive any opinion as to the terms of the exchange offer to be offered to
PageNet noteholders but determined the exchange ratio of PageNet common stock
for senior subordinated notes and other terms of such offer, with the advice of
Houlihan Lokey, on a basis reasonably expected to result in the required level
of acceptance from the noteholders.
Opinion of Houlihan Lokey Howard & Zukin Capital
Under a letter agreement, dated September 22, 1999, the board of directors
of PageNet retained Houlihan Lokey to assist it in evaluating its strategic
alternatives. As part of this engagement, PageNet requested that Houlihan Lokey
evaluate whether the consideration to be received in the merger and the related
transactions by the common stockholders of PageNet, holding shares as of the
date of the opinion, was fair. At a special meeting of the board of directors of
PageNet held on November 7, 1999, Houlihan Lokey presented the financial
analyses it performed as part of its engagement. Houlihan Lokey also, at that
meeting, delivered its oral opinion that, as of that date, the aggregate
consideration to be received in the merger and related transactions by the
persons that held PageNet common stock as of that date was fair to those persons
from a financial point of view. Houlihan Lokey later confirmed its oral opinion
in writing. The written opinion dated November 7, 1999, stated the
considerations and assumptions upon which it was based.
Although Houlihan Lokey assisted the PageNet board of directors in
evaluating the terms of the financial restructuring, Houlihan Lokey was not
retained to provide, and Houlihan Lokey did not provide, to PageNet an opinion
that the financial restructuring, to be effected by exchanging new stock for old
notes, was fair or advisable to the noteholders or any other person. Nor did
Houlihan Lokey express an opinion on the relative values to be obtained by
PageNet's noteholders or stockholders or PageNet itself as a result of the
financial restructuring. In addition, Houlihan Lokey was not retained to
provide, and did not provide, an opinion regarding the underlying business
decision of PageNet to effect the merger or the financial restructuring.
A COPY OF THE HOULIHAN LOKEY OPINION IS ATTACHED AS ANNEX F TO THIS PROXY
STATEMENT/PROSPECTUS. YOU ARE URGED TO READ THE OPINION IN ITS ENTIRETY IN
CONJUNCTION WITH YOUR REVIEW OF THIS DOCUMENT, ESPECIALLY THE SUMMARY OF THE
HOULIHAN LOKEY OPINION SET FORTH BELOW. HOULIHAN LOKEY'S OPINION IS FOR THE
INFORMATION AND ASSISTANCE OF PAGENET'S BOARD OF DIRECTORS. IT DOES NOT,
HOWEVER, CONSTITUTE A RECOMMENDATION TO ANY HOLDERS OF SHARES OF PAGENET AS TO
HOW THEY SHOULD VOTE WITH RESPECT TO THE MERGER OR TO ANY HOLDERS OF
INDEBTEDNESS OF PAGENET AS TO HOW THEY SHOULD VOTE WITH RESPECT TO THE FINANCIAL
RESTRUCTURING.
In arriving at its opinion, Houlihan Lokey, among other things:
- reviewed PageNet's annual reports to stockholders and annual reports on
Form 10-K for the fiscal year ended 1998;
- reviewed PageNet's quarterly reports on Form 10-Q for the two quarters
ended March 31, 1999 and June 30, 1999;
- reviewed PageNet's company-prepared interim financial statements for the
period ended September 30, 1999, which PageNet's management has
identified as being the most current financial statements then available;
- reviewed PageNet's proxy statement dated April 12, 1999;
- reviewed selected other documents of PageNet filed with the SEC;
49
<PAGE> 59
- reviewed Arch's annual reports to stockholders and annual reports on Form
10-K for the fiscal years ended 1997 and 1998;
- reviewed Arch's selected interim reports to stockholders on Form 10-Q;
- reviewed selected documents of Arch filed with the SEC regarding its
acquisition of MobileMedia;
- reviewed the merger agreement;
- reviewed the indenture dated July 15, 1995 of PageNet's 10% senior
subordinated notes due October 15, 2008, supplemented by a second
supplemental indenture dated October 15, 1996;
- reviewed the indenture dated July 15, 1995 of PageNet's 10.125% senior
subordinated notes due August 1, 2007, supplemented by a first
supplemental indenture dated July 15, 1995;
- reviewed the indenture dated January 15, 1994 of PageNet's 8.875% senior
subordinated notes due February 1, 2006, supplemented by a first
supplemental indenture dated January 15, 1994;
- reviewed the second amended and restated credit agreement of PageNet and
certain of its subsidiaries, the amended and restated loan agreement of
PageNet of Canada Inc., and certain related documents;
- met with members of the senior management of PageNet to discuss the
operations, financial condition, future prospects and projected
operations and performance of PageNet, and met with representatives of
PageNet's independent accounting firm, other investment bankers and
counsel to discuss related matters;
- visited selected PageNet facilities and business offices;
- reviewed selected forecasts and projections prepared by PageNet's
management for the years ended December 31, 1999 through 2004 and for the
quarters ended September 30, 1999 through December 31, 2000;
- reviewed certain forecasts and projections for Arch prepared by its
management;
- reviewed analyses prepared by and met with management of PageNet and Arch
to discuss expected cost savings and other expected synergies resulting
from the merger;
- reviewed the historical market prices and trading volume for PageNet's
publicly traded securities;
- reviewed other publicly available financial data for companies that
Houlihan Lokey considered comparable to PageNet, and publicly available
prices and premiums paid in other transactions that Houlihan Lokey
considered similar to the merger;
- reviewed drafts of documents to be delivered at the closing of the
merger; and
- conducted other studies, analyses and inquiries as Houlihan Lokey
considered appropriate.
In giving its opinion, Houlihan Lokey assumed and relied upon the accuracy
and completeness of all of the financial and other information that was publicly
available or supplied to Houlihan Lokey by PageNet without independently
verifying that information. Houlihan Lokey assumes no responsibility with
respect to that information. Houlihan Lokey also relied upon the advice of
management of PageNet that the financial forecasts and other information
provided to or discussed with Houlihan Lokey were reasonably prepared and
reflected the best currently available estimates of the future financial results
and condition of PageNet and that there has been no material change in the
assets, financial condition, business or prospects of PageNet since the date of
the most recent financial statements made available to Houlihan Lokey.
Houlihan Lokey did not physically inspect or independently appraise any of
the properties or assets of PageNet. Houlihan Lokey's opinion is necessarily
based on business, economic, market and other conditions that existed on the
date of its opinion. Houlihan Lokey has no duty or obligation to advise
50
<PAGE> 60
PageNet or any other person as to whether any change in any fact or matter that
Houlihan Lokey learns of after the date of its opinion would affect its opinion
unless applicable law would require that disclosure.
Houlihan Lokey also assumed that the merger would be completed according to
the terms of the merger agreement and that no condition contained in that
agreement would be waived and there would otherwise not be any material
modifications to the terms of the agreement.
The following is a summary of the significant financial analyses performed
by Houlihan Lokey in preparing its opinion:
Stand-Alone Analysis. Houlihan Lokey analyzed the valuation of PageNet on a
stand-alone basis, which means the value of PageNet if it elected to remain an
independent entity. Houlihan Lokey used three theoretical approaches to estimate
this value: (1) using multiples from comparable companies that have recently
been acquired; (2) using multiples from comparable publicly traded companies;
and (3) using a discounted cash flow analysis. Based on these analyses described
below, Houlihan Lokey observed that the enterprise value of PageNet was less
than the face amount of its total debt. Enterprise value is a term used to
describe the total value of a company. One can calculate the implied equity
value by subtracting total debt from the enterprise value. Thus, enterprise
value represents the total value of a company regardless of whether it has any
debt, while the equity value represents the residual value left for the
stockholders after subtracting debt from the enterprise value. As such, it was
concluded that there was no equity value in PageNet remaining for its equity
holders in the event PageNet remained as a stand-alone operation, resulting in
an "equity shortfall." Houlihan Lokey performed this analysis in order to
provide the board of directors of PageNet with a basis against which it could
compare the range of projected valuations offered by the combined entity
assuming completion of the proposed restructuring and merger.
Comparable Company and Comparable Transaction Analyses. To arrive at a
range of stand-alone valuations for PageNet, Houlihan Lokey applied a range
of multiples to representative financial statistics of PageNet, such as net
revenues, earnings before interest, income taxes, depreciation and
amortization, and total units in service or subscribers. Net revenue
multiples are stated as ratios, and therefore are followed by an "x"
symbol. In order to calculate the implied value of a company, one must
multiply the net revenue multiples by the subject company's net revenue
figures. Earnings before interest, income taxes, depreciation and
amortization multiples are also stated as ratios, and are also followed by
an "x" symbol. In order to calculate the implied value of a company, one
must multiply the earnings before interest, income taxes, depreciation and
amortization multiples by the subject company's earnings before interest,
income taxes, depreciation and amortization. Subscriber multiples, however,
are stated in U.S. dollars. In order to calculate the implied value of a
company, one must multiply the subscriber multiples by the subject
company's number of subscribers. Houlihan Lokey selected these multiples
from two sources: multiples of other comparable public companies, also
known as trading multiples, and multiples derived from comparable merger
and acquisition transactions, also know as transaction multiples. Houlihan
Lokey determined that it was appropriate to apply these multiples to
PageNet's quarter ended September 30, 1999 net revenues multiplied by four,
earnings before interest, income taxes, depreciation and amortization
multiplied by four, and total units in service or subscribers. Net revenues
and earnings before interest, income taxes, depreciation and amortization
were multiplied by four to annualize the numbers. The representative
financial statistics and ranges of multiples used by Houlihan Lokey in
these analyses are summarized below.
<TABLE>
<CAPTION>
TRADING TRANSACTION
STATISTIC MULTIPLES MULTIPLES
------------- -------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Net Revenues....................... $932 1.40x to 1.60x 1.50x to 1.75x
Earnings before interest, income
taxes, depreciation and
amortization..................... $278 4.0x to 5.0x 4.5x to 5.5x
Subscribers........................ 9.3 $140 to $160 $150 to $170
</TABLE>
Discounted Cash flow Analysis. Houlihan Lokey also performed a
discounted cash flow analysis. A discounted cash flow analysis is one
measure used to determine the value of a company. By
51
<PAGE> 61
projecting out over a specified period, a future stream of cashflows that
the company may generate and then deducting or "discounting" those cash
flows to the present using a rate that typically corresponds to the
company's expected cost of capital during that period, the value that a
third party might pay today for those future cashflows can be determined.
In the discounted cash flow analysis Houlihan Lokey calculated the present
value of the estimated future cash flows of PageNet based on a range of
terminal multiples of 4.5x to 5.5x earnings before interest, income taxes,
depreciation and amortization, that is, multiples used to measure the
"value" of PageNet at the end of a specified period, and a range of
discount rates of 13.0% to 15.0%. Houlihan Lokey then calculated a range of
values for Vast based on a range of revenue multiples derived from trading
values for companies comparable to Vast. This analysis indicated a range of
value for Vast of $250 million to $350 million.
Based on the above analyses, Houlihan Lokey selected ranges for
PageNet's stand-alone enterprise and equity values, including the value of
Vast. The selected ranges were as follows:
STAND-ALONE ANALYSIS
($ IN MILLIONS)
<TABLE>
<CAPTION>
ENTERPRISE ENTERPRISE EQUITY EQUITY
VALUE VALUE SHORTFALL SHORTFALL
(LOW) (HIGH) (LOW) (HIGH)
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Comparable Companies.................. $1,450 $1,850 $(550) $(150)
Comparable Transactions............... 1,550 1,950 (450) (50)
Discounted Cash Flow.................. 1,574 1,844 (430) (160)
</TABLE>
Market Trading Price Capitalization Analysis. Houlihan Lokey also analyzed
the trading values of PageNet's publicly traded securities and bank loans prior
to the announcement of the transaction.
The market values of PageNet's publicly traded securities and bank loans
were as follows:
<TABLE>
<CAPTION>
CATEGORY ($ IN MILLIONS)
-------- ---------------
<S> <C>
Credit Facility........................................ $ 633
Other Debt............................................. $ 2
Subordinated Notes..................................... $ 432
Common Stock........................................... $ 101
------
Total Trading Market Capitalization.................... $1,168
</TABLE>
Houlihan Lokey observed that while the total trading market capitalization
of PageNet was approximately $832 million less than the $2.0 billion face amount
of its debt obligations, the common stock continued to have a trading value of
approximately $101 million.
Contribution Analysis. Houlihan Lokey also analyzed the percentage
contributions that PageNet and Arch would each make to the estimated net
revenues, earnings before interest, income taxes, depreciation and amortization
(excluding Vast), capital expenditures and earnings before interest, income
taxes, depreciation and amortization minus capital expenditures of the combined
company. Houlihan Lokey performed that analysis for the third quarter of fiscal
year 1999 based on management's latest available estimates for third quarter
results as of the date of its opinion. The analysis indicated the following:
<TABLE>
<CAPTION>
CONTRIBUTION ANALYSIS 3Q 1999
-----------------------------
ARCH
THIRD QUARTER 1999 PAGENET COMMUNICATIONS
------------------ --------- ----------------
<S> <C> <C>
Net Revenues........................................ 54% 46%
Earnings before interest, income taxes, depreciation
and amortization, excluding Vast.................. 51% 49%
Capital Expenditures................................ 67% 33%
Earnings before interest, income taxes, depreciation
and amortization, less capital expenditures....... 30% 70%
</TABLE>
52
<PAGE> 62
Immediately following completion of the merger, the stakeholders who
participated in the restructuring of PageNet and the stakeholders who
participated in the restructuring of Arch would own approximately 52.0% and
48.0%, respectively, of the combined company's common stock outstanding. By
applying the mid-point of the earnings before interest, income taxes,
depreciation and amortization multiples on the combined company's earnings
before interest, income taxes, depreciation and amortization, Houlihan Lokey
calculated the enterprise value of the combined company. Then, total debt of the
combined company was subtracted from the combined enterprise value to derive the
combined company's implied equity value. Houlihan Lokey then used the same
mid-point of the earnings before interest, income taxes, depreciation and
amortization multiples on both PageNet's and Arch's earnings before interest,
income taxes, depreciation and amortization figures separately to derive the
"relative enterprise value" of each company. Enterprise values derived in such a
fashion are "relative" because the values of two separate companies are derived
by using the same earnings before interest, income taxes, depreciation and
amortization multiples. Then, Houlihan Lokey subtracted the total debt of each
company to derive the implied equity values of each company. Houlihan Lokey then
observed that the implied equity value of PageNet divided by the combined
company's implied equity value was approximately 51% and the implied equity
value of Arch divided by the combined company's implied equity value was
approximately 49%.
Combination Valuation Analysis. Houlihan Lokey also analyzed ranges of
value for the combined entity. To arrive at these ranges, 19.5% of the value of
Vast was included in this analysis, using the same underlying range of values
for Vast as determined in the stand-alone analysis. The 19.5% of the value of
Vast represents the portion of Vast that is to be retained by the combined
entity.
For the trading multiples approach, Houlihan Lokey used the pro forma
levels for third quarter 1999 and projected second quarter 2000 annualized net
revenues, earnings before interest, income taxes, depreciation and amortization
and subscriber value. For the transaction multiples approach, Houlihan Lokey
used the projected second quarter 2000 annualized net revenues, earnings before
interest, income taxes, depreciation and amortization and subscriber value.
Houlihan Lokey used the second quarter 2000 projected statistics for the
transaction multiples approach because it was anticipated that the merger of
PageNet and Arch would be consummated at or near that time period.
<TABLE>
<CAPTION>
MARKET TRADING TRANSACTION
STATISTIC MULTIPLES MULTIPLES
------------- --------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Third Quarter 1999
Net Revenues............................ $1,715 1.50x to 1.75x NA
Earnings before interest, income taxes,
depreciation and amortization........ $ 540 5.0x to 6.0x NA
Subscribers............................. 16.3 $150 to $175 NA
Second Quarter 2000
Net Revenues............................ $1,679 1.50x to 1.75x 1.75x to 2.00x
Earnings before interest, income taxes,
depreciation and amortization........ $ 567 4.5x to 5.5x 5.5x to 6.5x
Earnings before interest, income taxes,
depreciation and amortization with
synergies............................ $ 647 4.5x to 5.5x 5.5x to 6.5x
Subscribers............................. 16.0 $150 to $175 $175 to $200
</TABLE>
In the discounted cash flow analysis Houlihan Lokey calculated the present
value of the estimated future cash flows of the combined entity based on a range
of terminal multiples of 4.5x to 5.5x to earnings before interest, income taxes,
depreciation and amortization and a range of discount rates of 13.0% to 15.0%.
Based on these analyses Houlihan Lokey again selected a range of enterprise
values for the combined company, which after subtracting $1.8 billion of pro
forma debt and adding the 19.5% of the value of Vast
53
<PAGE> 63
to be retained by the combined entity, yielded a range of equity values for the
new company of $850 million to $2.0 billion. Houlihan Lokey then determined the
range of value available to holders of PageNet's common stock by multiplying
their 7.5% ownership by the above range and adding the value of their retained
direct interest in Vast of 11.6%. This yielded a range of value of $93 million
to $193 million, or approximately $0.89 to $1.86 per share.
Pro Forma Analysis. Houlihan Lokey analyzed the pro forma impact or the
impact that the combined company would have going forward, of the restructuring
and the merger on various financial ratios used to determine a company's
creditworthiness. These analyses demonstrated that based on the five categories
listed below, the creditworthiness of the combined company would significantly
improve as a result of the proposed transactions over the station of PageNet on
a stand-alone basis.
CREDIT STATISTICS IMPACT
<TABLE>
<CAPTION>
PAGENET AND PAGENET AND
PAGENET ARCH ARCH
------- ------------------- ----------------
(WITHOUT SYNERGIES) (WITH SYNERGIES)
<S> <C> <C> <C>
Total book debt to annualized earnings before
interest, income taxes, depreciation and
amortization....................................... 7.3x 3.3x 2.9x
Total book debt per subscriber....................... $ 224 $ 113 $ 113
Earnings before interest, income taxes, depreciation
and amortization/pro forma interest expense........ 1.5x 2.5x 2.9x
(Earnings before interest, income taxes, depreciation
and amortization less capital expenditures)/pro
forma interest expense............................. 0.7x 1.2x 1.6x
Representative latest quarter annualized free cash
flow ($ millions).................................. $ (62.2) $53.3 $133.2
</TABLE>
Alternatives Considered. In addition to considering the proposed
restructuring and merger transactions, Houlihan Lokey also reviewed with the
board of directors of PageNet the advantages and disadvantages of maintaining
the status quo or engaging in a stand-alone restructuring, an outright sale, or
merging with one or more paging or telecommunications companies in a similar
transaction. In assessing these alternatives, Houlihan Lokey considered, among
other things:
- theoretical valuation implications;
- relative value allocation;
- likely financial impact on underlying business operations;
- timing and cost required to close; and
- the complexity and inherent risk of closing each alternative.
Houlihan Lokey performed a variety of financial and comparative analyses
solely for the purpose of providing its opinion to the PageNet board that the
aggregate consideration to be received in the merger and related transactions by
the common stockholders of PageNet is fair to those persons from a financial
point of view. The summary of these analyses is not a complete description of
the analyses performed by Houlihan Lokey. Preparing a fairness opinion is a
complex analytic process and is not readily susceptible to partial analysis or
summary description. Houlihan Lokey believes that its analyses must be
considered as a whole. Selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying the analyses and its opinion.
In its analyses, Houlihan Lokey made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond
54
<PAGE> 64
the control of PageNet and Arch. The estimates contained in these analyses and
the valuation ranges resulting from any particular analysis do not necessarily
indicate actual values or predict future results or values. These may be
significantly more or less favorable than those suggested by these analyses. In
addition, analyses relating to the value of the businesses or securities are not
appraisals and do not reflect the prices at which the businesses or securities
may actually be sold or the prices at which their securities may trade. As a
result, these analyses and estimates are inherently subject to substantial
uncertainty.
Houlihan Lokey's opinion and financial analyses were not the only factors
considered by the PageNet board of directors in its evaluation of the merger and
should not be viewed as determinative of the views of the PageNet board of
directors or management.
Under the terms of Houlihan Lokey's engagement, PageNet has agreed to pay
Houlihan Lokey an advisory fee estimated to be $12.1 million for the services
provided in connection with the merger and restructuring. A substantial portion
of this fee will not be paid unless and until the merger and related
transactions are completed. PageNet has agreed to reimburse Houlihan Lokey for
travel and other out-of-pocket expenses incurred in performing its services,
including the fees and expenses of Houlihan Lokey's legal counsel, and to
indemnify Houlihan Lokey and related persons against liabilities, including
liabilities under the federal securities laws, arising out of Houlihan Lokey's
engagement.
Houlihan Lokey is a nationally recognized investment banking firm and was
selected by PageNet based on Houlihan Lokey's experience and expertise with
respect to restructuring and merger and acquisition transactions. Houlihan Lokey
regularly engages in the valuation of businesses and their securities in
connection with restructuring and mergers and acquisitions.
Opinion of Goldman, Sachs & Co.
PageNet retained Goldman Sachs on August 1, 1999, to act as one of its
financial advisors in connection with the merger and the Vast distribution.
Goldman Sachs is an internationally recognized investment banking firm and was
selected by PageNet based on the firm's reputation and experience in investment
banking in general and its recognized expertise in the valuation of businesses,
as well as its prior investment banking relationship with PageNet. On November
7, 1999, at the meeting of PageNet's board of directors, Goldman Sachs delivered
to PageNet's board its oral opinion (which was subsequently confirmed in a
written opinion dated as of November 7, 1999) that, as of such date and based on
and subject to the matters set forth therein, the exchange ratio pursuant to the
merger agreement was fair from a financial point of view to the holders of
PageNet common stock as of the date of its opinion.
YOU SHOULD CONSIDER THE FOLLOWING WHEN READING THE DISCUSSION OF THE
GOLDMAN SACHS OPINION IN THIS DOCUMENT:
- WE URGE YOU TO READ CAREFULLY THE ENTIRE OPINION OF GOLDMAN SACHS, WHICH
SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN, AND WHICH IS ATTACHED AT ANNEX
G OF THIS PROSPECTUS.
- GOLDMAN SACHS' ADVISORY SERVICES AND OPINION WERE PROVIDED TO PAGENET'S
BOARD FOR ITS INFORMATION IN ITS CONSIDERATION OF THE MERGER AND THE
OPINION WAS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A
FINANCIAL POINT OF VIEW TO THE HOLDERS OF PAGENET COMMON STOCK AS OF THE
DATE OF ITS OPINION.
- GOLDMAN SACHS' OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER
OF PAGENET COMMON STOCK AS TO HOW TO VOTE ON THE MERGER OR ANY RELATED
MATTER.
In connection with its opinion, Goldman Sachs reviewed among other things,
the following:
- the merger agreement;
- the annual reports to stockholders and annual reports on Form 10-K of
PageNet and Arch for each of the previous five years;
- certain interim reports to stockholders and quarterly reports on Form
10-Q of PageNet and Arch;
55
<PAGE> 65
- certain other communications from PageNet and Arch to their respective
stockholders;
- certain historical financial information and other information for Vast;
and
- certain internal financial analyses and forecasts for PageNet, Vast and
Arch prepared by their respective managements, including certain cost
savings and operating synergies projected by the managements of PageNet
and Arch to result from the transactions contemplated by the merger
agreement.
Goldman Sachs also held discussions with members of the senior management
of PageNet and Arch regarding their assessment of the strategic rationale for,
and the potential benefits of, the transactions contemplated by the merger
agreement and with those persons and with members of the senior management of
Vast regarding the past and current business operations, financial condition and
future prospects of their respective companies. In addition, Goldman Sachs
reviewed the reported price and trading activity for the PageNet common stock
and the Arch common stock, compared certain financial and stock market
information for PageNet and Arch and certain financial information for Vast with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the paging and communications industry specifically and in other
industries generally and performed such other studies and analyses as it
considered appropriate. At the direction of PageNet's board, Goldman Sachs also
read certain analyses performed on behalf of PageNet by Houlihan Lokey regarding
(i) the proposed financial restructuring (which we refer to in this document as
the "financial restructuring"), in which (A) certain outstanding debt securities
of PageNet would be exchanged for 616.8 million shares of PageNet common stock
and (B) certain outstanding debt securities and preferred stock of Arch would be
exchanged for 31.7 million shares of Arch common stock and (ii) the possible
restructuring of PageNet's outstanding debt on a stand-alone basis (which we
refer to in this document as the "stand-alone restructuring"). Goldman Sachs
also reviewed with PageNet and its other financial advisors, including Houlihan
Lokey, certain options available to PageNet, other than alternative business
combinations, for addressing PageNet's liquidity needs. In addition, Goldman
Sachs also reviewed the tax analysis prepared by the management of PageNet and
PageNet's accountants with respect to the transactions contemplated by the
merger agreement, including, without limitation, the financial restructuring and
the Vast distribution.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In this regard, Goldman
Sachs assumed with the consent of PageNet's board that the financial forecasts,
including the underlying assumptions, provided to it and discussed with it with
respect to PageNet, Vast and Arch after giving effect to the transactions
contemplated by the merger agreement, including, without limitation, certain
cost savings and operating synergies projected by the managements of PageNet and
Arch to result from the transactions contemplated by the merger agreement have
been reasonably prepared on a basis reflecting the best currently available
judgments and estimates of PageNet, Vast and Arch, as applicable.
Without making an independent evaluation of the matters contained therein
and with the consent of PageNet's board, Goldman Sachs relied upon the certain
analyses prepared by Houlihan Lokey referenced above for, among other things,
purposes of analyzing the impact of the stand-alone restructuring on the holders
of the shares of PageNet common stock on the date of its opinion. In that
regard, Goldman Sachs also took into account the view of the management of
PageNet with respect to the likely impact of a stand-alone restructuring on the
holders of the shares of PageNet common stock on the date of its opinion. In
addition, without making an independent evaluation of the matters contained
therein and with the consent of PageNet's board, Goldman Sachs relied upon the
tax analysis prepared by the management of PageNet and PageNet's accountants
referenced above.
Goldman Sachs did not make an independent evaluation or appraisal of the
assets and liabilities of PageNet, Vast or Arch or any of their subsidiaries and
Goldman Sachs was not furnished with any such evaluation or appraisal. Goldman
Sachs' opinion does not address the relative merits of the transactions
contemplated pursuant to the merger agreement as compared to any alternative
business transaction that
56
<PAGE> 66
might be available to PageNet. Goldman Sachs' opinion was provided for the
information and assistance of PageNet's board in connection with its
consideration of the transactions contemplated by the merger agreement and such
opinion does not constitute a recommendation as to how any holder of PageNet
common stock should vote with respect to such transactions. Goldman Sachs'
opinion was necessarily based upon conditions as they existed and could be
evaluated by it on the date of its opinion and Goldman Sachs assumed no
responsibility to update or revise its opinion based upon circumstances and
events occurring after the date of its opinion. Goldman Sachs' opinion does not
imply any conclusion as to the likely trading range of Arch common stock or
shares of Vast following consummation of the transactions contemplated by the
merger agreement, which may vary depending upon, among other factors, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors that generally influence the price of securities. In rendering
its opinion, Goldman Sachs assumed, with the consent of PageNet's board, that
the financial restructuring, the Vast distribution and the other transactions
contemplated by the merger agreement will be completed in the manner set forth
in the merger agreement, including without limitation, that an aggregate of (1)
616.8 million shares of PageNet common stock will be issued pursuant to the
PageNet Exchange Offer (as defined in the merger agreement) and (2) 29.6 million
shares of Arch common stock will be issued pursuant to the Arch Exchange Offer
(as defined in the merger agreement) and that the outstanding preferred stock of
Arch will be converted into 2.1 million shares of Arch common stock.
Goldman Sachs' opinion related solely to the fairness from a financial
point of view of the exchange ratio to the holders of shares of PageNet common
stock on the date of its opinion. Goldman Sachs did not express any opinion
concerning the consideration to be received by any other security holder of
PageNet pursuant to the financial restructuring, the Vast distribution or any
other transaction contemplated by the merger agreement or the fairness of the
financial restructuring to the holders of shares of PageNet common stock on the
date of its opinion.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with PageNet, having acted as its financial advisor from time to time,
including having acted as its managing underwriter in May 1992 in an offering of
approximately 6 million shares of PageNet common stock, as its private placement
agent for an aggregate of approximately $1.2 billion principal amount in senior
subordinated notes in three offerings, one each in 1994, 1995 and 1996, and
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to the merger agreement.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of PageNet or Arch for its own account and for the accounts of customers.
The following is a summary of material financial analyses used by Goldman
Sachs in reaching its opinion and does not purport to be a complete description
of the analyses performed by Goldman Sachs. Goldman Sachs performed its analysis
under each of the following scenarios:
- PageNet on a stand-alone basis (which we refer to in this document as the
stand-alone analysis);
- PageNet after the stand-alone restructuring (which we refer to in this
document as the stand-alone restructuring analysis); and
- PageNet after the financial restructuring (which we refer to in this
document as the merger/ restructuring analysis).
The following quantitative information, to the extent it is based on market
data, is based on market data as it existed at or about November 4, 1999 and is
not necessarily indicative of current market conditions. In the summaries below,
unless otherwise specifically noted, references to forecasted financial
information were derived from research analyst estimates. Readers should
understand that the order of analyses and the results derived from these
analyses described below do not represent relative importance
57
<PAGE> 67
or weight given to these analyses by Goldman Sachs. The summary of the financial
analyses includes information presented in tabular format. IN ORDER TO
UNDERSTAND FULLY THE FINANCIAL ANALYSES USED BY GOLDMAN SACHS, THESE TABLES MUST
BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT DESCRIBE
COMPLETELY THE FINANCIAL ANALYSES.
Historical and Comparative Common Stock Performance
Goldman Sachs reviewed and analyzed the daily closing per share market
prices and trading volume for PageNet common stock from November 4, 1998 to
November 4, 1999. In addition, Goldman Sachs reviewed and analyzed the
historical performance of PageNet common stock and Arch common stock based upon
their respective indexed closing prices from November 4, 1998 to November 4,
1999, and compared such performance to the S&P 500 and a group of publicly
traded paging companies as set forth in the table below.
The following table depicts the percentage increases or decreases in the
indexed prices of the referenced securities and indices for the period from
November 4, 1998 to November 4, 1999:
<TABLE>
<CAPTION>
% INCREASE/(DECREASE)
SINCE NOVEMBER 4, 1998
----------------------
<S> <C>
PageNet.................................................. (87)%
Arch..................................................... 42%
S&P 500.................................................. 22%
SkyTel Communications, Inc. ............................. 9%
WebLink Wireless, Inc. (formerly known as PageMart
Wireless, Inc.)........................................ 3%
Metrocall, Inc. ......................................... (54)%
</TABLE>
Stand-Alone Analysis
Discounted Cash Flow Analysis. Based on projections provided by the
management of PageNet, Goldman Sachs performed a discounted cash flow analysis
of PageNet on a stand-alone basis. The estimated future cash flows were based on
financial projections for PageNet for the years 2000 through 2004. The terminal
values of PageNet were calculated based on projected earnings before interest,
income taxes, depreciation and amortization multiples for 2004 of 5.0x to 7.0x
and a range of discount rates of 14.0% to 16.0%. Based on these parameters,
Goldman Sachs calculated the equity values per share of PageNet common stock to
range from $(4.95) to $(0.77).
Selected Comparable Company Analysis. Goldman Sachs compared certain
financial information of PageNet with that of a group of publicly traded paging
companies as set forth in the table below. Such financial information included
(i) levered value as a multiple of current subscribers, (ii) levered value as a
multiple of estimated 1999 and estimated 2000 revenue and (iii) levered value as
a multiple of earnings before interest, taxes, depreciation and amortization on
an annualized basis (which we refer to in this document as the run-rate earnings
before interest, income taxes, depreciation and amortization) for second quarter
1999, estimated 1999 and estimated 2000 earnings before interest, income taxes,
depreciation and amortization. Levered value represents the market value of the
common equity plus the value of the debt (on a market or book value basis) less
cash.
58
<PAGE> 68
The following tables present, as of November 4, 1999, the results of these
analyses. The first table assumes that each company's debt is valued at its
market value and the second assumes each company's debt is valued at its book
value:
<TABLE>
<CAPTION>
LEVERED VALUE
LEVERED VALUE TO EARNINGS BEFORE INTEREST,
TO CURRENT LEVERED VALUE INCOME TAXES, DEPRECIATION
SUBSCRIBERS TO REVENUE AND AMORTIZATION
------------- ------------- ------------------------------
2QA
COMPARABLE COMPANIES 1999E 2000E RUN-RATE 1999E 2000E
- -------------------- ----- ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Arch............................. $177 1.7x 1.6x 5.0x 5.2x 4.7x
Metrocall........................ 109 1.1 1.1 4.3 4.1 3.8
PageNet.......................... 95 1.0 1.0 3.3 3.4 3.3
WebLink.......................... 224 2.3 2.0 13.8 13.6 7.7
</TABLE>
- ---------------
* Market value of debt basis
<TABLE>
<CAPTION>
LEVERED VALUE
LEVERED VALUE TO EARNINGS BEFORE INTEREST,
TO CURRENT LEVERED VALUE INCOME TAXES, DEPRECIATION
SUBSCRIBERS TO REVENUE AND AMORTIZATION
------------- ------------- ------------------------------
2QA
COMPARABLE COMPANIES 1999E 2000E RUN-RATE 1999E 2000E
- -------------------- ----- ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Arch............................. $234 2.2x 2.1x 6.6x 6.8x 6.2x
Metrocall........................ 175 1.8 1.7 6.9 6.5 6.0
PageNet.......................... 204 2.2 2.3 7.1 7.4 7.1
WebLink.......................... 290 2.9 2.9 17.8 17.6 10.0
</TABLE>
- ---------------
* Book value of debt basis
Goldman Sachs calculated implied equity values per share of PageNet common
stock by applying a median run-rate earnings before interest, income taxes,
depreciation and amortization multiple of 4.7x, which represents the median
estimated multiple for these selected comparable companies on a market value of
debt basis, to PageNet's estimated run-rate earnings before interest, income
taxes, depreciation and amortization for third quarter 1999, fourth quarter
1999, first quarter 2000, second quarter 2000, third quarter 2000 and fourth
quarter 2000. PageNet's estimated run-rate earnings before interest, income
taxes, depreciation and amortization for the periods described above was based
upon projections provided by the management of PageNet. Based on this analysis,
the implied equity values per share of PageNet common stock calculated by
Goldman Sachs were not meaningful.
No company utilized in Goldman Sachs' publicly traded comparable company
analysis is identical to PageNet. Accordingly, an analysis of the above results
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of companies to which they are being
compared. Goldman Sachs made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of PageNet, such as industry
growth, the impact of competition on PageNet and the industry generally and the
absence of any material adverse change in the respective financial conditions
and prospects of PageNet or the industry or in the financial markets in general.
Mathematical analysis (such as determining the mean or median) is not, in
itself, a meaningful method of using publicly traded comparable company data.
Stand-Alone Restructuring Analysis
For purposes of the stand-alone restructuring analysis, Goldman Sachs
relied on the analysis prepared by Houlihan Lokey and assumed on that basis that
the holders of PageNet common stock as of the date of its opinion would receive
5% of the remaining equity value of PageNet after the consummation of the
stand-alone restructuring.
59
<PAGE> 69
Selected Comparable Company Analysis. Goldman Sachs compared certain
financial information of PageNet with that of Arch, Metrocall and WebLink. For
each of these comparable companies, Goldman Sachs calculated multiples of
levered value (on a market value of debt basis) to second quarter 1999 run-rate
earnings before interest, income taxes, depreciation and amortization. The
comparable company analysis described above yielded a range of second quarter
1999 run-rate earnings before interest, income taxes, depreciation and
amortization multiples of 3.3x to 13.8x.
Goldman Sachs calculated implied equity values per share of PageNet common
stock by applying a median run-rate earnings before interest, income taxes,
depreciation and amortization multiple of 4.7x (which represents the median
estimated multiple for these selected comparable companies) plus 0.5x (which
represents an assumed multiple expansion due to the improved credit profile of
PageNet resulting from the stand-alone restructuring) to PageNet's estimated
run-rate earnings before interest, income taxes, depreciation and amortization
for third quarter 1999, fourth quarter 1999, first quarter 2000, second quarter
2000, third quarter 2000 and fourth quarter 2000. PageNet's estimated run-rate
earnings before interest, income taxes, depreciation and amortization for the
periods described above was based upon projections provided by the management of
PageNet. Based on this analysis, Goldman Sachs calculated the implied equity
values per share of PageNet common stock to range from $0.17 to $0.37.
As previously noted, an analysis of the above results involved complex
considerations and judgments on the part of Goldman Sachs.
Merger/Restructuring Analysis
For purposes of the merger/restructuring analysis, Goldman Sachs relied on
the analysis prepared by Houlihan Lokey and assumed that, as set forth in the
merger agreement, the holders of PageNet common stock as of the date of its
opinion would receive 7.5% of the remaining equity value of the combined company
after the consummation of the financial restructuring and the merger.
Discounted Cash Flow Analysis. Based on projections provided by the
managements of PageNet and Arch, Goldman Sachs performed a discounted cash flow
analysis of the combined company, excluding the value of Vast. The estimated
future cash flows were based on the financial projections for PageNet and Arch
for the years 2000 through 2004. The terminal values of PageNet and Arch were
calculated based on projected earnings before interest, income taxes,
depreciation and amortization multiples for 2004 of 4.0x to 8.0x and a range of
discount rates of 13.0% to 18.0%.
Based on projections provided by the management of PageNet, Goldman Sachs
also performed a discounted cash flow analysis of Vast on a stand-alone basis.
The estimated future cash flows were based on the financial projections for Vast
for the years 2000 through 2004. The terminal values of Vast were calculated
based on projected earnings before interest, income taxes, depreciation and
amortization multiples for 2004 of 6.0x to 10.0x and a range of discount rates
of 20.0% to 35.0%.
For purposes of this analysis, Goldman Sachs assumed that holders of
PageNet's common stock as of the date of its opinion would receive a 13.1%
interest in Vast consisting of the following: (i) a 11.6% direct interest, as
set forth in the merger agreement, after the consummation of the financial
restructuring and the Vast distribution, and (ii) a 1.5% indirect interest as a
result of the 7.5% of the remaining equity value of the combined company to be
received by holders of PageNet common stock as of the date of its opinion after
the consummation of the financial restructuring and the merger. For purposes of
this analysis, Goldman Sachs also assumed that, as set forth in the merger
agreement, the combined company would retain a 19.5% interest in Vast after the
consummation of the merger, the financial restructuring and the Vast
distribution.
Based on these parameters, Goldman Sachs calculated the implied equity
values per share of PageNet common stock to range from $0.79 to $2.75.
Multiples Analysis of Selected Comparable Companies. Goldman Sachs compared
certain financial information of PageNet with that of Arch, Metrocall and
WebLink. For each of these comparable companies, Goldman Sachs calculated
multiples of levered value (on a market value of debt basis) to
60
<PAGE> 70
second quarter 1999 run-rate earnings before interest, income taxes,
depreciation and amortization. The comparable company analysis described above
yielded a range of second quarter 1999 run-rate earnings before interest, income
taxes, depreciation and amortization multiples of 3.3x to 13.8x.
Goldman Sachs then calculated the implied equity value of the combined
company as follows: (i) by applying a median run-rate earnings before interest,
income taxes, depreciation and amortization multiple of 4.7x (which represents
the median estimated multiple for these selected comparable companies) plus 0.5x
(which represents an assumed multiple expansion due to the improved credit
profile of the combined company as a result of the financial restructuring and
the merger) to the combined company's estimated second quarter 2000 run-rate
earnings before interest, income taxes, depreciation and amortization, plus
estimated synergies of $79 million, (ii) adding 19.5% of the assumed levered
value of Vast, and (iii) deducting the amount of debt each of PageNet and Arch
will contribute to the combined company after the consummation of the financial
restructuring. For purposes of this analysis, Goldman Sachs assumed that, as set
forth in the merger agreement, the combined company would retain a 19.5%
interest in Vast after the consummation of the merger, the financial
restructuring and the Vast distribution. The estimated second quarter 2000
run-rate earnings before interest, income taxes, depreciation and amortization
of the combined company was based on projections provided by managements of
PageNet and Arch. The estimated synergies of $79 million represent certain cost
savings and operating synergies projected by the managements of PageNet and Arch
to result from the transactions contemplated by the merger agreement.
Goldman Sachs then calculated the implied equity values per share of
PageNet common stock by assuming that the holders of PageNet common stock as of
the date of its opinion would receive, after the consummation of the financial
restructuring, the Vast distribution and the merger, (i) 7.5% of this implied
equity value of the combined company and (ii) an 11.6% direct interest in Vast.
Goldman Sachs then analyzed the implied equity value per share using a range of
earnings before interest, income taxes, depreciation and amortization multiples
of 5.0x to 5.5x and a range of equity ownership percentages of 5.0% to 7.5% that
the holders of PageNet common stock as of the date of its opinion would hold in
the combined company. Based on this analysis, Goldman Sachs calculated the
implied equity values per share of PageNet common stock to range from $0.92 to
$1.51.
As previously noted, an analysis of the above results involved complex
considerations and judgments on the part of Goldman Sachs.
Contribution Analysis. Goldman Sachs compared certain financial information
of PageNet with that of Arch, Metrocall and WebLink. For each of these
comparable companies, Goldman Sachs calculated multiples of levered values (on a
market value of debt basis) to second quarter 1999 run-rate earnings before
interest, income taxes, depreciation and amortization. The comparable company
analysis described above yielded a range of second quarter 1999 run-rate
earnings before interest, income taxes, depreciation and amortization multiples
of 3.3x to 13.8x.
Goldman Sachs then calculated the implied enterprise value of the combined
company as follows: (i) by applying a median run-rate earnings before interest,
income taxes, depreciation and amortization multiple of 4.7x (which represents
the median estimated multiple for these selected comparable companies) plus 0.5x
(which represents an assumed multiple expansion due to the improved credit
profile of the combined company as a result of the financial restructuring and
the merger) to the combined company's estimated second quarter 2000 run-rate
earnings before interest, income taxes, depreciation and amortization plus
estimated synergies of $79 million, and (ii) adding 19.5% of the assumed levered
value of Vast. For purposes of this analysis, Goldman Sachs assumed that, as set
forth in the merger agreement, the combined company would retain a 19.5%
interest in Vast after the consummation of the merger, the financial
restructuring and the Vast distribution. The estimated second quarter 2000
run-rate earnings before interest, income taxes, depreciation and amortization
of the combined company was based on projections provided by managements of
PageNet and Arch. The estimated synergies of $79 million represent certain cost
savings and operating synergies projected by the managements of PageNet and Arch
to result from the transactions contemplated by the merger agreement.
61
<PAGE> 71
Goldman Sachs first calculated the relative contributions of PageNet and
Arch to the combined company based on the current trading enterprise values of
each of PageNet and Arch. Goldman Sachs then calculated the implied equity value
of PageNet and Arch each contributed to the combined company as follows: (i) by
multiplying the implied enterprise value of the combined company by the
percentage value contributed by PageNet and Arch based on their respective
current trading enterprise values derived as described above, and (ii) deducting
the amount of debt each of PageNet and Arch will contribute to the combined
company after the consummation of the financial restructuring. This analysis
indicated the following percentage contributions by PageNet and Arch to the
combined company:
<TABLE>
<CAPTION>
PERCENTAGE
CONTRIBUTION TO
COMBINED
COMPANY
----------------
EQUITY CONTRIBUTION BASED ON: PAGENET ARCH
- ----------------------------- -------- -----
<S> <C> <C>
Current Trading Enterprise Value............................ 42.6% 57.4%
Implied Relative Equity Value Contribution*................. 38.3% 61.7%
Merger Agreement............................................ 52.0% 48.0%
</TABLE>
- ---------------
* Adjusted debt contributed after the consummation of the Financial
Restructuring.
As previously noted, an analysis of the above results involved complex
considerations and judgments on the part of Goldman Sachs.
Equity Contribution Based on Operating Metrics Pre-Restructuring. Goldman
Sachs analyzed the relative contributions of PageNet and Arch to the combined
company resulting from the merger (prior to the consummation of the financial
restructuring) based on selected historical and estimated future operating and
financial information for Arch and PageNet. Goldman Sachs compared these values
to the 52% equity value of the combined company that PageNet's debt and equity
holders are to receive pursuant to the proposed merger and the financial
restructuring. The results of these analyses, which were based on PageNet's and
Arch's managements' projections, are summarized as follows:
<TABLE>
<CAPTION>
CONTRIBUTION OF PAGENET TO CONTRIBUTION OF ARCH TO
OPERATING METRIC: COMBINED COMPANY COMBINED COMPANY
- ----------------- -------------------------- -----------------------
<S> <C> <C>
2000 estimated revenue..................... 53% 47%
1999 estimated earnings before interest,
income taxes, depreciation and
amortization............................. 51% 49%
2000 estimated earnings before interest,
income taxes, depreciation and
amortization............................. 50% 50%
3Q 1999 annualized earnings before
interest, income taxes, depreciation and
amortization............................. 51% 49%
1Q 2000 annualized earnings before
interest, income taxes, depreciation and
amortization............................. 48% 52%
2Q 2000 annualized earnings before
interest, income taxes, depreciation and
amortization............................. 49% 51%
2000 estimated subscribers................. 55% 45%
1999 estimated earnings before interest,
income taxes, depreciation and
amortization minus capital
expenditures............................. 35% 65%
2000 estimated earnings before interest,
income taxes, depreciation and
amortization minus capital
expenditures............................. 42% 58%
</TABLE>
Equity Contribution Based on Operating Metrics Post-Restructuring. Goldman
Sachs analyzed the relative contributions of PageNet and Arch to the combined
company resulting from the merger (following the consummation of the financial
restructuring) based on selected historical and estimated future
62
<PAGE> 72
operating and financial information for Arch and PageNet. Goldman Sachs adjusted
these values to reflect the change in leverage to be achieved following the
proposed merger and the financial restructuring. Goldman Sachs compared these
values to the 52% equity value of the combined company that PageNet's debt and
equity holders are to receive pursuant to the proposed merger and the financial
restructuring. The results of these analyses, which were based on PageNet's and
Arch's managements' projections, are summarized as follows:
<TABLE>
<CAPTION>
CONTRIBUTION OF PAGENET TO CONTRIBUTION OF ARCH TO
OPERATING METRIC: COMBINED COMPANY COMBINED COMPANY
- ----------------- -------------------------- -----------------------
<S> <C> <C>
2000 estimated revenue............................. 80% 20%
1999 estimated earnings before interest, income
taxes, depreciation and amortization............. 71% 29%
2000 estimated earnings before interest, income
taxes, depreciation and amortization............. 63% 37%
3Q 1999 annualized earnings before interest, income
taxes, depreciation and amortization............. 68% 32%
1Q 2000 annualized earnings before interest, income
taxes, depreciation and amortization............. 54% 46%
2Q 2000 annualized earnings before interest, income
taxes, depreciation and amortization............. 59% 41%
2000 estimated subscribers......................... 90% 10%
1999 estimated earnings before interest, income
taxes, depreciation and amortization minus
capital expenditures............................. (12)% 112%
2000 estimated earnings before interest, income
taxes, depreciation and amortization minus
capital expenditures............................. 23% 77%
</TABLE>
Exchange Ratio Analysis. Goldman Sachs analyzed the implied exchange ratio
by dividing (x) the per share equity value of PageNet implied by a discounted
cash flow analysis of PageNet by (y) the per share equity value of Arch implied
by a discounted cash flow analysis of Arch. For purposes of these discounted
cash flow calculations, the terminal values of PageNet and Arch were calculated
based on projected earnings before interest, income taxes, depreciation and
amortization multiples for 2004 of 5.0x to 7.0x and a range of discount rates of
14.0% to 16.0%. Goldman Sachs also assumed that (i) PageNet numbers include
19.5% of the free cash flows (defined as earnings before interest, income taxes,
depreciation and amortization minus capital expenditures, working capital and
cash taxes) of Vast and (ii) consummation of the financial restructuring as set
forth in the merger agreement. Based on these parameters and assumptions, this
analysis implied exchange ratio ranging from 0.14 to 0.16.
Goldman Sachs further analyzed the percentage of PageNet's ownership in the
combined company by dividing (x) the equity value of PageNet implied by the
above described discounted cash flow analysis by (y) the total equity value of
the combined company implied by the above described discounted cash flow
analysis. Based on these parameters, Goldman Sachs calculated PageNet's
percentage ownership in the combined company to range from 56% to 59%.
Selected Transactions Analysis. Based on publicly available information,
Goldman Sachs analyzed information relating to six selected merger or
acquisition transactions in the paging industry since 1996, including:
- the acquisition of SkyTel by MCI WorldCom, Inc.;
- the acquisition of MobileMedia Corporation by Arch;
- the acquisition of the Wireless Services' Advanced Messaging Division of
AT&T Corp. by Metrocall;
- the acquisition of Wireless Access, Inc. by Glenayre Technologies, Inc.;
63
<PAGE> 73
- the acquisition of ProNet, Inc. by Metrocall; and
- the acquisition of A+ Networks, Inc. by Metrocall.
For the selected transactions for which data was publicly available,
Goldman Sachs calculated multiples of (i) the transaction consideration to
run-rate revenue for the latest quarter preceding the announcement of the
transaction, (ii) the transaction consideration to run-rate earnings before
interest, income taxes, depreciation and amortization for the latest quarter
preceding the announcement of the transaction, (iii) the transaction
consideration to revenue for the last twelve months preceding the announcement
of the transaction and (iv) the transaction consideration to earnings before
interest, income taxes, depreciation and amortization for the last twelve months
preceding the announcement of the transaction.
Goldman Sachs also calculated multiples of (i) the consideration to be
received in the merger to PageNet's third quarter 1999 run-rate revenue and (ii)
the consideration to be received in the merger to PageNet's third quarter 1999
run-rate earnings before interest, income taxes, depreciation and amortization
yielding multiples of 2.2x and 7.5x, respectively. The following table presents
the results of the foregoing analyses for the selected companies:
<TABLE>
<CAPTION>
MULTIPLE RANGE MEAN MEDIAN
- -------- ----- ---- ------
<S> <C> <C> <C>
transaction consideration to run-rate revenue........... 1.1x - 3.3x 2.1x 1.8x
transaction consideration to run-rate earnings before
interest, income taxes, depreciation and
amortization.......................................... 3.9x - 16.7x 8.1x 6.4x
transaction consideration to revenue for the last twelve
months preceeding the announcement of the
transaction........................................... 1.1x - 5.6x 2.8x 2.4x
transaction consideration to earnings before interest,
income taxes, depreciation and amortization for the
last twelve months preceeding the announcement of the
transaction........................................... 3.8x - 12.3x 7.1x 6.6x
</TABLE>
The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, is not necessarily susceptible to partial analysis
or summary description. Selecting portions of the analyses or of the summary set
forth above, without considering the analysis as a whole, could create an
incomplete view of the processes underlying Goldman Sachs' opinion. In arriving
at its fairness determination, Goldman Sachs considered the results of all such
analyses and did not attribute any particular weight to any factor or analysis
considered by it; rather, Goldman Sachs made its determination as to fairness on
the basis of its experience and professional judgment after considering the
results of all such analyses. No company or transaction used in the above
analyses is directly comparable to PageNet or Arch or the contemplated
transaction.
In performing its analysis, Goldman Sachs made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of PageNet and Arch. Goldman
Sachs may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Goldman Sachs' view of the
actual value of PageNet or Arch. The analyses were prepared solely for purposes
of Goldman Sachs providing its opinion to PageNet's board as to the fairness
from a financial point of view of the exchange ratio to the holders of PageNet
common stock on the date of its opinion, and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based on forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of PageNet,
64
<PAGE> 74
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
The exchange ratio and the other terms of the merger agreement were
determined through arms length negotiations between PageNet and Arch and were
approved by PageNet's board. In addition, as described above, the opinion of
Goldman Sachs to PageNet's board was one of many factors taken into
consideration by PageNet's board in making its determination to approve the
merger agreement. Consequently, the Goldman Sachs analyses described above
should not be viewed as determinative of the opinion of PageNet's board or the
view of Arch's board of directors with respect to the value of Arch and PageNet
or of whether PageNet's board or Arch's board would have been willing to agree
to a different exchange ratio.
Pursuant to a letter agreement dated November 7, 1999, PageNet and its
wholly owned subsidiaries, PageNet, Inc. and Vast, formerly known as Silverlake
Communications, Inc., have agreed to pay Goldman Sachs the following fees: (i) a
fee of $2,250,000 upon the execution of the merger agreement, (ii) a fee of
$6,750,000 upon the consummation of the merger and (iii) a fee ranging from
$150,000 to $250,000 if the merger is not consummated. PageNet, PageNet, Inc.
and Vast have also agreed to pay Goldman Sachs its reasonable out-of-pocket
expenses, including the fees and disbursements of its attorneys, and to
indemnify Goldman Sachs and related persons against certain liabilities,
including certain liabilities arising under the federal securities laws.
Opinion of Morgan Stanley Dean Witter
Pursuant to a letter agreement dated August 1, 1999, Morgan Stanley was
retained by PageNet to act as one of its financial advisors in connection with
the merger and the Vast distribution. Morgan Stanley is an internationally
recognized investment banking firm and was selected by PageNet based on Morgan
Stanley's qualifications, expertise and reputation, as well as its knowledge of
the paging industry. On November 7, 1999, Morgan Stanley delivered to PageNet's
board an oral opinion, subsequently confirmed in writing, to the effect that, as
of November 7, 1999, and based on and subject to certain matters stated in its
opinion, the 0.1247 of a share of Arch common stock and the pro rata portion of
the 11.6% of the equity interest in Vast (which we refer to in this description
of Morgan Stanley's opinion as the consideration) to be received by the holders
of PageNet common stock on such date pursuant to the merger and the Vast
distribution, taken as a whole, was fair from a financial point of view to such
holders.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED NOVEMBER 7, 1999,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX H TO THIS
DOCUMENT. HOLDERS OF PAGENET COMMON STOCK SHOULD READ THIS ENTIRE OPINION
CAREFULLY. MORGAN STANLEY'S OPINION ADDRESSES ONLY THE FAIRNESS OF THE
CONSIDERATION TO BE RECEIVED BY HOLDERS OF PAGENET COMMON STOCK ON SUCH DATE
PURSUANT TO THE MERGER AND THE VAST DISTRIBUTION, TAKEN AS A WHOLE, FROM A
FINANCIAL POINT OF VIEW TO SUCH HOLDERS, AND IT DOES NOT ADDRESS ANY OTHER
ASPECTS OF THE MERGER, THE VAST DISTRIBUTION OR THE FINANCIAL RESTRUCTURING, NOR
DOES IT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE ON THE MERGER OR ANY RELATED MATTER. THE SUMMARY OF THE
OPINION OF MORGAN STANLEY SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF MORGAN STANLEY'S OPINION.
In arriving at its opinion, Morgan Stanley, among other things:
- reviewed certain analysis prepared by Houlihan Lokey of the financial
restructuring and the stand-alone restructuring;
- reviewed certain publicly available financial statements and other
business and financial information of Arch and PageNet, respectively;
- reviewed certain internal financial statements and other financial and
operating data concerning Arch and PageNet, respectively;
- reviewed certain internal financial statements and other financial and
operating data concerning Vast prepared by the managements of PageNet and
Vast;
65
<PAGE> 75
- analyzed certain financial forecasts prepared by the managements of Arch
and PageNet, respectively;
- analyzed certain financial forecasts for Vast prepared by the managements
of PageNet and Vast;
- discussed the past and current operations and financial condition and the
prospects of Arch with senior executives of Arch;
- discussed the past and current operations and financial condition and the
prospects of PageNet and Vast with senior executives of PageNet and Vast;
- discussed with the senior managements of Arch and PageNet their estimates
of the synergies and cost savings expected to be derived from the merger;
- reviewed and analyzed the pro forma impact of the merger on the
consolidated capitalization and financial ratios of the combined company;
- reviewed the reported prices and trading activity for the Arch common
stock and the PageNet common stock;
- compared the financial performance of Arch and PageNet (excluding Vast)
and the prices and trading activity of the Arch common stock and the
PageNet common stock and their respective debt securities with that of
certain other publicly traded companies and their securities;
- compared the financial performance of Vast with that of certain other
companies that are comparable to Vast and have publicly traded
securities;
- reviewed the tax analysis prepared by the management of PageNet with
respect to the tax treatment of the transactions contemplated by the
merger agreement;
- reviewed with PageNet and its other financial advisors, including
Houlihan Lokey, certain options available to PageNet, other than
alternative business combinations, for addressing PageNet's liquidity
needs;
- reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions deemed relevant;
- participated in discussions and negotiations among representatives of
Arch and PageNet and their financial, restructuring and legal advisors;
- reviewed the draft merger agreement and certain related documents; and
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of all information
supplied or otherwise made available to it and reviewed by it for the purposes
of its opinion. Morgan Stanley also relied, without independent verification or
evaluation and with the consent of PageNet's board, on the analysis prepared by
Houlihan Lokey for, among other things, purposes of analyzing the impact of the
stand-alone restructuring on the holders of the PageNet common stock on the date
of its opinion. In addition, Morgan Stanley also relied, without independent
verification or evaluation and with the consent of PageNet's board, on the tax
analysis prepared by the management of PageNet with respect to the tax treatment
of the transactions contemplated by the merger agreement. With respect to the
financial forecasts, future prospects, estimates of synergies and cost savings,
Morgan Stanley assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of Arch, PageNet and Vast. In addition, Morgan Stanley
assumed that the merger will be consummated in accordance with the terms set
forth in the merger agreement, including, among other things, that the merger
will be treated as a tax-free reorganization and/or exchange, each pursuant to
Section 368(a) of the Internal Revenue Code of 1986, as amended. Morgan Stanley
did not make any independent valuation
66
<PAGE> 76
or appraisal of the assets or liabilities of PageNet, Arch or Vast, nor was it
furnished with any such appraisals. Morgan Stanley's opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to it as of, the date of its opinion.
Morgan Stanley's opinion is limited to the fairness, from a financial point
of view, of the consideration to be received by the holders of PageNet common
stock on the date of its opinion pursuant to the merger and the Vast
distribution and Morgan Stanley is not expressing any opinion concerning the
consideration to be received by any other security holder of PageNet pursuant to
the financial restructuring, Vast distribution or any other transaction
contemplated by the merger agreement or the fairness of the financial
restructuring to the holders of PageNet common stock on the date of its opinion.
In rendering this opinion, Morgan Stanley assumed, with the consent of PageNet's
board, that the financial restructuring and the Vast distribution will be
completed in the manner set forth in the merger agreement.
Morgan Stanley also noted that trading in Arch common stock and shares of
Vast for a period of time following completion of the merger and the Vast
distribution may involve a redistribution of the Arch common stock and the
shares of Vast among the stockholders of the combined entity and other investors
and, accordingly, during such period, Arch common stock and the shares of Vast
may trade at prices below those at which they would trade on a fully distributed
basis after the Vast distribution. Morgan Stanley's opinion does not in any
manner address the prices at which Arch's common stock or the shares of Vast
will trade following consummation of the merger and the Vast distribution. In
addition, Morgan Stanley expressed no opinion or recommendation as to how the
stockholders of Arch or PageNet should vote at the stockholders' meetings held
in connection with the merger or any related matter.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the PageNet board on November 7, 1999 in connection
with Morgan Stanley's presentation and opinion to the PageNet board on such
date. Morgan Stanley performed its analysis under each of the following
scenarios:
- PageNet on a stand-alone basis;
- PageNet after the stand-alone restructuring;
- PageNet after the financial restructuring; and
- PageNet after the consummation of the restructuring of the outstanding
debt securities of PageNet in connection with a merger with another party
(which we refer to in this description of Morgan Stanley's opinion as the
merger with another party/restructuring analysis).
Certain of these summaries of financial analyses include information
presented in tabular format. In order to fully understand the financial analyses
used by Morgan Stanley, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. In the summaries below, unless otherwise specifically noted,
references to forecasted financial information were derived from research
analyst estimates.
Historical and Comparative Common Stock Performance
Morgan Stanley reviewed and analyzed the daily closing per share market
prices and trading volume for PageNet common stock from November 5, 1998 to
November 5, 1999. In addition, Morgan Stanley reviewed and analyzed the
historical performance of PageNet common stock and Arch common stock based upon
their respective indexed closing prices from November 5, 1996 to November 5,
1999, and compared such performance to the NASDAQ composite and a Paging Index
consisting of WebLink Wireless, Inc. (formerly known as PageMart Wireless,
Inc.), PageNet, Metrocall, Inc. and Arch.
67
<PAGE> 77
The following table depicts the percentage increases in the indexed prices
of the referenced securities and indices for the period from November 5, 1996 to
November 5, 1999:
<TABLE>
<CAPTION>
% INCREASE/(DECREASE)
SINCE NOVEMBER 5, 1996
----------------------
<S> <C>
PageNet......................................... (94.8)%
Arch............................................ (81.1)%
NASDAQ Composite................................ 152.4%
Paging Index.................................... (82.3)%
</TABLE>
Stand-Alone Analysis
Paging Industry Environment. Morgan Stanley reviewed the paging industry
environment and noted (i) that the share prices of publicly traded paging
companies have significantly underperformed over the past three years, (ii) that
the paging industry faces undesirable fundamentals regarding the traditional
paging services, and (iii) that the industry participants are highly leveraged.
In addition, Morgan Stanley reviewed paging industry leverage and compared the
Debt to earnings before interest, income taxes, depreciation and amortization
ratio and net debt to aggregate value ratio for the publicly traded industry
participants. Debt represents debt, preferred stock, and other debt instruments;
net debt represents Debt less cash and cash equivalents; equity value represents
total number of outstanding shares multiplied by the price per share as of
November 5, 1999; aggregate value represents equity value plus net debt.
The following table sets forth the Debt to earnings before interest, income
taxes, depreciation and amortization ratio for each of the companies listed
below for the most recent available balance sheets.
<TABLE>
<CAPTION>
2ND QTR. 1999A ANNUALIZED
RUN RATE EARNINGS BEFORE
INTEREST, INCOME TAXES, MULTIPLE OF DEBT TO EARNINGS
DEPRECIATION AND BEFORE INTEREST, INCOME TAXES,
DEBT* AMORTIZATION** DEPRECIATION AND
(IN MILLIONS) (IN MILLIONS) AMORTIZATION
------------- -------------------------- ------------------------------
<S> <C> <C> <C>
WebLink........................... $ 507 $ 42 12.1x
PageNet........................... 2,000 282 7.1x
Metrocall......................... 939 147 6.4x
Arch.............................. 1,334 251 5.3x
</TABLE>
- ---------------
* 2QA for Metrocall and WebLink; 3QA for Arch; 3QE for PageNet; calculated on
a face value basis.
** Based on publicly available information.
The following table sets forth the net debt to aggregate value ratio for
each of the companies listed below, with most recent available balance sheets
and aggregate values as of November 5, 1999.
<TABLE>
<CAPTION>
NET DEBT* AGGREGATE VALUE
(IN MILLIONS) (IN MILLIONS) %
------------- --------------- ---
<S> <C> <C> <C>
PageNet..................................................... $1,947 $2,048 95%
Metrocall................................................... 924 1,013 91%
Arch........................................................ 1,313 1,662 79%
WebLink..................................................... 494 748 66%
</TABLE>
- ---------------
* 2QA for Metrocall and WebLink; 3QA for Arch; 3QE for PageNet; calculated on
a face value basis.
Management Projections and PageNet's Prospects. Morgan Stanley analyzed
PageNet's stand-alone financial projections to determine the feasibility of
successfully executing a stand-alone option rather than a financial
restructuring which could include a bankruptcy, or a merger coupled with a
financial restructuring. This analysis was based on PageNet's quarterly
projections for 1999 and 2000 and annual projections from 2001 to 2004.
68
<PAGE> 78
Morgan Stanley considered several qualitative factors such as PageNet's
current strategic situation, including such factors as the amount of its
indebtedness, its current restrictions on further indebtedness, its current
redundant costs associated with the delayed conclusion of PageNet's
restructuring plan consolidating its key support functions located in offices
throughout the country into centralized processing facilities, its high customer
churn rates and its projections of a liquidity shortfall in early to mid-2000.
Morgan Stanley also considered general macroeconomic factors such as paging
industry fundamentals, industry-wide share price declines, significant leverage
among the industry participants and investment analysts' views that
consolidation among the publicly traded companies would be required for the
industry's long-term survival.
Morgan Stanley also assessed PageNet's ability to meet its liquidity
shortfall. Based on PageNet's management projections, Morgan Stanley noted that,
with a status quo strategy, PageNet would likely need to address its liquidity
shortfall by taking steps such as selling certain assets, raising strategic
capital for Vast, pursuing an initial public offering of Vast, initiating a
drastic cost reduction program, and receiving waivers from the bank lending
group for certain covenants.
Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash
flow analysis of the projected unlevered free cash flows of PageNet. This
analysis was based on projections for fiscal years 1999 through 2004 prepared by
the management of PageNet. Morgan Stanley calculated implied equity values per
share of PageNet common stock by utilizing discount rates ranging from 13.0% to
15.0% and terminal value multiples of estimated 2004 earnings before interest,
income taxes, depreciation and amortization ranging from 5.0x to 7.0x. Based on
this analysis the ranges of implied equity values per share of PageNet common
stock were ($4.31) to $0.04.
Precedent Transactions Analysis. Using publicly available information,
Morgan Stanley reviewed information relating to two paging industry
acquisitions, Arch's acquisition of MobileMedia Communications, Inc. and
Metrocall's acquisition of the Advanced Messaging Division of AT&T Corp. For the
precedent transactions referred to above, Morgan Stanley calculated multiples of
(i) aggregate value to run-rate earnings before interest, income taxes,
depreciation and amortization of the acquired businesses for the quarter
preceding announcement and (ii) aggregate value to units in service at the time
of announcement. For purposes of this analysis, aggregate value was calculated
on a face value of debt basis.
Morgan Stanley calculated implied equity values per share of PageNet common
stock by applying (i) earnings before interest, income taxes, depreciation and
amortization multiples implied by the precedent transactions referred to above
of 4.2x and 5.2x to PageNet's estimated fourth quarter 1999 run-rate earnings
before interest, income taxes, depreciation and amortization and (ii) units in
service multiples implied by the precedent transactions referred to above of
$180 and $152 to PageNet's estimated units in service as of the end of the
fourth quarter of 1999. The following table presents the ranges of equity values
per share of PageNet common stock implied by this analysis:
<TABLE>
<CAPTION>
IMPLIED EQUITY
VALUE
PER SHARE OF
PAGENET COMMON
STOCK
---------------
LOW HIGH
------ ------
<S> <C> <C>
Precedent Transactions Analysis
Aggregate value* to run-rate earnings before interest,
income taxes, depreciation and amortization............ $(6.22) $(3.68)
Aggregate value* to units in service...................... $(3.69) $(1.25)
</TABLE>
- ---------------
* Face value of debt basis
No transaction utilized in the precedent transaction analysis is identical
to the merger in both timing and size, and, accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
PageNet and other factors that would affect the acquisition value of the
companies to which it is being compared.
69
<PAGE> 79
In evaluating the precedent transactions referred to above, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of PageNet, such as industry growth, the impact of
competition on PageNet and the industry generally and the absence of any
material adverse change in the financial conditions and prospects of PageNet or
the industry or in the financial markets in general.
Selected Comparable Company Analysis. Morgan Stanley compared certain
financial information of PageNet with that of a group of publicly traded paging
companies as set forth in the table below. Such financial information included
(i) multiples of aggregate value to second quarter 1999 run-rate earnings before
interest, income taxes, depreciation and amortization and to forecasted 1999 and
2000 earnings before interest, income taxes, depreciation and amortization and
(ii) multiples of aggregate value to forecasted 1999 and 2000 revenue. The
following tables present, as of November 5, 1999, the range of multiples for the
comparable companies of each of aggregate value to projected 1999 and 2000
revenue and aggregate value to second quarter 1999 run-rate earnings before
interest, income taxes, depreciation and amortization and to projected 1999 and
projected 2000 earnings before interest, income taxes, depreciation and
amortization. The first table assumes that each company's debt is valued at its
market value and the second assumes each company's debt is valued at its face
value:
<TABLE>
<CAPTION>
AGGREGATE VALUE*
TO EARNINGS BEFORE INTEREST, INCOME
AGGREGATE VALUE* TAXES, DEPRECIATION AND
TO REVENUE AMORTIZATION
----------------- -------------------------------------
COMPARABLE COMPANIES 1999E 2000E 2QA RUN-RATE 1999E 2000E
- -------------------- ------ ------ --------------- -------- --------
<S> <C> <C> <C> <C> <C>
Arch............................................ 1.7x 1.7x 5.2x 5.4x 4.9x
Metrocall....................................... 1.1 1.1 4.4 4.2 3.8
PageNet......................................... 1.3 1.4 4.2 4.3 4.2
WebLink......................................... 2.3 2.0 13.7 13.6 7.7
</TABLE>
- ---------------
* Market value of debt basis
<TABLE>
<CAPTION>
AGGREGATE VALUE*
TO EARNINGS BEFORE INTEREST, INCOME
AGGREGATE VALUE* TAXES, DEPRECIATION AND
TO REVENUE AMORTIZATION
----------------- -------------------------------------
COMPARABLE COMPANIES 1999E 2000E 2QA RUN-RATE 1999E 2000E
- -------------------- ------ ------ --------------- -------- --------
<S> <C> <C> <C> <C> <C>
Arch............................................ 2.2x 2.1x 6.6x 6.8x 6.2x
Metrocall....................................... 1.7 1.7 6.9 6.5 6.0
PageNet......................................... 2.2 2.4 7.3 7.6 7.3
WebLink......................................... 2.9 2.5 17.8 17.6 9.9
</TABLE>
- ---------------
* Face value of debt basis
Morgan Stanley calculated implied equity values per share of PageNet common
stock by applying the relevant second quarter 1999 run-rate earnings before
interest, income taxes, depreciation and amortization multiple range of 5.0x to
7.0x from the comparable companies to PageNet's estimated fourth quarter 1999
run-rate earnings before interest, income taxes, depreciation and amortization.
This analysis implied equity values per share of PageNet common stock ranging
from $(4.18) to $0.91, assuming PageNet's debt is valued on a face value basis.
No company utilized in Morgan Stanley's publicly traded comparable company
analysis is identical to PageNet. Accordingly, an analysis of the above results
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of companies to which they are being
compared. Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of PageNet, such as industry
growth, the impact of competition on PageNet and the industry generally and the
absence of
70
<PAGE> 80
any material adverse change in the respective financial conditions and prospects
of PageNet or the industry or in the financial markets in general. Mathematical
analysis (such as determining the mean or median) is not, in itself, a
meaningful method of using publicly traded comparable company data.
Stand-Alone Restructuring Analysis
For purposes of the stand-alone restructuring analysis, Morgan Stanley
relied on the analysis prepared by Houlihan Lokey and assumed that the holders
of PageNet common stock as of the date of its opinion would receive a residual
equity interest in PageNet after the consummation of the stand-alone
restructuring.
Selected Comparable Company Analysis. Morgan Stanley compared certain
financial information of PageNet (after consummation of the stand-alone
restructuring) with that of Arch, WebLink and Metrocall. For each of these
comparable companies, Morgan Stanley calculated multiples of aggregate value (on
a market value basis) to second quarter 1999 run-rate earnings before interest,
income taxes, depreciation and amortization. The comparable company analysis
yielded a range of second quarter 1999 run-rate earnings before interest, income
taxes, depreciation and amortization multiples of 4.0x to 5.0x. Morgan Stanley
calculated implied equity values per share of PageNet common stock by applying
second quarter 1999 run-rate earnings before interest, income taxes,
depreciation and amortization multiples of 4.0x to 5.0x to PageNet's estimated
first quarter 2000 run-rate earnings before interest, income taxes, depreciation
and amortization, based upon projections provided by the management of PageNet.
This analysis implied equity values per share of PageNet common stock ranging
from $0.21 to $0.33.
As previously noted, an analysis of the above results involved complex
considerations and judgements on the part of Morgan Stanley.
Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash
flow analysis of the projected unlevered free cash flows of PageNet. This
analysis was based upon projections for fiscal years 1999 through 2004 prepared
by the management of PageNet. Morgan Stanley calculated implied equity values
per share of PageNet common stock by utilizing discount rates from 13.0% to
15.0% and terminal value multiples of estimated 2004 earnings before interest,
income taxes, depreciation and amortization ranging from 5.0x to 7.0x. Morgan
Stanley relied on the analysis prepared by Houlihan Lokey to calculate net debt,
which was pro forma for the stand-alone restructuring. This analysis implied
equity values per share of PageNet common stock ranging from $0.42 to $0.48.
Merger with Arch/Restructuring Analysis
For purposes of the merger with arch/restructuring analysis, Morgan Stanley
relied on the Houlihan Lokey Analysis and assumed that, as set forth in the
merger agreement, the holders of PageNet common stock as of the date of its
opinion would receive 7.5% of the equity value of the combined company after the
consummation of the financial restructuring and the merger.
Selected Comparable Company Analysis. Morgan Stanley compared certain
financial information of PageNet/Arch (after consummation of the financial
restructuring) with that of Arch, WebLink and Metrocall. For each of the
comparable companies, Morgan Stanley calculated multiples of aggregate value to
second quarter 1999 run-rate earnings before interest, income taxes,
depreciation and amortization. The comparable company analysis yielded a range
of second quarter 1999 run-rate earnings before interest, income taxes,
depreciation and amortization multiples of 4.5x to 5.5x for PageNet/Arch. Morgan
Stanley calculated implied equity values per share of PageNet common stock by
applying second quarter 1999 run-rate earnings before interest, income taxes,
depreciation and amortization multiples of 4.5x to 5.5x to PageNet/Arch's
estimated first quarter 2000 run-rate earnings before interest, income taxes,
depreciation and amortization. This analysis implied equity values per share of
PageNet common stock ranging from $0.85 to $1.25.
As previously noted, an analysis of the above results involved complex
considerations and judgements on the part of Morgan Stanley.
71
<PAGE> 81
Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash
flow analysis of the projected unlevered free cash flows of PageNet/Arch after
the consummation of the merger and the other transactions contemplated by the
merger agreement. This analysis was based on projections for fiscal years 1999
through 2004 prepared by the management of each of PageNet and Arch. Morgan
Stanley calculated implied equity values per share of PageNet common stock by
utilizing discount rates ranging from 13.0% to 15.0% and terminal value
multiples of estimated 2004 earnings before interest, income taxes, depreciation
and amortization ranging from 5.0x to 7.0x. This analysis implied equity values
per share of PageNet common stock ranging from $1.62 to $1.81.
Merger with Another Party/Restructuring Analysis
For purposes of the merger with another party/restructuring analysis,
Morgan Stanley relied on the analysis prepared by Houlihan Lokey and assumed
that the holders of PageNet common stock as of the date of its opinion would
receive a residual equity interest in PageNet after the consummation of the
restructuring in connection with the merger with another party.
Selected Comparable Company Analysis. Morgan Stanley compared certain
financial information of PageNet/another party (after consummation of the
restructuring in connection with a hypothetical merger with another party) with
that of Arch, WebLink and Metrocall. For each of the comparable companies,
Morgan Stanley calculated multiples of aggregate value to second quarter 1999
run-rate earnings before interest, income taxes, depreciation and amortization.
The comparable company analysis yielded a range of second quarter 1999 run-rate
earnings before interest, income taxes, depreciation and amortization multiples
of 4.5x to 5.5x. Morgan Stanley calculated implied equity values per share of
PageNet common stock by applying second quarter 1999 run-rate earnings before
interest, income taxes, depreciation and amortization multiples of 4.5x to 5.5x
to PageNet/another party's estimated first quarter 2000 run-rate earnings before
interest, income taxes, depreciation and amortization. This analysis implied
equity values per share of PageNet common stock ranging from $0.55 to $0.83.
As previously noted, an analysis of the above results involved complex
considerations and judgements on the part of Morgan Stanley.
Historical Exchange Ratio Analysis
Morgan Stanley also reviewed the ratio of PageNet common stock to Arch
common stock trading prices (which we refer to in this section as the, nominal
exchange ratio) over varying intervals of time during the year preceding the
announcement of the merger. Morgan Stanley observed that the average implied
nominal exchange ratio for the selected periods ended November 5, 1999 (the last
trading day prior to the announcement of the merger) were as follows:
<TABLE>
<CAPTION>
AVERAGE IMPLIED
PERIOD ENDING NOVEMBER 5, 1999 NOMINAL EXCHANGE RATIO
- ------------------------------ ----------------------
<S> <C>
Last 1 Year.................................... 0.774
Last 6 Months.................................. 0.466
Last 2 Months.................................. 0.258
Last 1 Month................................... 0.202
Last 1 Week.................................... 0.173
</TABLE>
Morgan Stanley observed that, based on the closing prices of PageNet common
stock and Arch common stock on November 5, 1999 of $0.97 and $6.81,
respectively, the implied nominal exchange ratio was approximately 0.142x.
Morgan Stanley compared the nominal exchange ratio of 0.142x as of November
5, 1999 to the exchange ratio implied by the merger/financial restructuring as
set forth in the merger agreement based on the consideration to be received by
holders of PageNet common stock, (which we refer to in this section as the
effective exchange ratio). Morgan Stanley noted that, as of November 5, 1999,
the effective exchange ratio of 0.166x, which includes 0.125 of a share of Arch
common stock for each share of
72
<PAGE> 82
PageNet common stock, or $0.85 per share, and 1.000 Vast share for each share of
PageNet common stock, equivalent to 0.041 of a share of Arch common stock or
$0.28 per share, represented $1.13 per share of PageNet common stock. In
addition, Morgan Stanley noted that the per share consideration implied by the
effective exchange ratio represented a 16.6% premium to the PageNet share price
close on November 5, 1999.
VAST VALUATION ANALYSIS
For purposes of valuing PageNet's Vast subsidiary, Morgan Stanley compared
certain financial information of Vast with the following group of publicly
traded companies: Phone.com, Inc., Aether Systems, Inc., Spyglass, Inc. and Puma
Technology, Inc. Morgan Stanley considered Aether Systems to be the most
comparable publicly traded company. Such financial information included
multiples of aggregate value (on a face value of debt basis) to projected 1999
and 2000 sales. Morgan Stanley applied Aether Systems's multiples of aggregate
value to projected 1999 sales and projected 2000 sales of 131.1x and 65.5x,
respectively, to Vast's projected 1999 and projected 2000 sales. To incorporate
the customary private market discount and a discount reflecting Vast's earlier
stage in its business development relative to Aether Systems, Morgan Stanley
applied a discount to Aether Systems of 75%. The resulting relevant Vast
valuation range implied by this methodology is $108.0 million to $497.2 million.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of its analysis
as a whole and did not contribute any particular weight to any analysis or
factor considered by it. Morgan Stanley believes that its analysis must be
considered as a whole and that selecting portions of its analysis, without
considering all analysis, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting for any particular analysis described above should not be
taken to be Morgan Stanley's view of the actual value of PageNet or Arch.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of PageNet and Arch. The
analysis performed by Morgan Stanley does not necessarily indicate actual value.
Actual value may be significantly more or less favorable than suggested by such
analysis. Such analyses were prepared solely as part of Morgan Stanley's
analysis of the fairness of the consideration to be received by the holders of
PageNet common stock on the date of its opinion, pursuant to the merger and Vast
distribution, taken as a whole, from a financial point of view and were provided
to PageNet's board in connection with the delivery of Morgan Stanley's written
opinion dated November 7, 1999. The analyses do not purport to be appraisals or
reflect the prices at which PageNet and Arch might actually be sold. The merger
consideration and the other terms of the merger agreement were determined
through arms length negotiations between PageNet and Arch and were approved by
PageNet's board. In addition, as described above, Morgan Stanley's opinion and
presentation to PageNet's board was one of many factors taken into consideration
by PageNet's board in making its determination to approve the merger.
Consequently, the Morgan Stanley analyses described above should not be viewed
as determinative of the opinion of PageNet's board or the view of the Arch's
board of directors with respect to the value of Arch and PageNet or of whether
PageNet's board or Arch's board would have been willing to agree to a different
merger consideration.
Morgan Stanley is an internationally recognized investment banking advisory
firm. Morgan Stanley, as part of its investment banking business, is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bidding, secondary
distributions of listed and unlisted securities, private placements and
valuation for corporate and other purposes. In the ordinary course of its
business, Morgan Stanley and its affiliates may actively trade the securities of
PageNet and Arch, for Morgan Stanley's account and for the account of customers.
Pursuant to a letter agreement dated August 1, 1999, PageNet and its
wholly-owned subsidiaries PageNet, Inc. and Vast, formerly known as Silverlake
Communications, Inc., agreed to pay Morgan
73
<PAGE> 83
Stanley the following fees: (1) a fee of $2,250,000 upon the execution of the
merger agreement, (2) a fee of $6,750,000 upon the consummation of the merger
and (3) a fee ranging from $200,000 to $300,000 if the merger is not
consummated. PageNet, PageNet, Inc. and Vast have also agreed to reimburse
Morgan Stanley for its expenses incurred in performing its services. In
addition, PageNet, PageNet, Inc. and Vast have agreed to reimburse and to
indemnify Morgan Stanley and related persons against any liabilities and
expenses arising out of the engagement and any related transactions, including
liabilities under federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of PageNet's board of directors to merge
with Arch, stockholders should be aware that some of the members of PageNet's
board of directors and some of PageNet's officers have interests in the merger
that are different from the interests of the stockholders and senior
subordinated noteholders of PageNet and that could potentially represent
conflicts of interest.
- All outstanding options granted to purchase PageNet common stock,
including those held by officers and directors of PageNet, will fully
vest at the effective time of the merger and, if not exercised at that
time, will be converted into fully vested options to purchase shares of
Arch common stock, subject to adjustment to reflect the exchange ratio.
All unvested options to purchase PageNet common stock held by PageNet's
officers and directors immediately prior to the merger will vest at the
effective time of the merger. However, all of such options currently have
exercise prices which are higher, and in some cases significantly higher,
than PageNet's current stock price, and, as a result of the exchange
ratio and the impact of the merger, PageNet's officers and directors will
hold fewer options to purchase shares at even higher exercise prices. As
a result of these circumstances, the options which will vest are likely
to have no value at the time of the merger.
- Some current officers of PageNet may remain as officers of PageNet or
become officers of Arch after the merger. Although Arch expects that a
number of PageNet's current officers may not continue as employees of the
combined company, it has not developed any firm plans.
- At the effective time of the merger, John P. Frazee, Jr. will, and other
current PageNet directors may, be appointed as additional members of
Arch's board of directors. Mr. Frazee will also be appointed Chairman of
the board of directors of the combined company. Additional information
about Mr. Frazee and the other current PageNet directors is contained in
"PageNet's Management."
- Some current officers of PageNet will be entitled to severance payments
if their employment ceases following the merger as part of a severance
plan established on January 20, 1999 to provide benefits to substantially
all of PageNet's employees upon a "change in control" of PageNet. The
severance plan provides for a severance payment ranging from 50% to 300%
of the employee's annual salary and annual target bonus compensation and
payment of a pro-rated portion of the employee's annual target bonus
compensation. In addition, the severance plan provides that the employee
will continue to receive substantially similar medical insurance,
disability income protection, life insurance protection and death
benefits, and perquisites for at least one year following the date of the
employee's termination of employment at no additional cost to the
employee above the cost paid by the employee for such benefits
immediately prior to the change of control. The severance plan provides
no special pension benefits. An employee is entitled to receive benefits
under the severance plan if PageNet or its successor in interest
terminates the employee without cause or the employee resigns for good
reason during the 12-month period immediately following a change in
control. Good reasons for an employee's resignation under the severance
plan include a reduction in the employee's compensation, a significant
change in the employee's duties, responsibilities, title or authorities,
relocation of the employee's office to a location more than 50 miles from
the location of the employee's office prior to the change in control, and
PageNet's failure to obtain the agreement from any successor to assume
and agree to perform the severance plan. The amount an employee will
receive depends upon the employee's position at PageNet. Payments under
the plan are made
74
<PAGE> 84
in one lump sum. At the time of its consideration of the Arch merger,
PageNet's board of directors made changes in the severance plan to
increase the number of employees entitled to severance payments at the
200% level and to increase the severance percentages applicable to John
P. Frazee, Jr., Mark A. Knickrehm, Edward W. Mullinix, Jr., Lynn A. Bace
and Julian B. Castelli from 200% to 300% of their annual salary and
annual target bonus compensation.
The following table sets forth the estimated value of payments and
benefits that would be paid to each current executive officer of PageNet
under PageNet's severance plan if the executive officer's employment is
terminated within 12 months following the merger in accordance with the
severance plan:
<TABLE>
<CAPTION>
ESTIMATED VALUE OF PAYMENTS AND BENEFITS TO WHICH
PAGENET'S CURRENT EXECUTIVE OFFICERS WOULD BE
ENTITLED UPON TERMINATION OF EMPLOYMENT
NAME OF EXECUTIVE OFFICER IN ACCORDANCE WITH THE SEVERANCE PLAN(1)
------------------------- -------------------------------------------------
<S> <C>
Lynn A. Bace.......................... $ 1,750,439
Andreas Bremer........................ 244,670
Julian B. Castelli.................... 1,331,437
J. Barry Duncan....................... 284,519
John P. Frazee, Jr. .................. 4,404,782
Jason G. Gillespie.................... 761,632
Mark A. Knickrehm..................... 1,922,494(2)
Edward W. Mullinix, Jr. .............. 2,037,718
Timothy J. Paine...................... 676,784
Douglas R. Ritter..................... 1,018,586
G. Robert Thompson.................... 680,888
Ruth Williams......................... 764,180
</TABLE>
- -------------------------
(1) The portion of the severance plan payment that is attributable to
the pro-rated amount of the executive officer's target bonus
compensation is estimated based on the assumption that the
executive officer's employment is terminated on June 30, 2000, and
would be greater if the executive officer's employment terminates
later in 2000. The portion of the severance plan payment that is
attributable to PageNet's continuation of benefits and perquisites
assumes that PageNet provides the same level of benefits and
perquisites to each executive officer for the full 12 month period
following termination and the estimated value attributed to such
benefits and perquisites is based on the cost incurred by PageNet
to provide such benefits and perquisites in 1999.
(2) If the Arch merger and Vast distribution occur as planned, Mr.
Knickrehm will not be an employee of PageNet or a PageNet
affiliate at the time of the change in control since the Vast
distribution occurs immediately prior to the merger. Therefore,
Mr. Knickrehm would not be entitled to severance benefits if his
employment terminates following the merger.
Although Arch expects that a number of PageNet's current officers may not
continue as employees of the combined company, it has not developed any
firm plans.
PageNet's and Arch's boards of directors were aware of these interests and
considered them, among other matters, when adopting the merger.
Indemnification and Insurance
The merger agreement provides that, for six years after the merger, Arch
will cause PageNet to indemnify and hold harmless each present and former
PageNet director and officer, when acting in such capacity, against any costs or
expenses, including judgments, fines, reasonable attorney's fees, losses,
claims, damages or liabilities incurred in connection with any claim, suit, or
civil, criminal, administrative or investigative proceeding or investigation
relating to matters existing or occurring at or before the merger, to the
fullest extent that PageNet would have been permitted to indemnify those persons
under Delaware corporate law and its certificate of incorporation or bylaws in
effect on November 7, 1999. PageNet will
75
<PAGE> 85
also advance expenses as incurred to the fullest extent permitted under
applicable law, provided the person to whom expenses are advanced provides an
undertaking to repay any advances if it is ultimately determined that he or she
is not entitled to indemnification.
The merger agreement also provides that, for a period of six years after
the merger, Arch will maintain a policy of officers' and directors' liability
insurance for acts and omissions occurring before the merger with coverage in
amount and scope at least as favorable as PageNet's directors' and officers'
liability insurance coverage on November 7, 1999. If that coverage expires, is
terminated or is canceled, or if the annual premium is increased to more than
200% of the last annual premium paid before November 7, 1999, Arch will use its
best efforts to obtain insurance in an amount and scope as great as can be
obtained for the remainder of the period for a premium not in excess of 200% of
the current premium on an annualized basis. In the alternative, PageNet can
obtain prepaid policies that provide such directors and officers with coverage
for six years against claims arising from facts or events that occurred at or
before the effective time of the merger, including claims relating to the
transactions contemplated by the merger agreement. If PageNet obtains such
prepaid policies, Arch has agreed to maintain such policies in effect and
continue to honor PageNet's obligation.
Furthermore, all directors and many officers of PageNet are entitled to
indemnification and insurance under an indemnity agreement with PageNet.
TREATMENT OF PAGENET'S STOCK
In the merger, each issued and outstanding share of PageNet common stock
will be converted into 0.1247 shares of Arch common stock. However, shares held
by Arch or any wholly owned subsidiary of Arch will be canceled without
conversion. The exchange ratio will be adjusted to eliminate the effect of any
stock split, stock dividend, stock distribution other than the Vast distribution
or other similar transaction by either PageNet or Arch that occurs before the
merger. The exchange ratio will not be adjusted for the distribution of Class B
common stock of Vast to holders of PageNet common stock.
HOLDERS OF PAGENET COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING PAGENET COMMON STOCK. FOLLOWING THE EFFECTIVE TIME OF THE MERGER,
HOLDERS OF PAGENET COMMON STOCK WILL RECEIVE INSTRUCTIONS FOR THE SURRENDER AND
EXCHANGE OF THEIR STOCK CERTIFICATES.
THE EXCHANGE OFFERS
PageNet
PageNet will accept all 8.875%, 10.125% and 10% senior subordinated notes
validly tendered and not withdrawn before the expiration date, upon the terms
and subject to the conditions set forth in this prospectus and in the letter of
transmittal which accompanies this prospectus. See "The Exchange Offer -- Terms
of the Exchange Offer."
In addition, each holder will be required to waive any and all existing
defaults with respect to the senior subordinated notes and any and all rights to
rescind their acceptance of the exchange offer after the expiration date. See
"Proposed Amendments."
Arch
Arch has agreed to issue 66.1318 shares of common stock in exchange for
each $1,000 principal amount at maturity of 10 7/8% senior discount notes
tendered pursuant to its exchange offer, together with all accreted interest on
such notes. As of the date of this prospectus, $172.4 million in aggregate
principal amount at maturity of discount notes remain outstanding, excluding
notes that have been exchanged.
76
<PAGE> 86
Holders of the discount notes who tender in connection with the exchange
offer will be required to give their consent to:
- amend the indenture for the notes, if necessary, to permit completion of
the merger;
- amend the indenture to eliminate:
-- any covenants which may be modified or eliminated by a majority vote
of the discount notes;
-- any events of default which relate to (1) the non-payment or
acceleration of other indebtedness, (2) the failure to discharge
judgments for the payment of money or (3) the bankruptcy or
insolvency of any subsidiaries; and
-- any provisions which condition the merger on compliance with any
financial criteria.
In addition, each holder of discount notes will be required to waive any and all
existing defaults with respect to the discount notes and any and all rights to
rescind their acceptance of the exchange offer after the expiration date.
The expiration date will be 12:00 midnight, New York City time, on the
day after the commencement of the exchange offer, or at a later date
which is mutually agreed upon by Arch and PageNet.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, PageNet and
Arch could not merge until notifications were furnished to the Federal Trade
Commission and the Antitrust Division of the Department of Justice and the
waiting period requirements were satisfied. On April 7, 2000, the Antitrust
Division informed Arch and PageNet that it had closed its review of the merger
and all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 have expired.
On December 13, 1999, Arch and PageNet filed a Request for Approval of a
Transfer of Control of the Federal Communications Commission licenses held by
each of Arch's and PageNet's subsidiaries. By order dated April 25, 2000, the
Federal Communications Commission approved the merger of Arch and PageNet. In
this same order, the Commission is requiring the combined company to divest two
of its five narrowband PCS licenses within 90 days of the merger occurring
because the combined company will hold five narrowband PCS licenses, in
violation of the Commission's three-channel narrowband PCS limit. The Commission
is currently reviewing this three-channel limit and may eliminate it. If this
happens, the combined company will be able to retain all five of its narrowband
PCS licenses. If the restriction is retained, and the combined company is
required to divest two of its narrowband PCS channels, the combined company will
have less spectrum to use to provide the services it needs to provide to compete
with other wireless telecommunications providers.
PageNet and Arch filed all necessary information concerning the merger, as
required by several state public utility commissions.
At any time before the effective time of the merger, the Antitrust
Division, the Federal Trade Commission, state attorneys general or a private
person or entity could seek under antitrust laws, among other things, to enjoin
the merger and, any time after the effective time of the merger, to cause Arch
to divest itself, in whole or in part, of the stock of PageNet or of businesses
conducted by PageNet in the merger. There can be no assurance that a challenge
to the merger will not be made or that, if such a challenge is made, Arch will
prevail.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
We expect that, for federal income tax purposes, the merger will qualify as
a tax-free transaction to PageNet and Arch stockholders, except for cash
received by PageNet stockholders instead of fractional shares of Arch common
stock. We also expect that the distribution of Class B common stock of Vast will
77
<PAGE> 87
be taxable to PageNet stockholders. See "Material Federal Income Tax
Considerations -- Federal Income Tax Consequences to PageNet Common
Stockholders."
ACCOUNTING TREATMENT OF THE MERGER
Arch will account for the merger using the purchase method of accounting
for a business combination, in accordance with Accounting Principles Board
Opinion No. 16. The assets and liabilities of PageNet, including intangible
assets, will be recorded at their fair market values and included in the
financial statements of Arch. The results of operations and cash flows of
PageNet will be included in Arch's financial statements from the date of the
merger.
QUOTATION ON NASDAQ NATIONAL MARKET SYSTEM
It is a condition to the closing of the merger that Arch shall have filed a
notification for the shares of Arch common stock to be issued in the merger to
be listed on the Nasdaq National Market System.
RESALES OF ARCH COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER; AFFILIATE
AGREEMENTS
Arch common stock issued in connection with the merger may be freely
transferred, except that shares of Arch common stock received by persons who are
deemed to be "affiliates," as such term is defined by Rule 144 under the
Securities Act of 1933, of PageNet at the effective time of the merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 under the Securities Act of 1933 or as otherwise permitted under the
Securities Act of 1933. Under the terms of the merger agreement, PageNet will
use its reasonable best efforts to cause each executive officer and director and
each person who may be an affiliate of PageNet to execute a written affiliate
agreement providing, among other things, that such person will not offer, sell,
transfer or otherwise dispose of any of the shares of Arch common stock obtained
as a result of the merger except in compliance with the Securities Act of 1933
and related rules and regulations.
APPRAISAL RIGHTS
Appraisal rights will be available to pre-exchange offer PageNet
stockholders in connection with the merger. Appraisal rights will not be
available with respect to shares of PageNet common stock issued in exchange for
PageNet senior subordinated notes. Accordingly, a PageNet stockholder wishing to
exercise appraisal rights under Section 262 of the General Corporation Law of
Delaware as to eligible shares of common stock should follow the procedures
required by that section. The joint proxy statement/prospectus to be received by
all PageNet stockholders in connection with the PageNet stockholder meeting
contains a summary description of Section 262 and the principal steps
stockholders must take to perfect their appraisal rights under that statute.
Stockholders should read Section 262 in its entirety, a copy of which is
attached as Annex I to the joint proxy statement/prospectus.
If PageNet files for reorganization under chapter 11 of the Bankruptcy
Code, appraisal rights would no longer be available and all stockholders who had
previously demanded appraisal would thereafter be entitled to receive the
consideration provided for in the prepackaged bankruptcy plan or such other plan
as may be confirmed by the Bankruptcy Court.
78
<PAGE> 88
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached as Annex B to this prospectus and is
incorporated by reference into this summary. We urge you to read the merger
agreement in its entirety for a more complete description of the terms and
conditions of the merger and related matters.
STRUCTURE OF THE MERGER
Following the completion of the PageNet exchange offer and the satisfaction
or waiver of all other conditions to the merger, a wholly owned subsidiary of
Arch will merge into PageNet, and PageNet will become a wholly owned subsidiary
of Arch. Two business days after all conditions to the merger are fulfilled or
waived, or at such other time and date as Arch and PageNet agree, we will file a
certificate of merger with the Delaware Secretary of State. The phrase
"effective time of the merger" refers to the time of that filing, or any other
time that we agree upon and specify in the certificate of merger.
Immediately prior to the effective time of the merger, PageNet will
distribute up to 68.9% of the Class B common stock of Vast to its noteholders
who exchange their senior subordinated notes for PageNet common stock. PageNet
will also distribute up to 11.6% of the Class B common stock of Vast to persons
who are PageNet stockholders prior to the exchange offer. After the merger, Arch
will retain up to 19.5% of the Class B common stock of Vast. These percentages
will be diluted proportionately if Vast issues additional equity before or after
the merger. See "The Vast Distribution" and "The Exchange Offer -- Terms of the
Exchange Offer."
THE EXCHANGE RATIO AND TREATMENT OF PAGENET COMMON STOCK
At the effective time of the merger each outstanding share of PageNet
common stock will be converted into 0.1247 shares of Arch common stock. Shares
of PageNet common stock owned by Arch or any direct or indirect wholly owned
subsidiary of Arch will be canceled and holders of shares exercising appraisal
rights will have the rights granted under Delaware law. If, before the effective
time of the merger, the issued and outstanding shares of Arch common stock are
changed into a different number of shares as a result of a reclassification,
stock split, reverse stock split, stock dividend or stock distribution, an
appropriate adjustment will be made to the number and kind of shares of Arch
common stock that PageNet stockholders are to receive in the merger.
For a description of Arch's common stock and a description of the
differences between the rights of holders of Arch common stock and PageNet
common stock, see "Comparison of Rights of PageNet Stockholders and Arch
Stockholders."
No fractional shares of Arch common stock will be issued in the merger.
Instead, Arch will pay cash to each holder of PageNet common stock who would
otherwise be entitled to receive a fraction of a share of Arch common stock, in
an amount equal to the fraction, rounded to the nearest one-hundredth of a
share, multiplied by the average closing price per share of Arch common stock as
reported in The Wall Street Journal, New York City edition, during the ten
trading days immediately prior to the effective time of the merger. No interest
will be paid or accrued on cash to be paid instead of fractional shares.
EXCHANGE PROCEDURES
At the effective time of the merger, Arch will deposit with Harris Trust
Company of New York for distribution to the holders of PageNet common stock,
certificates representing shares of Arch common stock issuable under the merger
agreement and an amount of cash sufficient to pay cash instead of fractional
shares. Arch will make sufficient funds available to the exchange agent from
time to time as needed to pay cash in respect of dividends or other
distributions on unexchanged shares.
TREATMENT OF PAGENET STOCK OPTIONS
At the effective time of the merger, each unvested option to purchase
PageNet common stock previously granted under PageNet's stock plans will
automatically vest. We will then convert each
79
<PAGE> 89
outstanding PageNet option into an option to purchase the same number of shares
of Arch common stock that the holder of the option would have received in the
merger if the holder had exercised the option immediately prior to the merger.
The number of shares of Arch common stock calculated in the conversion will be
rounded down to the nearest whole number. The exercise price per share of Arch
common stock subject to each option will equal the aggregate exercise price of
the PageNet common stock which would have been purchasable under the PageNet
option, divided by the number of shares of Arch common stock the holder of the
option would have received in the merger if the holder had exercised the option
immediately prior to the merger, rounded down to the nearest whole number.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties of PageNet and
Arch relating to:
- their organization, existence, good standing, corporate power,
qualification to do business and similar corporate matters;
- their capital structure;
- the authorization, execution, delivery and performance of the merger
agreement;
- the absence of any required governmental and third-party approvals other
than those specified in the merger agreement;
- the absence of breaches, violations or defaults under their corporate
charters and bylaws and other agreements and documents;
- the accuracy of their financial statements and any filings with the
Securities and Exchange Commission;
- the absence of certain changes in their businesses since the end of the
prior fiscal year;
- the absence of litigation and liabilities, including liabilities
associated with employee benefit plans;
- their compliance with applicable laws, including environmental and
regulatory laws;
- the absence of actions that would prevent the merger from being treated
as a tax-free reorganization under the Internal Revenue Code;
- the timely filing of all tax returns and payment of all taxes;
- the absence of undisclosed brokers and finders;
- the status of their preparedness with respect to Year 2000 compliance;
- the approval by each board of directors of the merger agreement and the
merger;
- the receipt by each board of directors of the opinions of their
respective financial advisors that the consideration for the merger is
fair to holders of PageNet common stock and Arch common stock from a
financial point of view;
- their employee benefits plans;
- the actions taken by each board of directors to make Delaware's
interested stockholder business combination law, other state takeover
statutes, each of their rights agreements and any other anti-takeover
provision in their certificates of incorporation or bylaws inapplicable
to the merger;
- their relationships with employees;
- environmental matters and compliance with environmental laws;
- their significant agreements; and
- their intellectual property.
80
<PAGE> 90
COVENANTS
Conduct of Businesses Prior to the Merger
Except as contemplated by the merger agreement, PageNet and Arch have
agreed that they and their subsidiaries will conduct their businesses only in
the ordinary and usual course until the effective time of the merger. The merger
agreement includes other limitations, prohibitions and provisions relating to
the conduct of their businesses before the effective time of the merger
concerning:
- charter and bylaw amendments;
- changes in capital stock and payment of dividends;
- actions that would prevent the merger from qualifying as a tax-free
reorganization under the Internal Revenue Code;
- increases in compensation, and amendments to employee benefit or
retirement plans;
- incurrence or repayment of indebtedness;
- capital expenditure levels;
- issuance of capital stock and convertible securities;
- acquisitions and dispositions;
- changes in accounting policies or procedures;
- settlement or release of claims in litigation; and
- tax elections.
Some of these limitations do not apply, however, with respect to Vast.
PageNet may, among other things:
- transfer or encumber shares of capital stock or securities convertible
into shares of capital stock of Vast;
- cause Vast to incur debt, so long as the borrowed funds are used solely
by Vast;
- transfer specified assets to Vast;
- establish the terms of the equity interest in Vast to be transferred to
the holders of PageNet common stock and PageNet notes; and
- establish an employee equity incentive plan for Vast.
Non-Solicitation of Competing Proposals
PageNet and Arch have agreed to restrictions concerning an "acquisition
proposal," which the merger agreement defines generally as a proposal of merger,
business combination or acquisition of more than 10% of their assets or 15% of
their stock. Specifically, each company has agreed that neither it nor its
agents will, directly or indirectly:
- initiate, solicit, encourage or otherwise facilitate any inquiries or the
making of any acquisition proposal with a third party;
- have any discussions with or provide any confidential information or data
to a third party in connection with an acquisition proposal; or
- engage in any negotiations concerning an acquisition proposal or
otherwise facilitate any acquisition proposal.
The merger agreement expressly allows PageNet and Arch to comply with
Securities and Exchange Commission rules regarding the publication of a board of
directors' recommendations with respect to
81
<PAGE> 91
tender offers, and, subject to some limitations, expressly allows the board of
directors of PageNet or Arch to:
- negotiate with, and provide information to, a third party in response to
an unsolicited bona fide written acquisition proposal, if the board of
directors concludes in good faith, after consulting outside counsel, that
doing so is necessary to comply with the board's fiduciary duty to its
stockholders; and
- recommend an unsolicited proposal to its stockholders, if the board of
directors concludes in good faith, after consulting its legal and
financial advisors, that such transaction is reasonably capable of being
completed, and, if completed, would be more favorable to its stockholders
than the proposed transaction between Arch and PageNet.
PageNet and Arch have agreed to terminate all existing discussions and
negotiations with third parties concerning acquisition proposals. Each company
has agreed to notify the other as soon as reasonably practicable if it receives
any acquisition proposal, or if a third party seeks information from it or seeks
to engage it in discussions concerning an acquisition proposal. Each company has
also agreed to keep the other company informed of any such proposals or
inquiries on an ongoing basis.
Stockholders Meetings
The merger agreement requires both companies to convene stockholder
meetings as soon as reasonably practicable after the registration statement
containing the joint proxy statement/prospectus is declared effective.
PageNet has agreed that its board of directors will recommend that PageNet
stockholders vote to:
- adopt the merger agreement;
- approve the merger;
- approve an amendment to the PageNet certificate of incorporation to
increase the authorized number of PageNet shares to an amount sufficient
to complete the PageNet exchange offer and approve the issuance of such
common stock; and
- approve the other associated transactions.
The PageNet board of directors may withdraw or modify its recommendation if
it determines in good faith, after consultation with outside legal counsel, that
failing to do so would be reasonably likely to be inconsistent with its
fiduciary duties.
Even if the PageNet board of directors withdraws or modifies its
recommendation, it must convene and complete the stockholder meeting which
considers the merger. The PageNet board of directors is not required to convene
the stockholders meeting, however, if PageNet is in bankruptcy or if Arch
terminates the merger agreement.
Arch has agreed that its board of directors will recommend that Arch
stockholders vote to increase the authorized number of shares of Arch common
stock to an amount sufficient to complete the merger and the Arch exchange offer
and approve the issuance of such common stock.
The Arch board of directors may withdraw or modify its recommendation if it
determines in good faith, after consultation with outside legal counsel, that
failing to do so would be reasonably likely to be inconsistent with its
fiduciary duties.
Even if the Arch board of directors withdraws or modifies its
recommendation, it must convene and complete the stockholder meeting which
considers the transaction. The board of directors is not required to convene the
stockholders meeting, however, if PageNet terminates the merger agreement.
82
<PAGE> 92
Filings and Other Actions
Arch and PageNet have agreed to cooperate with each other, and to use their
reasonable best efforts
- to deliver comfort letters from their respective independent public
accountants;
- to take all necessary, proper and advisable actions to complete the
merger, including obtaining opinions from their respective attorneys,
preparing and filing promptly all documentation necessary to complete the
merger, and instituting any court action necessary to obtain approval of
the merger and defending any court action instituted to prevent
completion of the merger;
- to obtain promptly all approvals necessary or advisable to complete the
merger; and
- to share all information reasonably necessary and advisable in connection
with the merger.
Bankruptcy Provisions
If less than 97.5% of the PageNet senior subordinated notes are tendered in
the PageNet exchange offer or if the stockholders of PageNet fail to approve the
merger agreement, PageNet and some of its operating subsidiaries have agreed to
either commence the chapter 11 case and file the prepackaged bankruptcy plan
under chapter 11 of the Bankruptcy Code or pay Arch a $40.0 million termination
fee if the following conditions to the filing of the prepackaged bankruptcy plan
are met:
- Arch stockholders have approved the transaction;
- the holders of at least 66 2/3% in amount of the PageNet senior
subordinated notes voted with respect to the prepackaged bankruptcy plan
and that constitute at least a majority in number of all such voting
noteholders, have voted to accept the prepackaged bankruptcy plan;
- sufficient debt financing has been arranged to fund PageNet's operations
until the prepackaged bankruptcy plan is approved by the Bankruptcy
Court; and
- senior credit facilities of at least $1.3 billion have been secured or
can be secured through the prepackaged bankruptcy plan.
If PageNet files the prepackaged bankruptcy plan, then Arch has agreed to
be bound by all of the terms of the merger agreement provided that the
prepackaged bankruptcy plan is confirmed by the Bankruptcy Court within 120 days
of the filing of the plan or such later date as is mutually agreed to in writing
by Arch and PageNet. In the event the chapter 11 case are commenced and the
prepackaged bankruptcy plan is filed, Arch has agreed to take certain actions to
support confirmation of the prepackaged bankruptcy plan.
At any time, if the board of directors of PageNet determines that the
commencement of the chapter 11 case and the filing of prepackaged bankruptcy
plan is in the best interests of PageNet then:
- PageNet may commence the chapter 11 case and file the prepackaged
bankruptcy plan under chapter 11 of the Bankruptcy Code and shall seek to
satisfy its part of the prepackaged bankruptcy plan conditions and
otherwise seek confirmation of the prepackaged bankruptcy plan by the
Bankruptcy Court, and
- Arch shall
- seek to satisfy its conditions to PageNet's filing of the prepackaged
bankruptcy plan outlined above; and
- be bound by the terms of the merger agreement and consummate the
merger through the prepackaged bankruptcy plan if such plan is
confirmed by the Bankruptcy Court, provided that such confirmation is
entered by no later than December 31, 2000, or such later date as is
mutually agreed to by Arch and PageNet, and if the other conditions to
the merger have been satisfied.
83
<PAGE> 93
If an involuntary bankruptcy petition is filed against PageNet or any of
its subsidiaries or a liquidator or trustee is appointed for any of them prior
to a voluntary commencement of PageNet's bankruptcy case and the date of such
involuntary action is prior to the date which is 60 days after the date that the
registration statements relating to the merger and the exchange offers are
declared effective by the Securities and Exchange Commission, PageNet shall have
up to 120 days after such involuntary action to obtain from the appropriate
court an order which dismisses such action, so that the exchange offers may be
completed, and during such 120-day period the merger agreement will remain in
effect and Arch will be bound by all its terms; or
- if such involuntary action is filed more than 60 days after the date that
the registration statements relating to the merger and the exchange
offers are declared effective by the Securities and Exchange Commission,
and as of such date of such involuntary action:
- at least 97.5% of the aggregate outstanding principal amount of the
PageNet senior subordinated notes and not less than a majority in
number of each series of PageNet senior subordinated notes have been
validly tendered and not withdrawn; and
- the PageNet and Arch stockholders have approved the transaction;
then PageNet shall have up to 120 days after such involuntary action to
obtain an order which dismisses such action, and the merger agreement will
remain in effect and Arch will consummate the merger outside of bankruptcy,
unless PageNet and Arch mutually consent to file PageNet's bankruptcy case,
provided that such order has been obtained before the expiration of such
120-day period.
If on such date of such involuntary action:
- less than 97.5% of the aggregate outstanding principal amount of the
PageNet senior subordinated notes or less than a majority in number of
each series of PageNet senior subordinated notes have been validly
tendered and not withdrawn, or the PageNet stockholders fail to
approve the transaction; but
- the conditions to the prepackaged bankruptcy plan have been satisfied,
then PageNet shall stipulate to bankruptcy relief under chapter 11 of the
Bankruptcy Code and Arch will be bound by all of the terms of the merger
agreement provided that the prepackaged bankruptcy plan is confirmed by the
Bankruptcy Court within 120 days of the filing of the plan or such later
date as may be agreed by Arch and PageNet;
If on such date of such involuntary action:
- less than 97.5% of the aggregate outstanding principal amount of the
PageNet senior subordinated notes or less than a majority in number of
each series of PageNet senior subordinated notes have been validly
tendered and not withdrawn, or the PageNet stockholders fail to
approve the transaction; and
- the conditions to the prepackaged bankruptcy plan have not been
satisfied,
then PageNet may, but shall not be obligated to, stipulate to bankruptcy
relief under chapter 11 of the Bankruptcy Code and the provisions described
above relating to a voluntary filing by PageNet shall apply, including the
provisions requiring Arch to be obligated for a period of time to
consummate the merger pursuant under the prepackaged bankruptcy plan.
If PageNet's bankruptcy case is commenced, voluntarily or involuntarily,
PageNet has agreed to file a motion on the date such case commences seeking
expedited approval of certain sections of the merger agreement concerning
nonsolicitation of competing proposals and the payment by Arch and PageNet of
their respective termination fees. The merger agreement provides that Arch may
terminate the agreement if an order approving such motion is not entered within
30 days after the commencement of the Bankruptcy Case.
84
<PAGE> 94
If PageNet's bankruptcy case commences, Arch may enter into another merger
or acquisition transaction, provided that such transaction would not prevent,
materially impair or materially delay its ability to consummate the merger. If
Arch enters into a merger or acquisition transaction following the commencement
of PageNet's bankruptcy case and as a result of such event PageNet is required
to amend its disclosure statement and resolicit the votes of its creditors, then
the time within which the order of the Bankruptcy Court confirming the
prepackaged bankruptcy plan must be obtained shall be extended for an additional
90 days.
CONDITIONS TO COMPLETION OF THE MERGER
We will complete the merger only if the conditions set forth in the merger
agreement are satisfied or waived. The conditions to each of Arch's and
PageNet's obligation to complete the merger include:
- stockholder approval of the transaction by Arch's stockholders;
- either:
- stockholder approval of the transaction by PageNet's stockholders; or
- entry of a confirmation order, not subject to a stay or injunction, by
the Bankruptcy Court confirming the prepackaged bankruptcy plan;
- the filing of a notification for the listing on the Nasdaq National
Market System of the Arch common stock to be issued in connection with
the merger and other transactions contemplated by the merger agreement;
- the receipt of specified governmental consents, permits, licenses and
approvals for the merger and the expiration or termination of all
applicable waiting periods, and any extensions of these periods, under
the Hart-Scott-Rodino Act;
- the effectiveness of the registration statements related to the merger
and the PageNet exchange offer and the absence of any stop order
suspending the effectiveness of the registration statements with the SEC
or any instituted or threatened proceeding seeking a stop order;
- the availability of senior credit facilities in a minimum amount of $1.3
billion to Arch and its subsidiaries, including PageNet, after the
merger;
- Arch's receipt of all required state securities and "blue sky" permits
and approvals;
- that neither PageNet, Arch nor any of their subsidiaries incur
out-of-pocket income tax liability in their respective taxable periods of
more than $25.0 million in the aggregate as a result of the merger; and
- either:
- at least 97.5% of the aggregate outstanding principal amount of the
PageNet senior subordinated notes and not less than a majority of the
outstanding principal amount of each series of PageNet senior
subordinated notes has been validly tendered, without withdrawal, and
accepted in the PageNet exchange offer; or
- if the minimum required amount of PageNet senior subordinated notes
has not been tendered and accepted:
- the final confirmation order from the Bankruptcy Court confirming
the prepackaged bankruptcy plan has been entered; and
- all conditions under the prepackaged bankruptcy plan have been
satisfied.
85
<PAGE> 95
The additional conditions to Arch's obligation to complete the merger
include:
- the accuracy of PageNet's material representations and warranties, apart
from any representations and warranties which would be breached by
PageNet filing or conducting a bankruptcy case or the filing of an
involuntary bankruptcy petition or similar creditors' rights petition
against PageNet;
- PageNet's performance in all material respects of all its covenants,
agreements and obligations under the merger agreement;
- PageNet's receipt of required material consents or approvals to the
merger and the other transactions contemplated by the merger agreement;
- Arch's receipt of required material consents or approvals to the merger
and the other transactions contemplated by the merger agreement;
- Arch's receipt of a favorable tax opinion from Hale and Dorr LLP to the
effect described under "Material Federal Income Tax Considerations;" and
- Arch's receipt of an unqualified certificate from PageNet that each of
the conditions described above has been satisfied, that the PageNet
stockholders meeting has been convened and PageNet stockholders have:
- adopted and approved the merger agreement and the merger;
- increased the authorized number of shares of PageNet common stock to
an amount sufficient to complete the PageNet exchange offer; and
- approved the issuance of such common stock;
except to the extent that stockholder approval is not required due to
the entry of the final confirmation order of a Bankruptcy Court.
The additional conditions to PageNet's obligation to complete the merger
include:
- the accuracy of Arch's material representations and warranties,
- Arch's performance in all material respects of all its covenants,
agreements and obligations under the merger agreement;
- Arch's receipt of required material consents or approvals to the merger
and the other transactions contemplated by the merger agreement;
- PageNet's receipt of a favorable tax opinion from Mayer, Brown & Platt to
the effect described under "Material Federal Income Tax Considerations;"
- PageNet's receipt of an unqualified certificate from Arch that each of
the conditions described above has been satisfied, that the Arch
stockholders meeting has been convened and Arch stockholders have:
- increased the authorized number of shares of Arch common stock to an
amount sufficient to complete the merger;
- approved the issuance of such common stock; and
- the distribution of Vast common stock has been declared or the final
confirmation order of a Bankruptcy Court has been entered confirming the
prepackaged bankruptcy plan.
At any time before the effective time of the merger, to the extent allowed
by law, Arch or PageNet may waive any of these conditions without the approval
of their respective stockholders. As of the date of this prospectus, neither
company expects to waive any condition.
86
<PAGE> 96
TERMINATION OF THE MERGER AGREEMENT
Arch and PageNet can mutually agree to terminate the merger agreement at
any time without completing the merger.
Also, either Arch or PageNet can, without the consent of the other,
terminate the merger agreement:
- if the merger is not completed:
- before September 30, 2000, if no bankruptcy case has been filed by
then, or
- if a bankruptcy case has been filed, 30 days following the date by
which a final confirmation order must be entered;
- if the PageNet and Arch stockholder meetings are held and PageNet's or
Arch's stockholders do not adopt the transaction; or
- if any order permanently restraining, enjoining or otherwise prohibiting
completion of the merger has become final and non-appealable.
Either party can extend the termination date for up to an additional 90
days if such extension is necessary in order to obtain governmental approvals of
the merger under applicable antitrust laws and if all other conditions to
completion of the merger are satisfied or are capable of being satisfied.
Neither party may terminate the merger agreement if such party has materially
breached the terms of the merger agreement and such breach contributed to the
failure of the merger to be completed.
In addition, PageNet can terminate the merger agreement before the
effective time of the merger if:
- the board of directors of Arch has withdrawn or adversely modified its
approval or recommendation of the merger;
- Arch has breached any representation, warranty, covenant or agreement in
the merger agreement, and the breach is both material and incurable prior
to the date at which either Arch or PageNet can, without the consent of
the other, terminate the merger agreement;
- PageNet receives an unsolicited proposal for a business combination
transaction with a third party that PageNet's board of directors
concludes is a superior proposal and PageNet provides Arch with all the
material terms of the proposal at least two business days prior to
termination and simultaneously with the termination pays the termination
fee to Arch; or
- PageNet's minimum condition is not satisfied or PageNet's stockholders
have not adopted the merger agreement but the requisite conditions to the
prepackaged bankruptcy plan are satisfied, and PageNet does not file the
bankruptcy case and seek confirmation of the prepackaged bankruptcy plan,
provided that PageNet simultaneously pays the termination fee to Arch.
Finally, Arch can terminate the merger agreement if:
- the board of directors of PageNet has withdrawn or adversely modified its
approval or recommendation of the merger;
- PageNet has breached any representation, warranty, covenant or agreement
in the merger agreement, and the breach is both material and incurable
prior to the date at which either Arch or PageNet can, without the
consent of the other, terminate the merger agreement, but only if the
breach does not solely result from the filing or conduct of the
bankruptcy case or from the filing of an involuntary bankruptcy petition
against PageNet or any of its subsidiaries;
- an order of a Bankruptcy Court approving of the nonsolicitation of
competing proposals and the payment by PageNet of the termination fee has
not been entered within 30 days of the commencement of the bankruptcy
case;
87
<PAGE> 97
- an order of a Bankruptcy Court confirming the prepackaged bankruptcy plan
is not entered within 120 days of the commencement of the bankruptcy case
or a later date mutually agreeable to Arch and PageNet;
- the prepackaged bankruptcy plan is amended, modified or added to in any
material respect without the written consent of Arch;
- Arch receives an unsolicited proposal for a business combination
transaction with a third party that Arch's board of directors concludes
is a superior proposal and Arch provides PageNet with all the material
terms of the proposal at least two business days prior to termination and
simultaneously with the termination pays the termination fee to PageNet.
TERMINATION FEE
Arch must pay PageNet a termination fee of $40.0 million by wire transfer
of same day funds if:
- Arch, its stockholders or its noteholders receives an acquisition
proposal from a third party or a third party publicly announces an
intention to make an acquisition proposal and:
- Arch's stockholders subsequently do not approve the merger;
- the merger agreement with PageNet is terminated; and
- Arch either executes and delivers an agreement with a third party
relating to an acquisition proposal or an acquisition with respect
to Arch is completed, in either case, within 12 months of the
termination of the merger agreement with PageNet;
- PageNet terminates the merger agreement with Arch because:
- the Arch board of directors has withdrawn or adversely modified its
approval or recommendation of the merger agreement;
- Arch has breached any representation, warranty, covenant or
agreement concerning:
- the restrictions on acquisition proposals; or
- Arch's board of directors taking all actions necessary to convene
a stockholders meeting to consider and vote upon and recommend
that the stockholders approve an increase in the authorized
number of shares of Arch common stock to an amount sufficient to
complete the merger and the issuance of such common stock; or
- Arch terminates the merger agreement with PageNet in response to a
superior acquisition proposal by a third party.
PageNet must pay Arch a fee of $40.0 million by wire transfer of same day
funds if:
- PageNet, its stockholders or its noteholders receives an acquisition
proposal from a third party or a third party publicly announces an
intention to make an acquisition proposal and:
- PageNet's stockholders subsequently do not adopt the merger
agreement with Arch or PageNet's noteholders do not satisfy the
PageNet minimum condition with respect to the PageNet exchange
offer, and a Bankruptcy Court fails to enter the final confirmation
order;
- the merger agreement with Arch is terminated; and
- PageNet either executes and delivers an agreement with a third party
relating to an acquisition proposal or an acquisition with respect
to PageNet is completed, in either case, within 12 months of the
termination of the merger agreement;
- Arch terminates the merger agreement with PageNet because:
- the PageNet board of directors has withdrawn or adversely modified
its approval or recommendation of the merger agreement with Arch;
88
<PAGE> 98
- PageNet has breached any representation, warranty, covenant or
agreement concerning:
- the restrictions on acquisition proposals; or
- PageNet's board of directors taking all actions necessary to
convene a stockholders meeting to consider and vote upon and
recommend that the stockholders approve, unless a bankruptcy case
has commenced, or PageNet has stipulated to bankruptcy relief
after the filing of an involuntary bankruptcy petition against it
or its subsidiaries:
- the adoption of the merger agreement with Arch;
- the merger with Arch; and
- an increase in the authorized number of shares of PageNet
common stock to an amount sufficient to complete the PageNet
exchange offer and the issuance of such common stock;
- the prepackaged bankruptcy plan is withdrawn without the prior written
consent of Arch, or PageNet files any other plan of reorganization or
amends, modifies or adds to any material provision of the prepackaged
bankruptcy plan in each case without the prior written consent of Arch;
- any other plan of reorganization filed by a person other than PageNet is
confirmed by a Bankruptcy Court;
- PageNet files a motion to sell or otherwise transfer all or substantially
all of its assets as part of a sale under the Bankruptcy Code without the
prior written consent of Arch; or
- PageNet terminates the merger agreement with Arch in response to a
superior acquisition proposal by a third party; or
- the requisite conditions to the prepackaged plan are satisfied but
PageNet does not file the bankruptcy case and seek confirmation of the
prepackaged bankruptcy plan.
Subject to the possible payment of a termination fee, each of Arch and
PageNet will pay all expenses it incurs in connection with the merger and
related transactions, except that they will share fees paid to the SEC, the
Federal Trade Commission, the Federal Communications Commission and other
federal or state agencies, and all printing and mailing costs incurred in
connection with the merger, equally.
MODIFICATION OR AMENDMENT OF THE MERGER AGREEMENT
At any time prior to the effective time, Arch and PageNet can modify or
amend the merger agreement if they both agree to do so. Each can waive its right
to require the other to comply with the merger agreement where the law allows.
89
<PAGE> 99
THE VAST DISTRIBUTION
GENERAL
The merger agreement provides that PageNet stockholders will receive a
distribution of up to 11.6% of the total equity of Vast. The PageNet board of
directors will distribute 2,320,000 shares of Class B common stock of Vast to
the persons who are PageNet stockholders immediately prior to the acceptance of
senior subordinated notes in the exchange offer. The distribution will not be
made unless all of the conditions to the merger have been satisfied. Because the
distribution will be made only to persons who were PageNet stockholders prior to
the acceptance of senior subordinated notes in the exchange offer, noteholders
who become stockholders of PageNet in the exchange offer will not be entitled to
receive any portion of this distribution.
MANNER OF EFFECTING THE VAST DISTRIBUTION
If all of the conditions to the merger are satisfied, on the closing date
of the Arch merger, PageNet will deliver all 2,320,000 shares of Class B common
stock of Vast to a distribution agent. As soon as practicable after that date,
the distribution agent will mail certificates for such shares to the PageNet
stockholders entitled to receive these shares.
DETERMINATION OF THE DISTRIBUTION RATIO
PageNet estimates that the number of shares of Vast that PageNet
stockholders will receive as a result of the Vast distribution is 0.0223 of a
share of Vast Class B common stock for each share of PageNet common stock. The
fraction of a share that PageNet stockholders will receive will equal 2,320,000
divided by the number of shares of PageNet common stock outstanding as of
immediately prior to the acceptance of senior subordinated notes in the exchange
offer. The 0.0223 estimate is based on the 104,242,067 shares of PageNet common
stock outstanding on April 25, 2000.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS OF THE VAST DISTRIBUTION
We expect that the distribution of Class B common stock of Vast will be
taxable to PageNet stockholders. We believe that it is most likely that the
Class B common stock of Vast will be treated as distributed in exchange for a
portion of a stockholder's PageNet common shares. However, it is possible that
the distribution will be taxed as a dividend. See "Material Federal Income Tax
Considerations."
90
<PAGE> 100
THE PREPACKAGED BANKRUPTCY PLAN
In this section, we use the term "PageNet" to refer to Paging Network, Inc.
and its United States based operating subsidiaries, other than Vast Solutions,
Inc., that will become debtors in the prepackaged bankruptcy case.
If less than 97.5% of the PageNet senior subordinated notes are tendered in
the PageNet exchange offer, but holders of at least 66 2/3% in amount of the
PageNet senior subordinated notes that constitute at least a majority in number
of all holders that cast a ballot vote to accept the prepackaged bankruptcy
plan, PageNet expects to file the chapter 11 case and seek to confirm the
prepackaged bankruptcy plan; in addition, if less than 97.5% of the PageNet
senior subordinated notes are tendered in the PageNet exchange offer or if the
PageNet stockholders fail to approve the merger agreement, Arch may require
PageNet to commence the chapter 11 case and file the prepackaged bankruptcy
plan, or pay Arch a $40.0 million termination fee, if the following conditions
are met:
- Arch stockholders have approved the transaction;
- the holders of at least 66 2/3% in amount of the PageNet senior
subordinated notes voted with respect to the prepackaged bankruptcy plan
and that constitute at least a majority in number of all such voting
noteholders, have voted to accept the prepackaged bankruptcy plan;
- sufficient debt financing has been arranged to fund PageNet's operation
until the prepackaged bankruptcy plan is confirmed by the Bankruptcy
Court; and
- senior credit facilities of at least $1.3 billion have been secured or
can be secured through the prepackaged bankruptcy plan.
GENERAL
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its
business for the benefit of its creditors and stockholders.
The consummation of a plan of reorganization is the principal objective of
a chapter 11 reorganization case. A plan of reorganization sets forth the means
for satisfying claims against and equity interests in a debtor. Upon
confirmation of a plan of reorganization by the Bankruptcy Court, the plan
becomes binding upon the debtor and all creditors or equity security holders of
the debtor. The confirmation order generally discharges the debtor from any
debts that arose prior to the date of confirmation of the plan and substitutes
for them the obligations specified under the confirmed plan.
Only classes that are impaired, as defined under the Bankruptcy Code, are
entitled to vote to accept or reject the prepackaged bankruptcy plan. As a
general matter, a class of claims or equity interests is considered to be
"unimpaired" under a plan of reorganization if the plan does not alter the
legal, equitable and contractual rights of the holders of such claims or equity
interests. Under the Bankruptcy Code, holders of unimpaired claims or equity
interests are conclusively presumed to have accepted the plan.
Under certain circumstances the Bankruptcy Code permits debtors to solicit
acceptances for a plan of reorganization prior to the commencement of the
bankruptcy case and to bind creditors to such prefiling acceptances. Even if all
classes of creditors and equity security holders vote to accept a plan, the
Bankruptcy Court must find that a number of statutory tests are met before it
may confirm the plan. Many of these tests are designed to protect the interests
of holders of claims or equity interests that do not vote to accept the plan,
but that will nonetheless be bound by the provisions of the plan if it is
confirmed by the Bankruptcy Court.
PageNet prepared the prepackaged bankruptcy plan as an alternative means to
implement the merger agreement in the event that 97.5% of PageNet's senior
subordinated notes are not tendered pursuant to the exchange offer. The terms of
the prepackaged bankruptcy plan were not negotiated with any class of creditors
or interest holders. PageNet's proposed prepackaged bankruptcy plan provides for
treatment of
91
<PAGE> 101
the various classes of claims of creditors against PageNet and equity interests
in PageNet that is consistent with the treatment such creditors and equity
security holders would receive if the exchange offer and merger were consummated
outside of a bankruptcy case.
A copy of the prepackaged bankruptcy plan accompanies this prospectus as
Annex C. All noteholders and stockholders are urged to review the prepackaged
bankruptcy plan carefully. The prepackaged bankruptcy plan, if confirmed, will
be binding upon PageNet noteholders and stockholders and all holders of claims
against, and equity interests in, PageNet.
If PageNet files the chapter 11 case, it intends to operate its businesses
in the ordinary course and to make payment in full on a timely basis for all
goods and services provided after the commencement of the chapter 11 case.
PageNet also will seek approval immediately upon the filing of the case to pay
in full in the ordinary course of business the pre-petition claims owing to
general unsecured creditors that were incurred in the ordinary course of
PageNet's business. PageNet anticipates receiving a commitment for a $50 million
debtor-in-possession loan facility to be made available to PageNet if it files
the prepackaged bankruptcy case. Management expects that, in light of this loan
facility, PageNet will have sufficient funds to pay its prepetition and
postpetition general unsecured creditors in the ordinary course of business
through the conclusion of the chapter 11 case.
Under the prepackaged bankruptcy plan, noteholders and stockholders will
not be required to file proofs of claim or equity interest with the Bankruptcy
Court. Such holders will not be required to take any other action to receive
distributions on their claims or equity interests other than the tender of their
senior subordinated notes or stock certificates.
VOTING INSTRUCTIONS AND PROCEDURES
IT IS IMPORTANT THAT THE HOLDERS OF THE SENIOR SUBORDINATED NOTES AND
COMMON STOCK EXERCISE THEIR RIGHTS TO VOTE TO ACCEPT OR REJECT THE PREPACKAGED
BANKRUPTCY PLAN. Such holders should read the ballot accompanying this
prospectus carefully and follow the instructions contained therein. Please use
only the ballot that accompanies this prospectus.
THE SUBMISSION OF A PROPERLY EXECUTED BALLOT TO ACCEPT THE PREPACKAGED
BANKRUPTCY PLAN DOES NOT CONSTITUTE A TENDER OF THE HOLDER'S SENIOR SUBORDINATED
NOTES PURSUANT TO THE EXCHANGE OFFER. For a description of the procedures for
tendering senior subordinated notes and delivery of consents with respect to the
exchange offer see "The Exchange Offer -- Procedures for Tendering Senior
Subordinated Notes and Delivery of Consents."
The period during which ballots with respect to the prepackaged bankruptcy
plan will be accepted will terminate on , 2000. For purposes of
this section, such date will be referred to as the voting deadline. Except to
the extent that PageNet so determines or as permitted by the bankruptcy court,
ballots that are received after the voting deadline will not be accepted or used
in connection with the confirmation of the prepackaged bankruptcy plan.
Consistent with the provisions of Bankruptcy Rule 3018, the record
date -- the date for the determination of holders of record of senior
subordinated note claims and shareholder interests who are entitled to vote on
the prepackaged bankruptcy plan -- has been set as the close of business, New
York City time, on , 2000. If you acquired beneficial ownership
of senior subordinated notes or common stock after the , 2000
record date, in order to vote on the prepackaged bankruptcy plan you must submit
with your ballot a proxy from the beneficial owner as of the ,
2000 record date in which such beneficial owner certifies that he, she, or it
was the beneficial owner of the senior subordinated notes or common stock on the
record date, that such beneficial owner has not already voted on the prepackaged
bankruptcy plan and that such beneficial owner is authorizing you to vote on the
prepackaged bankruptcy plan.
PageNet has engaged Innisfree M&A Incorporated as its information agent to
assist in the transmission of voting materials and in the tabulation of votes
with respect to the prepackaged bankruptcy plan. PageNet has also engaged Harris
Trust Company of New York as its exchange agent. The exchange
92
<PAGE> 102
agent (or such other entity as may be selected by PageNet) shall act as the
disbursing agent with respect to distributions to be made to noteholders and
stockholders under the prepackaged bankruptcy plan.
FOR YOUR VOTE TO COUNT, IT MUST BE RECEIVED BY THE INFORMATION AGENT BEFORE
THE VOTING DEADLINE. IF YOU HAVE BEEN INSTRUCTED TO RETURN YOUR BALLOT TO YOUR
BANK, BROKER, PROXY INTERMEDIARY OR OTHER NOMINEE, OR TO THEIR AGENT, YOU MUST
RETURN YOUR BALLOT TO THEM IN SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN
IT TO THE INFORMATION AGENT BEFORE THE VOTING DEADLINE. IF A RETURN ENVELOPE HAS
BEEN PROVIDED WITH A "PREVALIDATED" BALLOT (AS DESCRIBED BELOW), RETURN SUCH
PREVALIDATED BALLOT IN THE ENCLOSED RETURN ENVELOPE SO THAT IT WILL BE RECEIVED
BY THE INFORMATION AGENT BEFORE THE VOTING DEADLINE.
If a ballot is damaged or lost, or for additional copies of this
prospectus, you may contact the information agent. ANY BALLOT WHICH IS EXECUTED
AND RETURNED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN
WILL NOT BE COUNTED. If you have any questions concerning voting procedures, you
may contact the information agent at the address or telephone number listed on
the back cover page of this document.
Voting Procedures.
Innisfree M&A Incorporated, as information agent, is providing copies of
this prospectus, ballots, and where appropriate, master ballots to all
registered holders of PageNet's senior subordinated notes and common stock.
Registered holders may include brokers, banks, proxy intermediaries and other
nominees. If such registered holders do not hold for their own accounts, they or
their agents should provide copies of this prospectus and appropriate ballots to
their customers and to beneficial owners. Any beneficial owner who has not
received a ballot should contact his, her or its nominee, or the information
agent.
Beneficial Owners.
Any beneficial owner as of the , 2000 record date of the
senior subordinated notes or common stock that is also the record holder of such
notes or common stock can vote their respective claim or interest by completing
and signing the enclosed ballot and returning it directly to the information
agent, as instructed in the ballot, using the enclosed pre-addressed
postage-paid envelope so as to be received by the information agent before the
voting deadline. If no envelope is enclosed, contact the information agent for
instructions.
Any beneficial owner holding, as of the , 2000
record date, senior subordinated notes or common stock in "street name" through
a nominee can vote by completing and signing the ballot (unless the ballot has
already been signed, or "prevalidated," by the nominee), and returning it to the
nominee in sufficient time for the nominee to then forward the vote as to be
received by the information agent before the voting deadline. Any ballot
submitted to a nominee will not be counted until such nominee properly completes
and timely delivers a corresponding master ballot to the exchange agent or the
information agent. IF YOUR BALLOT HAS ALREADY BEEN SIGNED (OR "PREVALIDATED") BY
YOUR NOMINEE, YOU MUST COMPLETE THE BALLOT AND RETURN IT DIRECTLY TO THE
INFORMATION AGENT SO THAT IT IS RECEIVED BY THE INFORMATION AGENT BEFORE THE
VOTING DEADLINE.
Nominees.
A nominee which is the registered holder for a beneficial owner, as of the
, 2000 record date, of senior subordinated notes or common stock
can obtain the votes of the beneficial owners of such securities, consistent
with customary practices for obtaining the votes of securities held in "street
name," in one of the following two ways:
The nominee may "prevalidate" a ballot by (a) signing the ballot, (b)
indicating on the ballot the name of the nominee or the registered holder, the
amount of securities held by the nominee for the beneficial owner, and the
account numbers for the accounts in which such securities are held by the
nominee, and (c) forwarding such ballot, together with the prospectus, return
envelope, and other materials requested to be forwarded, to the beneficial owner
for voting. The beneficial owner must then
93
<PAGE> 103
indicate his, her or its vote to accept or to reject the prepackaged bankruptcy
plan in the ballot, review the certifications contained in the ballot, and
return the ballot directly to the information agent in the pre-addressed,
postage-paid envelope, so that it is received by the information agent before
the voting deadline. A list of the beneficial owners to whom "prevalidated"
ballots were delivered should be maintained by nominees for inspection for at
least one year from the voting deadline.
If the nominee elects not to "prevalidate" ballots, the nominee may obtain
the votes of beneficial owners by forwarding to the beneficial owners the
unsigned ballots, together with the prospectus, a return envelope provided by,
and addressed to, the nominee, and other materials requested to be forwarded.
Each such beneficial owner must then indicate his, her or its vote to accept or
to reject the prepackaged bankruptcy plan in the ballot, review the
certifications contained in the ballot, execute the ballot, and return the
ballot to the nominee. After collecting the ballots, the nominee should, in
turn, complete a master ballot for each series of senior subordinated notes and
for the common stock compiling the votes and other information from the ballots
received from the beneficial owners of such securities, execute the master
ballots, and deliver the master ballots to the information agent so that it is
received by the information agent before the voting deadline. All ballots
returned by beneficial owners should be retained by nominees for inspection for
at least one year from the voting deadline. Please note: if this option is
selected, the nominee should advise the beneficial owners to return their
ballots to the nominee by a date calculated by the nominee to allow it to
prepare and return the master ballots to the information agent so that the
master ballots are received by the information agent before the voting deadline.
Securities Clearing Agencies.
We expect that The Depository Trust Company, as the record holder of all of
PageNet senior subordinated notes and a portion of the common stock, will
arrange for its respective participants to vote by executing an omnibus proxy,
assignment letter form or similar document in favor of such participants. As a
result of the omnibus proxy, each participant will be authorized to vote its
, 2000 record date positions held in the name of such
securities clearing agencies.
Other.
If a ballot is signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations, or others acting in a fiduciary or
representative capacity, such persons should indicate such capacity when
signing, and unless otherwise determined by PageNet, must submit proper evidence
satisfactory to PageNet of their authority to so act.
Miscellaneous Procedures.
For purposes of voting to accept or reject the prepackaged bankruptcy plan,
the beneficial owners of such securities will be deemed to be the "holders" of
the claims represented by such securities.
All class 5 senior subordinated note claims and class 6 old stock interests
that are voted by a beneficial owner must be voted either to accept or to reject
the prepackaged bankruptcy plan and may not be split by the beneficial owner
within such classes. Unless otherwise ordered by the bankruptcy court, ballots
or master ballots which are signed, dated, and timely received, but on which a
vote to accept or reject the prepackaged bankruptcy plan has not been indicated,
will not be counted. PageNet, in its sole discretion, may request that the
information agent attempt to contact such voters to cure any such defects in the
ballots or master ballots.
Except as provided below, unless the ballot or master ballot is timely
submitted to the information agent before the voting deadline together with any
other documents required by such ballot or master ballot, PageNet may, in its
sole discretion, reject such ballot or master ballot as invalid, and therefore,
decline to utilize it in connection with seeking confirmation of the prepackaged
bankruptcy plan by the bankruptcy court.
94
<PAGE> 104
Defects, Irregularities, Etc.
Unless otherwise directed by the bankruptcy court, all questions as to the
validity, form, eligibility (including time of receipt), acceptance, and
revocation or withdrawal of ballots will be determined by PageNet in its sole
discretion, whose determination will be final and binding. Unless the ballot
being furnished is timely submitted to the information agent on or prior to the
voting deadline, together with any other documents required by such ballot,
PageNet may, in its sole discretion, reject such ballot as invalid and,
therefore, decline to use it in connection with seeking confirmation of the
prepackaged bankruptcy plan by the bankruptcy court. In the event of a dispute
with respect to a claim or interest, any vote to accept or reject the
prepackaged bankruptcy plan cast with respect to such claim or interest will not
be counted for purposes of determining whether the prepackaged bankruptcy plan
has been accepted or rejected, unless the bankruptcy court orders otherwise.
PageNet reserves the right to reject any and all ballots not in proper form.
PageNet further reserves the right to waive any defects or irregularities or
conditions of delivery as to any particular ballot. The interpretation
(including the ballot and the respective instructions thereto) by PageNet,
unless otherwise directed by the bankruptcy court, will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
delivery of a ballot must be cured within such time as PageNet (or the
bankruptcy court) determines. Neither PageNet nor any other person will be under
any duty to provide notification of defects or irregularities with respect to
deliveries of ballots nor will any of them incur any liabilities for failure to
provide such notification. Unless otherwise directed by the bankruptcy court,
delivery of such ballots will not be deemed to have been made until such
irregularities have been cured or waived. Ballots previously furnished (and as
to which any irregularities have not theretofore been cured or waived) will be
invalidated.
Withdrawal of Ballot or Master Ballot.
Prior to the commencement of the chapter 11 case, any senior subordinated
noteholder or stockholder who has delivered a valid ballot or master ballot may
withdraw its vote by delivering a written notice of withdrawal to the
information agent before the voting deadline. All votes cast will be irrevocable
upon the voting deadline. To be valid, the notice of withdrawal must (a)
describe the claim or interest to which it relates, (b) be signed by the party
who signed the ballot or master ballot to be revoked, and (c) if the withdrawal
occurs before the voting deadline, be received by the information agent before
the voting deadline. Withdrawal of a ballot or master ballot can only be
accomplished pursuant to the foregoing procedures.
Prior to the commencement of the chapter 11 case, any holder who has
delivered a valid ballot or master ballot may change its vote by delivering to
the information agent a properly completed subsequent ballot or master ballot so
as to be received before the voting deadline. In the case where more than one
timely, properly completed ballot or master ballot is received prior to the
voting deadline, only the ballot or master ballot that bears the latest date
will be counted.
After the chapter 11 case has been commenced, a vote of a senior
subordinated noteholder or stockholder may only be changed or withdrawn with the
permission of the bankruptcy court upon a showing of "cause" pursuant to Rule
3018(a).
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS UNDER THE PREPACKAGED BANKRUPTCY
PLAN
PageNet has separately classified general unsecured claims from claims
arising under PageNet's senior subordinated notes because the general unsecured
claims class is comprised largely of trade creditors many of whom are key
suppliers of products and services used by PageNet. Accordingly, any failure by
PageNet to pay these trade creditors in accordance with the terms agreed upon
could be detrimental to PageNet's ability to obtain essential trade credit and
could substantially impair PageNet's ability to do business with trade creditors
whose goods and services are essential. The senior subordinated notes, although
not subordinated to the claims of trade creditors, are subordinated to the prior
payment in full of the bank claims which make them significantly different from
other unsecured claims that are not subordinate to the bank claims and,
therefore, are properly classified separately.
95
<PAGE> 105
If the Bankruptcy Court finds that PageNet's classification of claims is
not permitted by the Bankruptcy Code, PageNet would likely seek (1) to modify
the prepackaged bankruptcy plan to provide for whatever reasonable
classification might be required, and (2) to use the acceptances received from
any noteholder or stockholder pursuant to this solicitation provided the change
in classification does not affect the treatment to be received by the
noteholders and stockholders. If the Bankruptcy Court finds that such a
modification does not affect the treatment of the stockholders or noteholders
under the prepackaged bankruptcy plan, the stockholders and noteholders will be
bound by their prior acceptance of the prepackaged bankruptcy plan. There can be
no assurance that the Bankruptcy Court, after finding that a classification was
inappropriate and requiring a reclassification, would approve the prepackaged
bankruptcy plan based upon such reclassification.
The prepackaged bankruptcy plan classifies the claims of creditors and the
interests of stockholders into the classes listed below for all purposes,
including voting, confirmation, and distribution. Under the prepackaged
bankruptcy plan, the claims of holders of senior subordinated notes for
principal and accrued and unpaid interest payable under the senior subordinated
notes are deemed to be "allowed" claims. A stockholder's interest is "allowed"
under the terms of the prepackaged bankruptcy plan if it is listed in the
appropriate transfer books and records of PageNet as of the applicable record
date.
SUMMARY OF TREATMENT UNDER THE PREPACKAGED BANKRUPTCY PLAN
Under the terms of the prepackaged bankruptcy plan, the claims of the
senior subordinated noteholders and bank lenders and the interests of PageNet's
stockholders are the only impaired claims and interests entitled to vote on the
prepackaged bankruptcy plan:
Senior Subordinated Note Claims
Senior subordinated note claims consist of the claims against PageNet of
the holders of:
- the 8.875% senior subordinated notes due 2006.
- the 10.125% senior subordinated notes due 2007; and
- the 10% senior subordinated notes due 2008.
PageNet anticipates that if it files the chapter 11 case on June 30, 2000, the
total noteholder claims would be approximately $1.2 billion in principal and
$98,345,941 in accrued and unpaid interest. The following table sets forth the
accrued and unpaid interest on each series of the senior subordinated notes.
<TABLE>
<S> <C>
8.875% notes due 2006....................................... $24,778,062
10.125% notes due 2007...................................... $37,785,806
10% notes due 2008.......................................... $35,782,073
-----------
Total............................................. $98,345,941
</TABLE>
Under the prepackaged bankruptcy plan, noteholders will receive, in full
satisfaction of their claims and related rights under, with respect to, on
account of or arising from or in connection with their senior subordinated
notes, shares of Arch common stock and Vast Class B common stock identical to
the shares they would receive if the PageNet exchange offer and the merger were
consummated outside of bankruptcy. Specifically, on the effective date, each
PageNet noteholder will receive a pro rata share of (1) 76,918,795 shares of
Arch common stock and (2) 13,780,000 shares of Class B common stock of Vast. For
a breakdown of the number of shares of Arch common stock and Vast Class B common
stock to be distributed per $1,000 in principal amount of senior subordinated
notes, see "Summary -- The Exchange Offer."
Stockholder Interests
Stockholder interests consist of all equity interests in PageNet.
96
<PAGE> 106
Under the prepackaged bankruptcy plan, PageNet stockholders will receive,
in full satisfaction of their rights and interests with respect to, on account
of or arising from or in connection with their PageNet stock, shares of Arch
common stock and Vast Class B common stock identical to the shares they would
receive if the merger and the Vast distribution were consummated outside of
bankruptcy, provided that stockholders will lose their state law appraisal
rights in the chapter 11 case. Specifically, on the effective date each
stockholder, excluding Arch and any of its subsidiaries, will receive a pro rata
share of (1) the shares of Arch common stock to be made available to PageNet
stockholders under the merger agreement, and (2) the 2,320,000 shares of Class B
common stock of Vast. As of December 1, 1999, for each 100 shares of PageNet
common stock, there would have been distributed (1) 12.47 shares of Arch common
stock and (2) 2.2256 shares of Vast Class B common stock.
Other Impaired Claims
In addition to the senior subordinated note claims and PageNet stockholder
interests, the claims of PageNet's bank lenders and the subsidiary stock
interests and claims are also impaired under the terms of the prepackaged
bankruptcy plan. These claims and interests are treated under the prepackaged
bankruptcy plan as follows:
Bank Secured Claims
Bank secured claims consist of all claims arising from or relating to
PageNet's pre-bankruptcy credit agreements. PageNet anticipates that if it files
the chapter 11 case the total bank claims will be approximately $745 million
plus any accrued and unpaid interest.
Under the prepackaged bankruptcy plan the claims of PageNet's secured
lenders will be assumed by Arch under its credit facility as amended on March
23, 2000. Specifically, the prepackaged bankruptcy plan provides that the
allowed bank secured claims will be converted to Tranche B-1 loans under the
Arch credit facility, as amended. The holders of such allowed bank secured
claims will receive Tranche B-1 Arch credit facility notes in satisfaction of
their allowed claims. The specific terms of the Tranche B-1 notes are described
in the Arch credit facility summary of terms attached to this prospectus as
Annex D.
Bank secured claims are impaired and the holders of allowed bank secured
claims are entitled to vote to accept or reject the prepackaged bankruptcy plan.
PageNet intends to solicit the votes of the secured lenders with respect to the
prepackaged bankruptcy plan prior to commencing the Chapter 11 case.
Subsidiary Stock Interests and Subsidiary Claims
Subsidiary stock interests consist of all equity interests held by PageNet
in each of its operating subsidiaries other than Vast, and of any such operating
subsidiary in any other operating subsidiary. Subsidiary claims consist of all
inter-company claims by a PageNet company against another PageNet company. Vast
will not be a debtor in the chapter 11 cases and shares of which will be
distributed pursuant to the merger agreement and the prepackaged bankruptcy
plan.
These claims and interests are also technically impaired under the
prepackaged bankruptcy plan. PageNet will cause the holders of the subsidiary
claims and interests to vote to accept the prepackaged bankruptcy plan.
Unimpaired Claims
All other claims against PageNet are unimpaired under the terms of the
prepackaged bankruptcy plan. The holders of all such claims will be paid in full
on the later of the effective date of the prepackaged bankruptcy plan or, if
permitted by the Bankruptcy Court, when such claims become due in PageNet's
ordinary course of business or on such other terms as may be agreed to by
PageNet and the holder of such claims. PageNet's anticipated
debtor-in-possession loan facility will be paid by Arch on the effective date of
the merger. Amounts outstanding under the loan facility in excess of $15 million
are proposed to be converted into Tranche B-2 loans under the amended Arch
credit facility having a maturity
97
<PAGE> 107
date of 60-120 days after the merger. The amended Arch credit facility does not
presently provide for Tranche B-2 loans and limits the amount of the
debtor-in-possession loan facility payable by Arch to $15 million. Arch intends
to request permission from its lenders to pay up to $50,000,000 of debtor-in-
possession loan facility claims on the effective date of the prepackaged
bankruptcy plan.
SUMMARY OF OTHER PROVISIONS OF THE PREPACKAGED BANKRUPTCY PLAN
Releases
The prepackaged bankruptcy plan provides for certain releases to be granted
by PageNet preventing the assertion by PageNet of claims against the following
entities and individuals in consideration of the contributions of such parties
to the chapter 11 case:
- those holders of PageNet's secured bank claims who vote in favor of the
prepackaged bankruptcy plan;
- Arch, its subsidiaries, and their officers, directors and agents; and
- present and former officers and directors of PageNet.
The prepackaged bankruptcy plan provides an injunction barring the
commencement or continuation of any claims against those entities and
individuals on account of claims held by PageNet or its bankruptcy estate which
are released pursuant to the plan's terms; provided, however, that the
injunction does not preclude police or regulatory agencies from fulfilling their
statutory duties.
The release by PageNet does not affect any liability of:
- Arch resulting from any breach of the merger agreement; or
- any person or entity for:
- any direct claim held by any creditor, interest holder or other person
against any released person that does not constitute a claim held by
PageNet or its bankruptcy estate;
- any fraud, gross negligence or willful misconduct;
- loans by PageNet; or
- contractual obligations owed to PageNet.
No known claims are being released as a result of the release provision of
the prepackaged bankruptcy plan.
The prepackaged bankruptcy plan also provides that PageNet and the persons
and entities receiving releases under the prepackaged bankruptcy plan will be
exculpated from any liability to any person or entity for any act or omission in
connection with or related to the negotiation, formulation, preparation and
confirmation of the prepackaged bankruptcy plan, the consummation and
administration of the prepackaged bankruptcy plan, the prospectus or disclosure
statement, the chapter 11 case, or the property distributed under the
prepackaged bankruptcy plan. The foregoing exculpation does not affect any
liability of (1) PageNet or Arch resulting from any breach of the merger
agreement or (2) any person or entity for any fraud, gross negligence or willful
misconduct.
Executory Contracts and Unexpired Leases
Under the Bankruptcy Code, PageNet may assume or reject executory contracts
and unexpired leases. As a general matter, an "executory contract" is a contract
under which material performance, other than solely the payment of money,
remains to be made by each party to the contract. On or before the effective
date of the prepackaged bankruptcy plan, PageNet will assume all of its
executory contracts and unexpired leases, including all of its license
agreements, real property leases and severance and related employee benefit
agreements. In addition, on the confirmation date, PageNet will be deemed to
have assumed the merger agreement unless the merger agreement is assumed by
PageNet prior to the confirmation date pursuant to an order of the Bankruptcy
Court.
98
<PAGE> 108
Indemnification of Directors, Officers and Employees
The prepackaged bankruptcy plan provides that PageNet's obligations to
indemnify any person serving at any time on or prior to the effective date as
one of its directors, officers, or employees by reason of such person's service
in such capacity will survive unimpaired and unaffected by entry of the
confirmation order, irrespective of whether such indemnification becomes owing
on account of an act or event occurring before or after the commencement of the
chapter 11 case.
Continued Corporate Existence and Vesting of Assets in Reorganized PageNet
Each PageNet company shall continue to exist after the effective date as a
separate reorganized corporate entity, with all the powers of a corporation
under Delaware or other applicable law. Except as otherwise provided in the
prepackaged bankruptcy plan or the confirmation order, on and after the
effective date each PageNet company shall retain all of its respective property
and any property acquired by PageNet under the prepackaged bankruptcy plan shall
vest in the respective PageNet company as reorganized under the prepackaged
bankruptcy plan, free and clear of all claims, liens, charges, or other
encumbrances and equity interests except as provided for in the prepackaged
bankruptcy plan or the confirmation order. On and after the effective date,
reorganized PageNet may operate its business and may use, acquire or sell
property and compromise or settle any claims or equity interests, without
supervision or approval by the Bankruptcy Court and free of any restrictions of
the Bankruptcy Code, other than those restrictions expressly imposed by the
prepackaged bankruptcy plan and the order of the Bankruptcy Court confirming the
prepackaged bankruptcy plan. The prepackaged bankruptcy plan provides that,
except as otherwise provided therein, reorganized PageNet will retain the
exclusive right to pursue certain causes of action against third parties.
Reorganized PageNet will have the right to pursue such causes of action to the
extent it determines that such pursuit is in its best interest.
Amendments to Certificate of Incorporation and By-Laws
On the effective date, upon consummation of the merger contemplated by the
prepackaged bankruptcy plan, (1) the certificate of incorporation of PageNet, as
amended and restated in its entirety as set forth in Exhibit A to the merger
agreement, shall be the certificate of incorporation of the reorganized PageNet
and (2) the bylaws of the subsidiary used by Arch to effectuate the merger as in
effect immediately prior to the effective date, shall be the bylaws of the
reorganized PageNet.
The Bankruptcy Code requires that upon the confirmation of a plan of
reorganization a debtor's charter documents must contain certain provisions,
including a provision prohibiting the issuance of non-voting equity securities.
To comply with this requirement, the prepackaged bankruptcy plan provides that
reorganized PageNet will file an amended certificate of incorporation with the
Secretary of State of the State of Delaware in accordance with law. The amended
certificates of incorporation will prohibit the issuance of nonvoting equity
securities to the extent required by the Bankruptcy Code. After the effective
date, reorganized PageNet reserves the right to amend and restate their
certificates of incorporation and other constituent documents as permitted by
law. At present, PageNet does not contemplate any such amendments.
Retention of Jurisdiction by the Bankruptcy Court
Under the terms of the prepackaged bankruptcy plan, after the effective
date the Bankruptcy Court will retain exclusive jurisdiction over PageNet's
chapter 11 case to the extent provided in the prepackaged bankruptcy plan.
Cancellation of Instruments and Securities
On the effective date, except as otherwise provided in the prepackaged
bankruptcy plan, the senior subordinated notes issued by PageNet, the old common
stock and the old stock options will be deemed canceled. In addition, the senior
subordinated note indentures will be canceled and will have no further
99
<PAGE> 109
force or effect except to the limited extent required to allow for the
distributions to be made in accordance with the mechanics set out in the
prepackaged bankruptcy plan.
Issuance of New Securities; Execution of Related Documents
On the effective date, reorganized PageNet or Arch shall issue or cause to
be distributed all securities, notes, instruments, certificates, and other
documents required to be issued pursuant to the prepackaged bankruptcy plan
including, without limitation, the Arch common stock and the Vast Class B common
stock, all of which shall be distributed as provided in the prepackaged
bankruptcy plan.
Management
The prepackaged bankruptcy plan provides that (1) the directors of the Arch
merger subsidiary immediately prior to the effective date shall be the initial
directors of the reorganized PageNet and (2) the officers of PageNet immediately
prior to the effective date shall be the initial officers of the reorganized
PageNet. To the extent any and all persons proposed to serve as an officer or
director of reorganized PageNet or as a director of Arch are insiders, as
defined in the Bankruptcy Code, the nature of any compensation for such persons
will be disclosed to the Bankruptcy Court on or prior to the hearing or
confirmation of the prepackaged bankruptcy plan.
Distributions with Respect to the Senior Subordinated Note Claims and
Stockholder Interests
All distributions provided for in the prepackaged bankruptcy plan on
account of senior subordinated note claims and allowed stockholder interests
will be made by Arch to an exchange agent for delivery by the exchange agent to
the holders of such claims and interests. The senior subordinated note
indentures shall continue in effect only to the extent necessary to allow the
exchange agent to make distributions to holders of allowed senior subordinated
note claims.
As soon as practicable after the effective date, the exchange agent will
send a transmittal letter to each holder of a senior subordinated note claim or
a stockholder interest advising such holder of the effectiveness of the
prepackaged bankruptcy plan and the instructions for delivering any senior
subordinated notes and old common stock in exchange for the Arch common stock
and the Vast Class B common stock distributable pursuant to the prepackaged
bankruptcy plan.
In the event any senior subordinated notes or common stock shall have been
lost, stolen or destroyed, then upon the delivery to the exchange agent of an
appropriate affidavit and bond, the exchange agent will issue the required
shares of Arch common stock and Vast Class B common stock.
Any noteholder or stockholder that fails to surrender the applicable senior
subordinated note or old common stock (or loss affidavit and bond) (1) within
180 days after the effective date, will be entitled to look only to the
reorganized PageNet for its distributions under the prepackaged bankruptcy plan
or (2) within 3 years after the effective date will have its claim or equity
interest discharged and shall be forever barred from asserting any such claim or
equity interest.
As of the close of business on the business date immediately preceding the
effective date, the applicable transfer books for the senior subordinated notes
and the common stock will be closed and any further transfers will be
prohibited. In the event of a transfer of ownership of a senior subordinated
note or old common stock that is not registered in the applicable transfer
books, distributions under the prepackaged bankruptcy plan shall be delivered to
the holder of record as indicated by the applicable transfer books unless the
transferee of such holder delivers an appropriate letter of transmittal to the
exchange agent and appropriate documentation to evidence that such transfer was
in fact made and that all applicable transfer taxes have been paid. If any Arch
common stock or Vast Class B common stock is to be issued in a name other than
that in which the senior subordinated note or old common stock surrendered in
exchange therefor is registered, the senior subordinated note or old common
stock so surrendered shall be transferable to the person designated by the
registered holder upon presentation of the
100
<PAGE> 110
note or stock, properly assigned and endorsed, and an affidavit that the
transfer is otherwise proper and the person requesting the transfer has paid all
applicable taxes.
If and when a dividend or other distribution is declared by Arch with
respect to Arch common stock, or Vast with respect to Vast Class B common stock,
the record date for which is on or after the effective date, that declaration
shall include dividends or other distributions with respect to all shares of
Arch common stock or Vast Class B common stock distributable pursuant to the
prepackaged bankruptcy plan. Such dividends and other distributions will not be
paid to any holder of any unsurrendered senior subordinated note or old common
stock until such note or stock is surrendered in accordance with the provisions
of the prepackaged bankruptcy plan. Subject to the provisions of the prepackaged
bankruptcy plan, at any meeting of stockholders of Arch or Vast with a record
date on or after the effective date, registered holders of unsurrendered senior
subordinated notes or old common stock shall be entitled to vote the number of
shares of Arch common stock or Vast Class B common stock represented by such
senior subordinated notes or old common stock, regardless of whether such
holders have surrendered their senior subordinated notes or old common stock;
provided, however, that any such vote shall be at the times, upon the
conditions, and in the manner prescribed by the certificate of incorporation and
bylaws of Arch or Vast, respectively.
Notwithstanding any other provision of the prepackaged bankruptcy plan, the
Arch common stock will only be issued in whole shares. In place of any
fractional shares, the exchange agent will make a cash payment determined by
multiplying such fraction, rounded to the nearest one-hundredth of a share, by
the average closing price of a share of Arch common stock, as reported in The
Wall Street Journal, New York City edition, 10 business days immediately prior
to the effective date.
Distributions with Respect to Existing Stock Options
As soon as practicable after the effective date, Arch will send appropriate
notices to each stock plan administrator for delivery to holders of allowed old
stock option interests setting forth such holders' rights pursuant to the
substitute options to be issued under the prepackaged bankruptcy plan.
CONDITIONS TO CONSUMMATION
It is a condition to consummation of the prepackaged bankruptcy plan that
the following conditions be satisfied or waived:
- the confirmation order is signed by the Bankruptcy Court and duly entered
on the docket for the chapter 11 case by the clerk of the Bankruptcy
Court in form and substance acceptable to PageNet and Arch;
- the confirmation order has not been amended, modified, supplemented,
reversed or stayed; and
- all conditions precedent to the closing of the merger shall have been
satisfied or waived.
The conditions precedent to the closing of the merger other than the
conditions relating to the confirmation order may be waived only if allowed by
the merger agreement. The conditions relating to the confirmation order may not
be waived. PageNet may waive any conditions without leave or order of the
Bankruptcy Court, and without any formal action other than proceeding to
consummate the prepackaged bankruptcy plan.
EFFECT OF CONSUMMATION OF THE PREPACKAGED BANKRUPTCY PLAN
Vesting of Rights
Except as otherwise provided in the prepackaged bankruptcy plan or the
confirmation order, on and after the effective date, all PageNet property and
any property acquired by PageNet under the prepackaged bankruptcy plan shall
vest in PageNet, as reorganized under the prepackaged bankruptcy plan, free and
clear of all claims, liens, charges, or other encumbrances and equity interests.
101
<PAGE> 111
Discharge
Except as provided in the prepackaged bankruptcy plan or the confirmation
order:
- the rights afforded in the prepackaged bankruptcy plan and the treatment
of all impaired claims and equity interests therein, shall be in exchange
for and in complete satisfaction, discharge and release of claims and
equity interests of any nature whatsoever against PageNet, or any of its
assets or properties, including any interest accrued on such claims from
and after the date PageNet files the chapter 11 case with the Bankruptcy
Court; and
- on the effective date, all such impaired claims against PageNet shall be
satisfied, discharged and released in full.
Binding Effect
The provisions of the prepackaged bankruptcy plan, if confirmed, will bind
all holders of claims and equity interests regardless of whether they accept the
prepackaged bankruptcy plan or are entitled to vote with respect to the
prepackaged bankruptcy plan. The distributions provided for in the prepackaged
bankruptcy plan, if any, will be in exchange for and in complete satisfaction,
discharge and release of all impaired claims against and equity interests in
PageNet or any of its assets or properties, including any impaired claim or
equity interest accruing after the date of the commencement of the chapter 11
case and prior to the confirmation date. All holders of impaired claims and
equity interests will be precluded from asserting any claim against PageNet or
its assets or properties based on any transaction or other activity of any kind
that occurred prior to the confirmation date.
MODIFICATION OF THE PREPACKAGED BANKRUPTCY PLAN
Amendments to any material provisions of the prepackaged bankruptcy plan
may be made by PageNet only with the consent of Arch. Any amendments or
modifications to the prepackaged bankruptcy plan made after the date the chapter
11 case is filed and before or after the confirmation date may be made only in
accordance with the provisions of the Bankruptcy Code and the Bankruptcy Rules.
PageNet reserves the right to use acceptances obtained with respect to the
prepackaged bankruptcy plan to confirm any amendments to the prepackaged
bankruptcy plan to the extent permitted by law.
PageNet will resolicit acceptances of the prepackaged bankruptcy plan only
if a modification to the prepackaged bankruptcy plan adversely changes the
treatment of the claim of any creditor or the interest of any stockholder or
noteholder who has not accepted in writing the modification. By voting to accept
the prepackaged bankruptcy plan, PageNet's noteholders or stockholders may be
deemed to have accepted a modified plan to the extent the Bankruptcy Court
determines that the modification does not adversely affect the rights, under the
prepackaged bankruptcy plan, of such accepting noteholders or stockholders.
At all times PageNet reserves the right, subject to its obligations under
the merger agreement, in its sole discretion not to file the prepackaged
bankruptcy plan or, if it files the prepackaged bankruptcy plan to withdraw the
prepackaged bankruptcy plan at any time prior to confirmation, in which case the
prepackaged bankruptcy plan will be deemed to be null and void. In such an
event, nothing contained in the prepackaged bankruptcy plan or this prospectus
will be deemed to constitute a waiver or release of any claims by or against
PageNet or any other person, nor shall the prepackaged bankruptcy plan or this
prospectus prejudice in any manner the rights of PageNet or constitute an
admission, acknowledgment, offer or undertaking by PageNet in any respects.
INTENDED ACTIONS DURING THE CHAPTER 11 CASE
In addition to seeking confirmation of the prepackaged bankruptcy plan,
during the pendency of the chapter 11 case, PageNet intends to seek relief from
the Bankruptcy Court as to various matters which are intended to enable PageNet
to preserve its business during the chapter 11 case and to enhance its ability
to confirm the prepackaged bankruptcy plan in an expeditious manner. While
PageNet believes each of the requests, if granted, would facilitate the chapter
11 case, there can be no assurance that the Bankruptcy
102
<PAGE> 112
Court will grant any such relief or that circumstances will not change in a
manner that causes PageNet to elect not to request such relief.
Provisions Relating to the Merger Agreement
Under the merger agreement, upon the commencement of the chapter 11 case
PageNet has agreed to seek Bankruptcy Court approval of the provisions of the
merger agreement that restricts its ability to solicit other offers for
PageNet's businesses, and that require (1) PageNet to pay a termination fee to
Arch upon certain termination events and (2) Arch to pay a termination fee to
PageNet upon certain termination events. PageNet intends to seek such approval
from the Bankruptcy Court pursuant to the terms of the merger agreement. In the
event such approval is not obtained within 30 days of the commencement of the
chapter 11 case, Arch has the right to terminate the merger agreement without
paying a termination fee to PageNet.
Approval of $50 Million Debtor-in-Possession Loan Facility
PageNet anticipates receiving a commitment for a $50 million
debtor-in-possession loan facility from certain of its existing lenders which
will be secured by a first priority lien against PageNet's assets. PageNet
intends to seek authority from the Bankruptcy Court to enter into such facility
upon the commencement of the prepackaged chapter 11 case.
Payment of Prepetition General Unsecured Claims
During the pendency of the chapter 11 case, PageNet intends to operate its
business in the ordinary course and to make payment in full on a timely basis
for all goods and services provided after the commencement of the chapter 11
case. PageNet also will seek approval immediately upon the filing of its
petitions to pay in full in the ordinary course of business the pre-petition
claims owing to general unsecured creditors that were incurred in the ordinary
course of PageNet's business, other than claims under the senior subordinated
notes. Management expects that PageNet will have sufficient funds to pay its
prepetition and postpetition general unsecured creditors in the ordinary course
of business through the conclusion of the chapter 11 case.
Provisions for Employees; Retention Programs
PageNet intends to seek relief from the Bankruptcy Court so that salaries,
wages, accrued and unpaid vacation, health benefits, severance benefits and
similar employee benefits will be unaffected by the filing of the chapter 11
case. PageNet intends to seek the approval of the Bankruptcy Court, immediately
upon commencement of the chapter 11 case, to honor payroll checks outstanding as
of the date of the commencement of the chapter 11 case, to permit employees to
utilize their paid vacation time which was accrued prior to the filing and to
continue paying medical and other employee benefits under the applicable health
plans. PageNet also intends to seek the authority to honor its executive
retention program and employee retention program, including its change in
control severance plan. These programs will also be assumed under the
prepackaged bankruptcy plan. There can be no assurance, however, that all or
part of such approval will be obtained. Employee claims and benefits not paid or
honored, as the case may be, prior to the consummation of the prepackaged
bankruptcy plan, will be paid or honored upon consummation or as soon thereafter
as such payment or other obligation becomes due or payable. Employee benefit
claims that accrue prior to the date of the commencement of the chapter 11 case
are unimpaired under the terms of the prepackaged bankruptcy plan.
Cash Management
PageNet believes it would be disruptive to its operations if it was forced
to significantly change its cash management system upon the commencement of the
chapter 11 case. PageNet intends to seek relief from the Bankruptcy Court
immediately upon commencement of the chapter 11 case (1) to be authorized to
maintain their cash management system and (2) to grant a superpriority claim to
any PageNet
103
<PAGE> 113
company that advances funds to any other PageNet company through the
consolidated cash management system during the chapter 11 case in the amount of
such advance, in the borrowing PageNet company's chapter 11 case.
Retention of Professionals
PageNet intends to seek authority to employ Houlihan Lokey Howard & Zukin
Capital as its financial advisor and investment banker, Young, Conaway, Stargatt
& Taylor, as its general bankruptcy counsel, Mayer, Brown & Platt as its special
counsel for corporate matters, Ernst & Young LLP as its auditor, Ernst & Young
Restructuring LLC as its financial restructuring advisors, and Burson-Marsteller
as its public relations advisor. Mayer, Brown and Platt has acted as PageNet's
special counsel with respect to the merger agreement and the various
transactions related thereto, including the preparation of the prepackaged
bankruptcy plan. Mayer, Brown and Platt has client relationships with a
substantial number of PageNet's lenders on matters unrelated to PageNet. Mayer,
Brown and Platt has received conflict of interest waivers from each of the
lenders that permit it to act for PageNet in connection with the merger
agreement and related transactions, including certain negotiations with the
lenders. However, applicable Bankruptcy Code provisions preclude Mayer, Brown
and Platt from acting as PageNet's general bankruptcy counsel in the chapter 11
case, if such case is filed by PageNet. Such provisions allow Mayer, Brown and
Platt to act as PageNet's special counsel in such case and PageNet will
therefore seek to retain Mayer, Brown and Platt as its special counsel for
corporate matters if the chapter 11 case is filed.
CONFIRMATION STANDARDS
The Bankruptcy Code sets forth the requirements that must be satisfied to
confirm a plan of reorganization. A number of the more significant confirmation
requirements are discussed below. PageNet believes that the prepackaged
bankruptcy plan complies with each of these requirements.
Good Faith and Compliance with Law
The Bankruptcy Code requires that a plan of reorganization be proposed in
good faith and disclose certain relevant information regarding payments due and
the nature of compensation to insiders. PageNet believes it has satisfied, or
will satisfy prior to the date the prepackaged bankruptcy plan is approved,
these requirements and will seek a ruling to that effect from the Bankruptcy
Court in connection with confirmation of the prepackaged bankruptcy plan.
Best Interests
The Bankruptcy Code requires that, with respect to each impaired class,
each member of such class either:
- accepts the prepackaged bankruptcy plan; or
- will receive or retain under the prepackaged bankruptcy plan on account
of its claim or equity interest property of a value, as of the effective
date, that is at least equal to the value of the property that such
member of the class would receive or retain if PageNet were liquidated
under chapter 7 of the Bankruptcy Code.
PageNet believes that the prepackaged bankruptcy plan meets this test and
will seek appropriate findings from the Bankruptcy Court in connection with the
confirmation of the prepackaged bankruptcy plan. See "Best Interests
Test -- Liquidation Analysis."
Feasibility
The Bankruptcy Court must also determine that confirmation of the
prepackaged bankruptcy plan is not likely to be followed by liquidation or
further reorganization of PageNet. To determine whether the prepackaged
bankruptcy plan meets this requirement, PageNet has analyzed its ability, along
with Arch, to meet its obligations under the prepackaged bankruptcy plan. This
analysis includes a forecast of financial
104
<PAGE> 114
performance of Arch and reorganized PageNet. Such forecast, together with the
underlying assumptions, is set forth in Annex E to this prospectus under
"Unaudited Combined Company Projections." Based upon such forecast, PageNet
believes that it will have the financial capability to satisfy its obligations
following the effective date. Accordingly, PageNet will seek a ruling to that
effect in connection with the confirmation of the prepackaged bankruptcy plan.
Prepackaged Bankruptcy Plan Acceptance
The Bankruptcy Code requires, subject to certain exceptions, that the
prepackaged bankruptcy plan be accepted by all impaired classes of claims and
equity interests. Classes of claims that are not "impaired" under a plan are
deemed to have accepted the plan and are not entitled to vote. A class of claims
accepts a plan if the holders of at least 66 2/3% in dollar amount and more than
50% in number of the allowed claims in that class that actually vote on the
plan, vote to accept the plan. A class of equity interests accepts a plan if at
least 66 2/3% of the allowed interests in that class that actually vote on the
plan vote to accept the plan. Holders of claims or equity interests who fail to
vote or who abstain will not be counted to determine the acceptance or rejection
of the prepackaged bankruptcy plan by any impaired class.
The Bankruptcy Code provides that acceptances obtained prior to the filing
of a petition will be effective in a chapter 11 case only if the pre-petition
solicitation of the acceptances complied with applicable non-bankruptcy law
governing the adequacy of disclosure, such as federal securities laws and
regulations. For example, under the Securities Act, no offer to buy or sell a
security may be made except pursuant to an effective registration statement.
PageNet intends to use the ballots regarding the prepackaged bankruptcy plan
that are received pursuant to this solicitation to confirm the prepackaged
bankruptcy plan. PageNet believes that this solicitation complies with such
applicable non-bankruptcy law and otherwise contains "adequate information" and
will seek appropriate findings from the Bankruptcy Court in this regard.
The following classes are impaired and are entitled to vote on the
prepackaged bankruptcy plan:
- Class 2 -- Bank Secured Claims;
- Class 5 -- Senior Subordinated Note Claims;
- Class 6 -- Old Stock Interests; and
- Class 7 -- Subsidiary Stock Interests and Subsidiary Claims.
The other classes in the prepackaged bankruptcy plan are unimpaired, so they
will be deemed to have accepted the prepackaged bankruptcy plan.
CONFIRMATION OF THE PREPACKAGED BANKRUPTCY PLAN WITHOUT ACCEPTANCE BY ALL
CLASSES OF IMPAIRED CLAIMS
The Bankruptcy Code provides an exception to the requirement that every
class must accept a plan of reorganization. This exception is commonly known as
the "cramdown" provision. This provision may allow PageNet to confirm the
prepackaged bankruptcy plan even if one or more, but not all, of the impaired
classes rejects the prepackaged bankruptcy plan. If PageNet can demonstrate to
the Bankruptcy Court that the prepackaged bankruptcy plan satisfies the
requirements of the "cramdown" provision, each impaired class that voted to
reject the prepackaged bankruptcy plan would, nonetheless, be bound to the
treatment afforded to that class under the prepackaged bankruptcy plan.
To obtain confirmation of the prepackaged bankruptcy plan using the
"cramdown" provision, PageNet must demonstrate to the Bankruptcy Court that, as
to each impaired class that has rejected the prepackaged bankruptcy plan, the
treatment afforded to such class under the prepackaged bankruptcy plan "does not
discriminate unfairly" and is "fair and equitable."
In general, a plan does not discriminate unfairly if it provides a
treatment to the class that has rejected the plan that is substantially
equivalent in value to the treatment that is provided to other classes
consisting of claims that have equal rank. In determining whether a plan
discriminates unfairly, courts will
105
<PAGE> 115
take into account a number of factors, including the effect of applicable
subordination agreements between parties. Accordingly, two classes of unsecured
creditors could be treated differently without unfairly discriminating against
either class.
In general, a plan of reorganization is "fair and equitable" to claimants
who are:
- noteholders, if the plan provides that the noteholder will retain
property having a value equal to the amount of its claim. Therefore, to
confirm the prepackaged bankruptcy plan over the dissent of the senior
subordinated noteholders, PageNet must show that the senior subordinated
notes will receive full payment of their claims under the prepackaged
bankruptcy plan; and
- stockholders, if the plan provides that the stockholder (1) will retain
property equal to the greatest of the allowed amount of any liquidation
preference to which such holder is entitled, any redemption price to
which such holder is entitled or the value of such interest or (2) no
holder of an interest that is junior to the holder will receive any value
under the plan of reorganization. Therefore, to confirm the prepackaged
bankruptcy plan over the dissent of the PageNet stockholders, PageNet
must show that the senior subordinated noteholders and other senior
claims do not receive under the prepackaged bankruptcy plan more than
100% of the amounts due them.
In the event that any impaired class fails to accept the prepackaged
bankruptcy plan, PageNet reserves the right under the prepackaged bankruptcy
plan (1) to request that the Bankruptcy Court confirm the prepackaged bankruptcy
plan in accordance with the "cramdown" provision under the Bankruptcy Code
and/or (2) to modify the prepackaged bankruptcy plan. Any such confirmation
would be subject to judicial approval of this solicitation and the prepackaged
bankruptcy plan, including as required under the "cramdown" provision of the
Bankruptcy Code.
CONSEQUENCES OF INSUFFICIENT VOTES IN FAVOR OF THE PREPACKAGED BANKRUPTCY PLAN
If the requisite acceptances to the exchange offer or prepackaged
bankruptcy plan are not received by the expiration date of the solicitation
period specified herein, PageNet will be forced to evaluate options then
available to it. Options available to PageNet could include:
- extending the solicitation period;
- seeking non-consensual confirmation of the prepackaged bankruptcy plan on
the basis described above or on some other basis;
- submission of a revised plan of reorganization to its noteholders and
stockholders; and
- filing for protection under the Bankruptcy Code without a pre-approved
plan of reorganization or pursuing a non-bankruptcy restructuring.
There can be no assurance that PageNet would be able to successfully
propose and confirm a different plan of reorganization and PageNet might be
forced into a liquidation proceeding under chapter 7 of the Bankruptcy Code if
another alternative plan was not successfully proposed.
BEST INTERESTS TEST/LIQUIDATION ANALYSIS
General
The Bankruptcy Code requires that each holder of an allowed claim or
interest in an impaired class either (a) accept the prepackaged bankruptcy plan
or (b) will receive or retain under the prepackaged bankruptcy plan on account
of such claim or interest property of a value that is not less than the amount
that such holder would receive or retain if PageNet was liquidated under chapter
7 of the Bankruptcy Code. This is the "best interests test". The test considers
hypothetically, the fair salable value of a debtors assets through liquidation
in a chapter 7 bankruptcy proceeding and the value of distributions to creditors
and interest holders that would be distributed as a result of such liquidation,
often taking into account the costs that would be incurred and the additional
liabilities that would arise as a result of the liquidation in such a
proceeding.
106
<PAGE> 116
If the prepackaged bankruptcy plan is not confirmed, and the chapter 11
case is converted to a case under chapter 7 of the Bankruptcy Code, a trustee
would be elected to liquidate PageNet's assets. The proceeds of the liquidation
would be distributed to the respective holders of allowed claims and equity
interests in PageNet in accordance with the priorities established by the
Bankruptcy Code. The chapter 7 trustee would be entitled to a percentage fee for
the trustee's services which is based upon the total amount of funds disbursed
to parties in interest. Pursuant to the Bankruptcy Code, the trustee would be
entitled to up to a 25% fee of the first $5,000 disbursed, up to a 10% fee of
the amounts disbursed between $5,000 and $50,000, up to a 5% fee of the amount
between $50,000 and $1 million, and reasonable compensation not to exceed 3% of
the amount disbursed in excess of $1 million. The trustee is also authorized to
retain professionals, including accountants and attorneys, to liquidate the
chapter 7 estates.
Under chapter 7, a secured creditor whose claim is fully secured would be
entitled to full payment, including, without limitation, interest from the
proceeds of the sale of its collateral. Unless its claim is nonrecourse, a
secured creditor whose collateral is insufficient to pay its claim in full would
be entitled to assert an unsecured claim for its deficiency. Claims entitled to
priority under the Bankruptcy Code would be paid in full before any distribution
to general unsecured creditors, including, without limitation, the chapter 7
trustee's fee and the amounts due to the professionals retained by the chapter 7
trustee. Funds, if any, remaining after payment of secured claims, the costs of
administering the chapter 7 case and liquidation, and priority claims would be
distributed pro rata to general unsecured creditors, and, to the extent of any
remaining funds, to stockholders.
PageNet believes that liquidation under chapter 7 would result in a
substantial diminution of the value of the estate because of:
- failure to realize the greater going-concern value of PageNet's assets;
- the erosion in value of PageNet's assets in the context of expeditious
liquidation required under chapter 7 and the "forced sale" atmosphere
that would prevail;
- additional administrative expenses that would be incurred by a chapter 7
trustee and its attorneys, accountants and other professionals to assist
such trustees;
- additional expenses and claims, some of which would be entitled to
priority, that would arise by reason of the liquidation and from the
rejection of leases and other executory contracts in connection with a
cessation of PageNet's operations; and
- the costs attributable to the time value of money resulting from what is
likely to be a more protracted proceeding than if the prepackaged
bankruptcy plan is confirmed (because of the time required to liquidate
PageNet's assets, resolve claims and related litigation and prepare for
distributions).
The Liquidation Analysis
PageNet's management, with the assistance of its professional advisors, has
prepared a hypothetical chapter 7 liquidation analysis to assist holders of
impaired claims and equity interests to reach a determination as to whether to
accept or reject the prepackaged bankruptcy plan. The liquidation analysis
estimates the amounts that are likely to be realized and allocates those amounts
to creditors and equityholders in accordance with the priorities provided for in
a chapter 7 case. The liquidation analysis is provided solely to disclose the
effects of a hypothetical liquidation of PageNet under chapter 7 of the
Bankruptcy Code, subject to the assumptions set forth below.
PageNet believes, based on the assumptions set forth in the liquidation
analysis, that neither its noteholders nor its stockholders would receive any
distribution on account of their claims or interests in the event of a
liquidation of PageNet's assets. Therefore, the value of the distributions
offered to the members of each class of impaired claims and equity interests
under the prepackaged bankruptcy plan will be substantially greater than the
distribution such creditors and stockholders would receive in a liquidation
under chapter 7.
107
<PAGE> 117
Underlying the liquidation analysis are a number of estimates and
assumptions that, although developed and considered reasonable by PageNet's
management, are inherently subject to economic and competitive uncertainties and
contingencies that are beyond PageNet's control. Accordingly, there can be no
assurance that the values assumed in the liquidation analysis would be realized
if PageNet was in fact liquidated. In addition, any liquidation that would be
undertaken would necessarily take place in future circumstances which cannot
currently be predicted. Accordingly, while the liquidation analysis is
necessarily presented with numerical specificity, if PageNet was in fact
liquidated, the actual liquidation proceeds would likely vary from the amounts
set forth below. Such actual liquidation proceeds could be materially lower, or
higher, than the amounts set forth below and no representation or warranty can
be or is being made with respect to the actual proceeds that could be received
in a chapter 7 liquidation. The liquidation analysis has been prepared solely
for purposes of estimating the proceeds available to creditors and equity
interests and does not represent values that may be appropriate for any other
purpose. Nothing contained in the liquidation analysis is intended or may
constitute a concession or admission of PageNet for any other purpose.
PageNet has approached this liquidation analysis on an asset liquidation
basis because there can be no assurance that PageNet's Federal Communications
Commission licenses would not be revoked by the Federal Communications
Commission upon a conversion of the chapter 11 case to a chapter 7 case, thereby
eliminating the possibility that PageNet could continue operating or be sold as
a "going concern" or "going concerns".
The liquidation analysis assumes that PageNet's assets would be broken up
and sold by a chapter 7 trustee irrespective of their current use. Some of
PageNet's assets when broken up may not be able to be sold or may realize
minimal proceeds.
A copy of the liquidation analysis prepared by PageNet's management,
including the assumptions used with respect thereto, is attached to this
prospectus as Annex I.
108
<PAGE> 118
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
SCOPE AND LIMITATION
This section describes all of the material federal income tax
considerations applicable to PageNet noteholders and PageNet stockholders as a
result of the exchange offer, the merger, and the distribution of Class B common
stock of Vast. This section also describes the material federal income tax
consequences of implementing these transactions through the prepackaged
bankruptcy plan. The legal conclusions in this discussion are based on the
opinion of Mayer, Brown & Platt, counsel to PageNet. We have filed this opinion
with the Securities and Exchange Commission as Exhibit 8.1 to this registration
statement.
Counsel's opinion is not binding on the Internal Revenue Service or the
courts. No rulings have been requested from the Internal Revenue Service
concerning any of the matters described in this prospectus. There is a risk that
the Internal Revenue Service could disagree with some of the conclusions set
forth in this discussion.
The opinion of counsel and this discussion are based upon the Internal
Revenue Code of 1986, Treasury regulations, administrative pronouncements and
judicial decisions in effect as of the date of this prospectus, all of which are
subject to change, possibly with retroactive effect.
In addition, the opinion of counsel is based on:
- customary factual representations made by PageNet and Arch, including
representations as to:
-- the nature and value of the securities and other consideration to
be exchanged in the transactions;
-- issuances, acquisitions, dispositions, and redemptions involving
the stock of PageNet and Arch before or after the merger;
-- the continuation, after the merger, of the historic business of
PageNet; and
-- the assets and liabilities of PageNet and Arch; and
- customary factual assumptions set forth in the opinion, including
assumptions that:
-- the description of the transactions, representations and statements
set forth in the transaction agreements, this document and
accompanying exhibits are accurate, and that the transactions will
in fact occur as described in those documents;
-- any representation or statement that is anticipated to be true, is
made "to the best of knowledge," or is similarly qualified is in
fact correct; and
-- where a representation states that a person is not a party to, does
not have, or is not aware of any plan, intention, understanding or
agreement, there is in fact no such plan, intention understanding
or agreement.
- representations by Arch and PageNet, as confirmed to PageNet by Houlihan
Lokey, PageNet's financial advisor, as to the relative values of the Arch
common stock, Class B common stock of Vast and other consideration to be
issued to PageNet senior subordinated noteholders and PageNet
stockholders in the PageNet exchange offer and the merger.
Any material inaccuracy in the factual representations and assumptions could
alter the conclusions reached by counsel in its opinion. See discussion under
"Risk Factors -- Risks Related to the Merger -- Volatility of Arch and Vast
stock prices could adversely affect tax consequences of the merger to PageNet
stockholders and noteholders".
109
<PAGE> 119
This discussion assumes that each PageNet noteholder and PageNet
stockholder is both:
- a citizen or resident of the United States for federal income tax
purposes; and
- holds PageNet senior subordinated notes or shares of PageNet common
stock, as the case may be, as capital assets under Section 1221 of the
Internal Revenue Code.
The following discussion is limited to material federal income tax
consequences. The discussion does not describe any tax consequences arising out
of the laws of any state, locality, or foreign jurisdiction. The discussion does
not address all aspects of federal income taxation that may be applicable to a
stockholder or a noteholder in light of the stockholder's or noteholder's
particular circumstances or to stockholders or noteholders subject to special
treatment under federal income tax laws including, without limitation:
- dealers in securities;
- financial institutions;
- life insurance companies;
- persons who acquired PageNet notes or common stock as part of a straddle,
hedge, conversion transaction or other integrated transaction;
- tax-exempt entities;
- foreign individuals and entities;
- stockholders who acquired their PageNet stock through exercise of an
employee stock option or otherwise as compensation; and
- persons who hold PageNet notes or PageNet stock through a partnership or
other pass-through entity.
EACH PAGENET NOTEHOLDER AND PAGENET SHAREHOLDER SHOULD CONSULT ITS OWN TAX
ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES (FEDERAL, FOREIGN, STATE, AND
LOCAL) APPLICABLE TO IT.
QUALIFICATION OF THE MERGER AS A TAX-FREE REORGANIZATION
Counsel is of the opinion that the merger will qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code, and that each
of PageNet and Arch will be parties to that reorganization within the meaning of
Section 368(b) of the Code. In rendering this opinion, counsel relied on factual
representations made by the parties, including the parties' representations, as
supported by certificates given by PageNet's investment banker, that the value
of the Arch stock to be issued in the merger would represent more than half of
the value received in the transaction, taking into account the value of the
Class B common stock of Vast, cash paid to dissenters who perfect appraisal
rights, cash paid instead of fractional shares and any other property received
in connection with the merger. If, based upon actual values at the closing date
of the merger, the value of the Arch stock is less than half of the value of the
total consideration, it is possible that the merger would not qualify as a
tax-free reorganization. See "Risk Factors -- Risks Related to the
Merger -- Volatility of Arch and Vast stock prices could adversely affect tax
consequences of the merger to PageNet stockholders and noteholders."
It is a condition to the completion of the merger that each of PageNet and
Arch receive from its respective counsel the opinion set forth above dated as of
the closing date of the transactions. In connection with these opinions, the
factual representations described above will be reconfirmed at the closing date
of the transactions.
The following description of material tax consequences to PageNet
stockholders and noteholders reflects the opinions of counsel that the merger
will qualify as a tax-free reorganization. We also present an alternative
discussion of the material tax consequences if the merger does not so qualify.
110
<PAGE> 120
FEDERAL INCOME TAX CONSEQUENCES TO EXCHANGING NOTEHOLDERS
The following discussion applies to noteholders who exchange their senior
subordinated notes pursuant to the exchange offer. If the prepackaged bankruptcy
plan is implemented, the discussion will be applicable to all existing
noteholders. The discussion reflects the fact that, although a noteholder will
initially receive PageNet common stock and Class B common stock of Vast in
exchange for its notes, the PageNet common stock received will immediately be
exchanged for Arch common stock. Therefore, we describe the consequences to
exchanging noteholders of receiving Arch common stock and Class B common stock
of Vast in exchange for their notes.
Recognition of Gain or Loss
Except as described below under the subheadings "-- Allocation to Accrued
Interest" and "-- Receipt of Cash Instead of Fractional Shares," for federal
income tax purposes an exchanging noteholder will not recognize loss and will
recognize gain, if any, in an amount equal to the lesser of:
- the fair market value of the shares of Class B common stock of Vast
received; or
- the amount by which the fair market value of the Class B common stock of
Vast received plus the fair market value of the Arch common stock
received exceeds the noteholder's tax basis in the notes surrendered.
An exchanging noteholder's tax basis in the shares of Class B common stock
of Vast received in the exchange will equal the fair market value of the shares
of Class B common stock of Vast at the effective time of the exchange, and its
holding period for shares of Class B common stock of Vast will commence on the
day after the exchange. An exchanging noteholder's tax basis in the Arch common
stock received in the exchange, including fractional shares, but excluding
amounts attributable to accrued interest, will equal:
- the noteholder's tax basis in the senior subordinated notes surrendered
in the exchange immediately prior to the exchange, decreased by
- the fair market value of the shares of Class B common stock of Vast
received, other than amounts attributable to accrued interest; and
- increased by the amount of any gain recognized on the exchange.
The holding period of such Arch common stock, including fractional shares, will
include the exchanging noteholder's holding period for the PageNet senior
subordinated notes exchanged.
The discussion above is based on counsel's conclusion that the PageNet
senior subordinated notes constitute "securities" for federal income tax
purposes. The term "securities" is not defined in the Internal Revenue Code or
applicable regulations and has not been clearly defined by court decisions. The
determination of whether an instrument constitutes a "security" for federal
income tax purposes is based upon all the facts and circumstances including, but
not limited to:
- the term of the debt instrument;
- the degree of participation and continuing interest in the business;
- the extent of proprietary interest compared with the similarity of the
note to a cash payment; and
- the overall purpose of the advances.
Although the determination of whether an instrument constitutes a "security" is
based upon all facts and circumstances, the term of the debt instrument is
usually considered the most significant factor. In general, a bona fide debt
instrument which has a term of ten years or more is more likely to be classified
as a "security." The notes which are being exchanged mature more than 10 years
after issuance. Based upon
111
<PAGE> 121
the terms of the notes and other relevant factors, counsel is of the opinion
that the notes will be classified as securities; however, this conclusion is not
entirely free from doubt.
If, contrary to counsel's opinion, either the notes do not constitute
"securities" or the merger does not constitute a "reorganization" under Section
368(a) of the Internal Revenue Code, then a noteholder would recognize the
entire amount of its gain or loss for federal income tax purposes. The
noteholder's gain or loss would be the difference between:
- the fair market value of Arch common stock plus the fair market value of
the shares of Class B common stock of Vast received in the exchange,
other than amounts attributable to accrued interest; and
- the noteholder's tax basis in the senior subordinated notes surrendered.
The tax basis in the Arch common stock received would equal the fair market
value of the Arch common stock on the effective date of the merger, and the
holding period for the Arch common stock would begin on the day after the
merger.
Character of Gain or Loss Recognized
Any gain or loss recognized on the exchange will be capital gain or loss
except for any amounts attributable to market discount, as discussed under the
next subheading. This capital gain or loss will be long-term capital gain or
loss if the noteholder's holding period for the senior subordinated notes
surrendered exceeds one year at the time of the exchange.
The maximum federal ordinary income tax rate for individuals, estates and
trusts is generally 39.6%, whereas the maximum federal long-term capital gains
rate for such taxpayers is 20% for capital assets held for more than 12 months.
The federal income tax rates applicable to capital gains for taxpayers other
than individuals, estates and trusts are currently the same as those applicable
to ordinary income. However, capital losses generally may be used by a corporate
taxpayer only to offset capital gains, and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income per year.
Market Discount
If an exchanging noteholder has accrued and unrecognized market discount on
its senior subordinated notes, a portion of the gain, if any, recognized on the
exchange will be treated as ordinary income and will not receive capital gain
treatment.
In the case of a debt instrument issued with original issue discount,
market discount generally equals the excess of the adjusted issue price of the
debt instrument over the adjusted basis of the instrument in the hands of the
holder immediately after its acquisition by the holder. In the case of a debt
instrument issued without original issue discount, market discount generally
equals the excess of the face amount of the debt instrument over the basis of
the instrument in the hands of the holder immediately after its acquisition by
the holder.
Counsel is of the opinion that under the market discount rules, an
exchanging noteholder will recognize as ordinary income an amount equal to the
lesser of:
- any gain recognized on the exchange, determined as described above under
the subheading "Recognition of Gain or Loss"; and
- any accrued and unrecognized market discount on the senior subordinated
notes.
Any remaining accrued and unrecognized market discount will carry over to the
Arch common stock and will be treated as ordinary income upon disposition of the
Arch common stock.
If the senior subordinated notes do not constitute "securities," or if the
merger does not qualify as a tax-free reorganization, accrued and unrecognized
market discount will be includible in a noteholder's
112
<PAGE> 122
ordinary income at the consummation of the exchange offer to the extent of any
gain recognized by the noteholder on the exchange.
Although counsel believes that the foregoing treatment is likely, there is
no exact precedent governing the exchanging noteholder's situation. Noteholders
exchanging notes with market discount should consult their tax advisors
concerning the effect of the market discount provisions.
Allocation to Accrued Interest
The foregoing rules will not apply to any consideration received by an
exchanging noteholder which is treated as interest. In particular, a noteholder
who, under its accounting method, was not previously required to include in
income accrued but unpaid interest attributable to its ownership of senior
subordinated notes, and who, pursuant to the exchange offer, exchanges its
senior subordinated notes for Arch common stock and Class B common stock of
Vast, will be treated as receiving ordinary interest income to the extent that
any consideration so received is allocable to the accrued interest. This amount
will be includible as ordinary income regardless of whether the noteholder
realizes an overall gain or loss as a result of the exchange. In addition, a
noteholder who had previously included in income accrued but unpaid interest
attributable to the holder's senior subordinated notes will be allowed to
recognize a loss to the extent such accrued but unpaid interest is not satisfied
in full in the exchange. This loss will generally be deductible in full against
ordinary income. For purposes of this discussion, accrued interest means
interest which was accrued while the note was held by the noteholder.
The extent to which consideration received in the exchange offer is
allocable to such interest is uncertain under existing authority, and counsel is
not giving any opinion with respect to this allocation.
Receipt of Cash Instead of Fractional Shares
An exchanging noteholder may also recognize gain or loss to the extent that
cash is received instead of a fractional share of Arch common stock. The
fractional Arch share will be treated as received by the exchanging noteholder
and then redeemed by Arch, with tax consequences the same as those applicable to
PageNet stockholders receiving cash instead of fractional shares. See "Material
Federal Income Tax Consequences -- Federal Income Tax Consequences to PageNet
Common Stockholders -- Receipt of Arch Common Stock Pursuant to the Merger."
FEDERAL INCOME TAX CONSEQUENCES TO NONTENDERING NOTEHOLDERS
The following discussion applies to noteholders who do not participate in
the exchange offer. The discussion relating to nontendering noteholders will be
inapplicable if the note exchange occurs pursuant to the prepackaged bankruptcy
plan.
If a noteholder does not participate in the exchange offer, there will
likely be no change in the noteholder's tax position. Such a noteholder will
have tax consequences only if the adoption of the proposed amendments to the
indentures constitutes a significant modification of the original senior
subordinated notes. Whether a modification will be considered a significant
modification depends upon the degree to which legal rights or obligations of the
issuer or holder are altered by the amendments. Such a determination will be
made based upon an examination of all facts and circumstances. Counsel is of the
opinion that the proposed amendments will most likely not result in a
significant modification of the notes. However, this conclusion is not entirely
free from doubt, given the factual nature of the determination.
In the event that there is a significant modification of the senior
subordinated notes, the noteholder will be treated as exchanging original senior
subordinated notes for the modified senior subordinated notes. The exchange
would be taxable unless the senior subordinated notes, both as originally issued
and as modified, constitute "securities." As previously discussed, the
determination of whether an instrument will constitute a security will depend
upon a variety of facts and circumstances. Although there is some degree of
uncertainty, based upon the terms of the senior subordinated notes and other
relevant factors, counsel is of the opinion that the senior subordinated notes,
as originally issued and as modified, will most likely
113
<PAGE> 123
constitute securities. Thus, a nontendering noteholder would not recognize gain
or loss on the deemed exchange. The modified senior subordinated notes would
have a tax basis equal to the adjusted basis of the senior subordinated notes
surrendered and would have a holding period that includes the nontendering
noteholder's holding period for the exchanged senior subordinated notes.
In the event that there is a deemed exchange of a senior subordinated note
which does not qualify as a security either as originally issued or as modified,
the entire amount of the nontendering noteholder's realized gain or loss would
be recognized. In such a case, a holder would also be required to include in
income over the remaining life of the modified senior subordinated notes the
difference between the face value of the senior subordinated notes and the fair
market value of such senior subordinated notes on the date of the exchange. A
nontendering noteholder's tax basis in the modified senior subordinated notes
would equal the fair market value of such senior subordinated notes at the time
of the exchange and the nontendering noteholder's holding period in the modified
senior subordinated notes would begin on the day following the deemed exchange.
FEDERAL INCOME TAX CONSEQUENCES TO PAGENET COMMON STOCKHOLDERS
Receipt of Class B Common Stock of Vast
The receipt of Class B common stock of Vast will be taxable to PageNet
stockholders. In the opinion of counsel, the receipt of Class B common stock of
Vast will likely be treated as a redemption of PageNet stock to which Section
302 of the Internal Revenue Code applies. In this case, each PageNet common
stockholder will be considered for federal income tax purposes as exchanging:
- a portion of each share of the holder's PageNet common stock for shares
of Class B common stock of Vast received; and
- the remaining portion of each share for the Arch common stock received in
the merger.
Except as discussed below, PageNet stockholders would recognize capital
gain or loss equal to the difference between the fair market value of the Class
B common stock of Vast received and the stockholder's tax basis in the portion
of the PageNet shares treated as exchanged for the Vast stock. Such capital gain
or loss would be long-term capital gain or loss if the stockholder's holding
period for the PageNet common stock exceeds one year.
PageNet stockholders should determine the tax basis in shares treated as
exchanged for Vast stock by multiplying the basis of each PageNet share they
hold by the following fraction:
- the fair market value of the Class B common stock of Vast received,
divided by
- the fair market value of the Class B common stock of Vast plus the fair
market value of the Arch common stock received, including any amounts
received instead of fractional shares.
A PageNet stockholder's tax basis in the shares of Class B common stock of
Vast received in the exchange will equal the fair market value of the shares of
Class B common stock of Vast at the effective time of the merger, and its
holding period for shares of Class B common stock of Vast will commence on the
day after the exchange.
PageNet stockholders who own PageNet senior subordinated notes or Arch
senior discount notes or Arch common stock, either directly or indirectly under
the constructive ownership rules of Section 318 of the Internal Revenue Code,
may not receive this "exchange" treatment. Any stockholders in this situation
should consult their tax advisors to determine whether instead they would be
required to treat the receipt of Class B common stock of Vast stock as a
dividend, with the consequences described below.
Although counsel believes the foregoing treatment is likely, it is possible
that the distribution of the Class B common stock of Vast would be taxed as a
dividend to PageNet stockholders. In this case, each PageNet stockholder would
include as ordinary dividend income an amount equal to the fair market value of
the Class B common stock of Vast received, except to the extent, if any, that
the amount of the
114
<PAGE> 124
distribution was greater than PageNet's available earnings and profits. To the
extent the amount of distribution exceeds PageNet's available earnings or
profits, the excess amount would be applied first to reduce the tax basis of the
stockholder's PageNet shares, and to the extent basis is reduced to zero, any
remaining amount would be taxed as a capital gain. In the event this treatment
applied, a PageNet stockholder could not recognize a loss upon the receipt of
the Class B common stock of Vast, and all of the holder's PageNet shares would
be treated as exchanged for Arch stock in the merger.
Receipt of Arch Common Stock Pursuant to the Merger
A PageNet stockholder will not recognize any gain or loss on the exchange
of PageNet stock for Arch common stock, except for cash received instead of a
fractional share of Arch common stock. A PageNet common stockholder's aggregate
tax basis for the Arch common stock received, including any fractional share for
which cash is received, will equal such stockholder's aggregate tax basis in the
shares of PageNet common stock held immediately prior to the merger, as reduced,
as discussed above, by reason of the distribution of Class B common stock of
Vast. A PageNet common stockholder's holding period for the Arch common stock
received, including any fractional share for which cash is received, will
include the period during which the shares of PageNet common stock were held.
Receipt of Cash Instead of Fractional Shares
A holder of PageNet common stock that receives cash instead of a fractional
share of Arch common stock in the merger will generally recognize capital gain
or loss in an amount equal to the difference between:
- the amount of cash received for the fractional share; and
- such holder's adjusted tax basis allocable to the fractional share.
This treatment may not, however, apply to a PageNet stockholder who:
- is involved in directing corporate affairs of PageNet;
- holds more than a minimal interest in PageNet; or
- directly owns shares of Arch common stock immediately prior to the merger
or indirectly owns shares of PageNet common stock or Arch common stock
under the constructive ownership rules of Section 318 of the Internal
Revenue Code.
Failure to Qualify as a Reorganization
In the event that the merger does not qualify as a "reorganization" under
Section 368(a) of the Internal Revenue Code, a PageNet common stockholder would
recognize gain or loss with respect to the PageNet common stock surrendered in
the merger equal to the difference between:
- the fair market value, as of the effective time of the merger, of the
Arch common stock received in exchange for the PageNet common stock; and
- the stockholder's tax basis in the PageNet common stock exchanged in the
merger, as reduced by reason of the distribution of the Class B common
stock of Vast as discussed above.
Any such gain or loss would be capital gain or loss. Such gain or loss would be
considered long-term capital gain or loss if the shareholder's holding period
for the share surrendered exceeds one year at the time of the merger. If this
treatment were to apply, a PageNet common stockholder's aggregate basis in the
Arch common stock received would equal its fair market value at the effective
time of the merger, and the stockholder's holding period for the Arch common
stock would begin the day after the effective time of the merger.
115
<PAGE> 125
FEDERAL INCOME TAX CONSEQUENCES TO ARCH AND PAGENET
While the merger is expected to be tax-free to both Arch and PageNet, both
companies expect to realize cancellation of indebtedness income resulting from
the elimination in the exchange offers of indebtedness in exchange for
consideration having a value less than the adjusted issue price of the
outstanding debt. In addition, PageNet expects to realize income from the
distribution of shares of Class B common stock of Vast.
The exact amount of the tax liability attributable to such income cannot be
determined precisely, because it depends on the values of the Arch common stock
and of the shares of Class B common stock of Vast distributed at the time of the
closing, and on certain other factors. See "Risk Factors -- Risks Related to the
Merger -- Volatility of Arch and Vast stock prices could adversely affect tax
consequences of the merger to PageNet stockholders and noteholders." However,
under the merger agreement, neither Arch nor PageNet is obligated to complete
the merger if the reasonably expected amount of "out-of-pocket" tax liability
exceeds $25 million in the aggregate. Based on values of the combined companies
and of Vast reflected in the opinion of Houlihan Lokey, the companies expect
that the tax liability will be less than this amount, and that the liability
would not be material. See Annex F. In addition, again based on these expected
values, the parties expect that the merger and the exchange offers will result
in the elimination of substantially all of the tax benefit of the net operating
loss carryforwards and other tax attributes of each of PageNet and Arch which
would otherwise be available to offset future taxable income of the combined
companies.
116
<PAGE> 126
CAPITALIZATION
The following table sets forth: (1) the capitalization of PageNet and Arch
at December 31, 1999; (2) the capitalization of PageNet as adjusted to give
effect to the PageNet exchange offer, assuming that 100% of the PageNet senior
subordinated notes are exchanged, and the Vast distribution; and (3) the
capitalization of Arch as adjusted to give effect to the Arch exchange offer and
merger, assuming 100% of the currently outstanding Arch discount notes are
exchanged, the repurchase of $157.4 million accreted value of discount notes by
Arch during February and March 2000 in exchange for Arch common stock and the
repurchase of $91.1 million accreted value of Arch discount notes that were
under binding agreements at March 31, 2000. You should read this table together
with the other financial information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED
----------------------- -----------------------
PAGENET ARCH PAGENET ARCH(1)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ARCH CURRENT MATURITIES OF LONG-TERM DEBT................. $ -- $ 8,060 $ -- $ 8,060
---------- ---------- ---------- ----------
PAGENET LONG-TERM DEBT IN DEFAULT:
Credit agreement........................................ 745,000 -- 745,000 --
8.875% senior subordinated notes due February 1, 2006... 300,000 -- -- --
10.125% senior subordinated notes due August 1, 2007.... 400,000 -- -- --
10% senior subordinated notes due October 15, 2008...... 500,000 -- -- --
---------- ---------- ---------- ----------
1,945,000 -- 745,000 --
PAGENET OTHER LONG-TERM OBLIGATIONS....................... 58,127 -- 58,127 --
ARCH LONG-TERM DEBT, LESS CURRENT MATURITIES:
Senior bank debt........................................ -- 430,880 -- 1,220,880
10 7/8% senior discount notes due in 2008............... -- 393,917 -- --
6 3/4% convertible subordinated debentures due 2003..... -- 4,459 -- 4,459
12 3/4% senior notes due 2007........................... -- 127,887 -- 127,887
13 3/4% senior notes due 2008........................... -- 140,365 -- 140,365
9 1/2% senior notes due 2004............................ -- 125,000 -- 125,000
14% senior notes due 2004............................... -- 100,000 -- 100,000
Other................................................... -- -- -- 58,127
---------- ---------- ---------- ----------
Total long-term debt (including long-term debt in
default), less current maturities.............. 2,003,127 1,322,508 803,127 1,776,718
---------- ---------- ---------- ----------
PAGENET STOCKOWNERS' EQUITY:
Preferred stock -- $.01 par value, authorized 25,000,000
shares, no shares issued or outstanding................. -- -- -- --
Common stock -- $.01 par value, authorized 250,000,000
shares (0 as adjusted), issued and outstanding
103,960,240 shares (720,790,997 as adjusted)............ 1,040 -- 7,208 --
Additional paid-in capital................................ 134,161 -- 675,560 --
Accumulated other comprehensive income.................... 745 -- 745 --
Accumulated deficit....................................... (925,785) -- (265,378) --
ARCH STOCKHOLDERS' EQUITY:
Preferred stock -- $.01 par value, authorized 10,000,000
shares, issued and outstanding 250,000 shares ($27,618
aggregate liquidation preference)....................... -- 3 -- 3
Common stock and Class B common stock.....................
$.01 par value, authorized 75,000,000 shares (225,000,000
as adjusted), issued and outstanding 51,231,664
(170,766,285 as adjusted)............................... -- 512 -- 1,706
Additional paid-in capital................................ -- 661,413 -- 1,459,515
Accumulated deficit....................................... -- (879,487) -- (746,773)
---------- ---------- ---------- ----------
Total stockholders' equity (deficit)............. (789,839) (217,559) 418,135 714,451
---------- ---------- ---------- ----------
Total capitalization............................. $1,213,288 $1,113,009 $1,221,262 $2,499,229
========== ========== ========== ==========
</TABLE>
- ---------------
(1) If 1% of the currently outstanding Arch discount notes are exchanged, total
long-term debt, less current maturities would be $1.9 billion, total
stockholders' equity would be $557.5 million and total capitalization would
be $2.5 billion.
117
<PAGE> 127
STOCK OWNERSHIP IN THE COMBINED COMPANY
The following table sets forth the expected beneficial ownership of Arch
common stock following the merger and the PageNet and Arch exchange offers,
assuming the conversion of all convertible preferred stock of Arch into common
stock:
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP OF
ARCH COMMON STOCK
OUTSTANDING
--------------------------
MAY 10, 2000 AS ADJUSTED
------------ -----------
<S> <C> <C>
Arch stockholders........................................... 100.0% 42.4%
Arch discount noteholders................................... -- 6.5%
PageNet stockholders........................................ -- 7.4%
PageNet senior subordinated noteholders..................... -- 43.7%
----- -----
100.0% 100.0%
===== =====
</TABLE>
Arch stockholders include current noteholders and former noteholders who have
exchanged their notes for common or preferred stock. This table assumes that all
of Arch's discount notes and all of PageNet's senior subordinated notes are
exchanged for common stock prior to the merger. The actual capitalization of
Arch upon closing of the merger may vary from the foregoing table. For example,
if 1% of Arch's outstanding discount notes were tendered and accepted, holders
of Arch discount notes would own 0.1% and the percentage ownership of the Arch
stockholders and the PageNet stockholders and noteholders would increase
proportionately. See "The Merger."
118
<PAGE> 128
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
OF THE COMBINED COMPANY
The following unaudited selected pro forma data of the combined company
gives effect to the following transactions as if they were consummated as of
December 31, 1999 with respect to the unaudited pro forma balance sheet, except
for Arch's acquisition of MobileMedia which closed prior to December 31, 1999,
and on January 1, 1999 with respect to the unaudited pro forma statements of
operations:
- Arch's acquisition of MobileMedia, on June 3, 1999;
- the exchange of $145.5 million (accreted value) of Arch discount notes
for 11.4 million shares of Arch common stock;
- the exchange of $157.4 million (accreted value) of Arch discount notes
for 11.6 million shares of Arch common stock in February and March 2000;
- the exchange of $91.1 million (accreted value) of Arch discount notes for
$91.1 million of Arch Series D preferred stock in May 2000 and the
automatic conversion of $91.1 million of Series D preferred stock into
6.6 million shares of Arch common stock upon completion of the merger;
- the exchange of $1.2 billion of PageNet senior subordinated notes and
accrued interest thereon for 616.8 million shares of PageNet common stock
and 13.8 million shares of Vast Class B common stock;
- the distribution by PageNet of 2.3 million shares of Vast Class B common
stock to the current PageNet stockholders; and
- Arch's merger with PageNet.
The following selected pro forma financial information should be read in
conjunction with the unaudited pro forma condensed consolidated financial
statements and notes. The financial impact of expected operational cost
synergies resulting from the merger of PageNet and Arch and Arch's acquisition
of MobileMedia is excluded from this presentation.
119
<PAGE> 129
The pro forma information is presented for illustrative purposes only and
does not necessarily predict the operating results or financial position that
would have occurred if the merger of PageNet and Arch and Arch's acquisition of
MobileMedia had been consummated as of the dates indicated above. Nor does it
predict the future operating results or financial position of Arch following the
merger and the MobileMedia acquisition.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Service, rental and maintenance revenues.................... $ 1,651,502
Product sales............................................... 152,017
-----------
Total revenues.................................... 1,803,290
Cost of products sold....................................... (111,034)
-----------
1,692,485
Operating Expenses:
Service, rental and maintenance........................... 440,534
Selling................................................... 204,777
General and administrative................................ 573,294
Depreciation and amortization............................. 653,707
Restructuring charge...................................... (25,731)
Provision for asset impairment............................ 17,798
Bankruptcy related expenses............................... 14,938
-----------
Operating income (loss)..................................... (186,832)
Interest and other income (expense)......................... (212,833)
-----------
Income (loss) before income tax provision................... (399,665)
Income tax provision........................................ 209
-----------
Net income (loss)........................................... $ (399,874)
===========
Basic/diluted income (loss) per share....................... $ (2.35)
===========
Other Operating Data:
Capital expenditures, excluding acquisitions................ $ 354,808
Units in service at end of period........................... 15,500,000
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................. $ 205,797
Total assets............................................... 2,931,865
Long-term debt, less current maturities.................... 1,776,718
Stockholders' equity....................................... 714,451
</TABLE>
120
<PAGE> 130
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements of Arch and PageNet
give effect to the following transactions as if they were consummated as of
December 31, 1999 with respect to the unaudited pro forma balance sheet, except
for Arch's acquisition of MobileMedia which closed prior to December 31, 1999,
and on January 1, 1999 with respect to the unaudited pro forma statements of
operations:
- Arch's acquisition of MobileMedia, which closed on June 3, 1999;
- the exchange of $145.5 million (accreted value) of Arch discount notes
for 11.4 million shares of Arch common stock;
- the exchange of $157.4 million (accreted value) of Arch discount notes
for 11.6 million shares of Arch common stock in February and March 2000;
- the exchange of $91.1 million (accreted value) of Arch discount notes for
$91.1 million of Arch Series D preferred stock in May 2000 and the
automatic conversion of $91.1 million of Series D preferred stock into
6.6 million shares of Arch common stock upon completion of the merger;
- the exchange of $1.2 billion of PageNet senior subordinated notes and
accrued interest thereon for 616.8 million shares of PageNet common stock
and 13.8 million shares of Vast Class B common stock;
- the distribution by PageNet of 2.3 million shares of Vast Class B common
stock to the current PageNet stockholders; and
- Arch's merger with PageNet.
The pro forma financial statements utilize the purchase method of
accounting for the merger of Arch and PageNet. Arch is the acquiring company for
accounting purposes. Under the purchase method of accounting, the purchase price
is allocated to assets acquired and liabilities assumed based on their estimated
fair value at the time of the merger. Income of the combined company will not
include income or loss of PageNet prior to the merger. The pro forma condensed
consolidated financial statements reflect preliminary pro forma adjustments made
to combine Arch with PageNet using the purchase method of accounting. The actual
adjustments will be made after the closing and may differ from those reflected
in the pro forma financial statements, however Arch does not believe that they
will materially differ from the final purchase price allocation.
The pro forma condensed consolidated financial data is for information
purposes only and is not necessarily indicative of the results of future
operations of the combined company or the actual results that would have been
achieved had the merger of Arch and PageNet and Arch's acquisition of
MobileMedia been consummated during the periods indicated. You should read the
unaudited pro forma financial data in conjunction with the consolidated
historical financial statement of Arch, PageNet and MobileMedia, including the
notes to all sets of financial statements.
121
<PAGE> 131
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS FOR
ADJUSTMENTS FOR PAGENET EXCHANGE
ARCH EXCHANGE ADJUSTED AND VAST DISTRIBUTION
ARCH --------------------- ARCH PAGENET ---------------------
(HISTORICAL) DEBIT CREDIT PRO FORMA (HISTORICAL) DEBIT CREDIT
------------ -------- -------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 3,161 $ 3,161 $ 32,144 $ 10,111(2)
Accounts receivable, net.......... 61,167 61,167 84,476 282(2)
Inventories....................... 9,101 9,101 8,687
Prepaid expenses and other........ 11,874 11,874 5,623 43(2)
---------- ---------- ----------
Total current assets........ 85,303 85,303 130,930
Property and equipment, net....... 400,199 400,199 767,113 1,534(2)
Intangible and other assets....... 867,543 867,543 524,517 18,316(2)
1,412(3)
---------- ---------- ----------
$1,353,045 $1,353,045 $1,422,560
========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term
debt............................ $ 8,060 $ 8,060 --
Long-term debt in default......... -- -- $1,945,000 $1,200,000(2)
Accounts payable.................. 30,016 30,016 80,889 104(2)
Accrued expenses.................. 43,629 $ 3,000(1) 46,629 50,146 881(2)
Accrued interest.................. 30,294 30,294 42,532 38,385(2)
Customer deposits and deferred
revenue......................... 35,701 35,701 35,705 302(2)
Accrued restructuring, current
portion......................... 17,111 17,111 --
---------- ---------- ----------
of Total current
liabilities................ 164,811 167,811 2,154,272
Long-term debt, less current
maturities...................... 1,322,508 $145,475(1) 928,591 58,127
157,388(15)
91,054(18)
Other long-term liabilities....... 83,285 83,285 --
Series D preferred stock.......... -- 91,054(18) 91,054 --
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock................... 3 3 --
Common stock...................... 512 114(1) 742 1,040 6,168(2)
116(15)
Additional paid-in capital........ 661,413 68,505(1) 879,575 134,161 1,412(3) 542,811(2)
149,657(15)
Accumulated other comprehensive
income.......................... 745
Accumulated deficit............... (879,487) 73,856(1) (798,016) (925,785) 660,407(2)
7,615(15)
---------- ---------- ----------
Total stockholders' equity
(deficit).................. (217,559) 82,304 (789,839)
---------- ---------- ----------
$1,353,045 $1,353,045 $1,422,560
========== ========== ==========
<CAPTION>
PRO FORMA
ADJUSTMENTS
ADJUSTED FOR MERGER
PAGENET --------------------- PRO FORMA
PRO FORMA DEBIT CREDIT CONSOLIDATED
---------- -------- -------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 22,033 $ 25,194
Accounts receivable, net.......... 84,194 145,361
Inventories....................... 8,687 17,788
Prepaid expenses and other........ 5,580 17,454
---------- ----------
Total current assets........ 120,494 205,797
Property and equipment, net....... 765,579 1,165,778
Intangible and other assets....... 504,789 $196,374(4) $ 8,416(4) 1,560,290
---------- ----------
$1,390,862 $2,931,865
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term
debt............................ -- $ 8,060
Long-term debt in default......... $ 745,000 $745,000(4) --
Accounts payable.................. 80,785 110,801
Accrued expenses.................. 49,265 95,894
Accrued interest.................. 4,147 34,441
Customer deposits and deferred
revenue......................... 35,403 71,104
Accrued restructuring, current
portion......................... -- 20,000(4) 37,111
---------- ----------
of Total current
liabilities................ 914,600 357,411
Long-term debt, less current
maturities...................... 58,127 45,000(4) 1,776,718
745,000(4)
Other long-term liabilities....... -- 83,285
Series D preferred stock.......... -- 91,054(18) --
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock................... -- 3
Common stock...................... 7,208 7,208(4) 898(4) 1,706
66(18)
Additional paid-in capital........ 675,560 675,560(4) 540,195(4) 1,459,515
39,745(18)
Accumulated other comprehensive
income.......................... 745 745(4) --
Accumulated deficit............... (265,378) 265,378(4) (746,773)
51,243(18)
---------- ----------
Total stockholders' equity
(deficit).................. 418,135 714,451
---------- ----------
$1,390,862 $2,931,865
========== ==========
</TABLE>
122
<PAGE> 132
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTED
ARCH MOBILEMEDIA FOR MOBILEMEDIA FOR ARCH ARCH
(HISTORICAL) (HISTORICAL) ACQUISITION EXCHANGE PRO FORMA
------------ ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Service, rental and maintenance
revenues................................. $ 591,389 $167,318 $ (3,521)(5) $ 755,186
Product sales............................. 50,435 9,207 59,642
---------- -------- ----------
Total revenues............................ 641,824 176,525 814,828
Cost of products sold..................... (34,954) (6,216) (41,170)
---------- -------- ----------
606,870 170,309 773,658
Operating expenses:
Service, rental and maintenance.......... 132,400 44,530 (3,521)(5) 173,409
Selling.................................. 84,249 23,115 107,364
General and administrative............... 180,726 51,562 232,288
Depreciation and amortization............ 309,434 45,237 2,958(6) 369,329
11,700(6)
Provision for asset impairment........... -- -- --
Restructuring charge..................... (2,200) -- (2,200)
Bankruptcy related expenses.............. -- 14,938 14,938
---------- -------- ----------
Total operating expenses.................. 704,609 179,382 895,128
---------- -------- ----------
Operating income (loss)................... (97,739) (9,073) (121,470)
Interest expense, net.................... (143,028) (17,660) 17,660(7) 15,031(8) (128,574)
(16,839)(7) 16,262(15)
Other income (expense)................... (48,421) 1,435 (46,986)
---------- -------- ----------
Income (loss) before income tax
provisions, extraordinary item and
cumulative effect of accounting change... (289,188) (25,298) (297,030)
Provision for income taxes................ -- 209 209
---------- -------- ----------
Income (loss) before extraordinary item
and cumulative effect of accounting
change................................... $ (289,188) $(25,507) $ (297,239)
========== ======== ==========
Basic/diluted income (loss) per share
before extraordinary item and cumulative
effect of accounting change(18).......... $ (9.21) $ (4.04)
========== ==========
1,793,576(17)
11,398,483(1)
Weighted average common shares
outstanding(19).......................... 31,603,410 17,181,660(16) 11,640,321(15) 73,617,450
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR PAGENET
EXCHANGE ADJUSTED PRO FORMA
PAGENET AND PAGENET ADJUSTMENTS PRO FORMA
(HISTORICAL) VAST DISTRIBUTION PRO FORMA FOR MERGER CONSOLIDATED
------------ ----------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Service, rental and maintenance
revenues................................. $ 897,348 $ (1,032)(9) $ 896,316 $ 1,651,502
Product sales............................. 92,375 92,375 152,017
----------- ----------- -----------
Total revenues............................ 989,723 988,691 1,803,519
Cost of products sold..................... (57,901) (57,901) $ (11,963)(11) (111,034)
----------- ----------- -----------
931,822 930,790 1,692,485
Operating expenses:
Service, rental and maintenance.......... 267,043 82(9) 267,125 -- 440,534
Selling.................................. 97,413 97,413 204,777
General and administrative............... 361,386 (20,380)(9) 341,006 573,294
Depreciation and amortization............ 327,101 327,101 (97,169)(11) 653,707
54,446(12)
Provision for asset impairment........... 17,798 17,798 17,798
Restructuring charge..................... (23,531) (23,531) (25,731)
Bankruptcy related expenses.............. -- -- 14,938
----------- ----------- -----------
Total operating expenses.................. 1,047,210 1,026,912 1,879,317
----------- ----------- -----------
Operating income (loss)................... (115,388) (96,122) (186,832)
Interest expense, net.................... (150,921) 121,729(10) (29,192) (22,102)(13) (170,460)
9,408(18)
Other income (expense)................... 4,753 (140)(9) 4,613 (42,373)
----------- ----------- -----------
Income (loss) before income tax
provisions, extraordinary item and
cumulative effect of accounting change... (261,556) (120,701) (399,665)
Provision for income taxes................ -- -- 209
----------- ----------- -----------
Income (loss) before extraordinary item
and cumulative effect of accounting
change................................... $ (261,556) $ (120,701) $ (399,874)
=========== =========== ===========
Basic/diluted income (loss) per share
before extraordinary item and cumulative
effect of accounting change(18).......... $ (2.52) $ (0.17) $ (2.35)
=========== =========== ===========
6,613,180(18)
(720,790,997)(4)
Weighted average common shares
outstanding(19).......................... 103,960,240 616,830,757(2) 720,790,997 89,882,637(4) 170,113,267
</TABLE>
123
<PAGE> 133
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) To record the issuance of 11,398,483 shares of Arch common stock valued at
$6.02 per share in exchange for $145.5 million (accreted value, representing
$172.4 million of principal amount) of Arch discount notes. The value of
Arch discount notes used in the preparation of these pro forma financial
statements reflect the value of discount notes remaining after giving effect
to the February and March 2000 exchanges of debt for equity referred to in
note 15 of the notes to the unaudited pro forma condensed consolidated
financial statements and the exchange of debt for Series D preferred stock
in note 18 of the notes to the unaudited pro forma condensed consolidated
financial statements. The conversion of the Arch discount notes will result
in an extraordinary gain from the early extinguishment of debt of $73.9
million, net of tax of approximately $3.0 million.
2) To record the issuance of 616,830,757 shares of PageNet common stock valued
at $0.89 per share and 13,780,000 shares of Vast Class B common stock in
exchange for $1.2 billion principal amount of PageNet senior subordinated
notes plus accrued interest:
- This adjustment includes the elimination of all $38.4 million of accrued
interest on PageNet's senior subordinated notes and the write-off of
$20.6 million of deferred financing costs associated with PageNet's
senior subordinated notes.
- The conversion of the PageNet senior subordinated notes would result in
an extraordinary gain from the early extinguishment of debt of $660.4
million. There is no provision for income taxes on this gain as PageNet
expects to have sufficient net operating loss carryforwards (which have
been fully reserved in PageNet's financial statements) available at the
time of the exchange to fully offset the gain.
- This adjustment also includes the elimination of all consolidated amounts
related to Vast and the recording of PageNet's net investment in Vast as
a component of intangible and other assets following the reduction of
PageNet's ownership of Vast to below 50%.
- PageNet will not exchange the shares of its common stock and the common
stock of Vast for the senior subordinated notes unless the merger with
Arch is approved. The adjusted PageNet pro forma balance sheet column
included in the unaudited pro forma condensed consolidated financial
statements is an intermediate step in the overall merger transaction.
Holders of the PageNet senior subordinated notes cannot elect to exchange
their notes if the merger is not consummated and therefore cannot own an
equity interest in the pro forma company set forth in the adjusted
PageNet Pro Forma balance sheet column.
3) To record the distribution of 2,320,000 shares of Vast Class B common stock
to the current stockholders of PageNet.
4) To record:
- the issuance of 89,882,637 shares of Arch common stock to the
stockholders of PageNet, including the stockholders who previously held
the PageNet senior subordinated notes converted to PageNet common stock
as discussed in note 1 of the notes to the unaudited pro forma condensed
consolidated financial statements above. Each outstanding share of
PageNet common stock will be converted into 0.1247 shares of Arch common
stock;
- the elimination of $8.4 million in deferred financing costs related to
PageNet's domestic revolving credit agreement which Arch will not assume
as part of this transaction; and
- the excess of purchase price over the assumed fair value of the
identifiable assets required.
This historical book value of the tangible and intangible assets of
PageNet was assumed to approximate fair value as Arch believes that they
will not materially differ from the final purchase
124
<PAGE> 134
price allocation. The excess of purchase prices over the assumed fair value
of identifiable assets acquired was calculated as follows (in thousands):
<TABLE>
<S> <C>
Consideration Exchanged:
Fair value of shares issued to PageNet stockholders
(89,882,637 shares at $6.02 per share)................. $ 541,093
Liabilities Assumed:
Bank debt................................................. 745,000
Other long-term debt...................................... 58,127
Accounts payable.......................................... 80,785
Accrued expenses.......................................... 49,265
Accrued interest.......................................... 4,147
Customer deposits and deferred revenue.................... 35,403
PageNet closing costs..................................... 20,000(a)
----------
Total consideration exchanged............................... 1,533,820
Transaction costs........................................... 25,000(b)
Restructuring reserve....................................... 20,000(c)
----------
Total purchase price........................................ 1,578,820
Less fair value of tangible and intangible net assets
acquired:
Cash and cash equivalents................................. 22,033
Accounts receivable, net.................................. 84,194
Inventories............................................... 8,687
Prepaid expenses and other................................ 5,580
Property and equipment, net............................... 765,579
Intangible and other assets............................... 496,373(d)
----------
$1,382,446
==========
Excess of purchase price over tangible and intangible assets
acquired.................................................. $ 196,374
==========
</TABLE>
- ---------------
(a) PageNet closing costs consist primarily of investment banking,
financing and other costs which will be paid to PageNet's financial
advisors by Arch at the time of closing.
(b) Transaction costs include legal, investment banking, financing,
accounting and other costs incurred by Arch to consummate the PageNet
merger.
(c) Restructuring reserve consists of severance costs related
primarily to duplicative general and administrative functions at the
corporate, regional and market levels of PageNet, such as technical,
marketing, finance, and other support functions to be recorded in
accordance with Emerging Issue Task Force Consensus 95-3. These
terminations will occur as operations of PageNet are integrated into those
of Arch and are based on management's preliminary review of synergies that
exist between the two companies. The analysis is expected to be finalized
after consummation of the PageNet acquisition and may result in additional
amounts to be reserved but is not expected to be materially different from
the amount disclosed above.
(d) Intangible and other assets are shown net of the $8.4 million
elimination of deferred financing costs discussed earlier in this note 4.
5) To eliminate revenues and expenses between Arch and MobileMedia.
Revenues and expenses between Arch and PageNet were not material in 1998 or
1999.
6) To record amortization on the excess of purchase price over the tangible
and intangible assets in the MobileMedia acquisition on a straight-line basis in
the amount of $7.1 million for the year ended December 31, 1998 and $3.0 million
for the period ended June 3, 1999, the closing date of the MobileMedia
acquisition. The amortization relates to $400.4 million assumed fair value of
intangible assets, consisting primarily of customer lists with an assumed fair
value of $239.7 million and FCC licenses
125
<PAGE> 135
with an assumed fair value of $143.0 million. The MobileMedia historical
amortization was adjusted by $11.7 million for the period ended June 3, 1999,
the closing date of the MobileMedia acquisition, to conform MobileMedia's 25
year estimated useful life for FCC licenses to Arch's 10 year estimated useful
life and to conform MobileMedia's 2 year estimated useful life for acquired
customer lists to Arch's 5 year estimated useful life.
7) To remove the interest expense associated with the various MobileMedia
credit facilities and notes terminated as a result of its insolvency proceedings
and to record the interest associated with Arch's additional borrowings to
finance the MobileMedia acquisition. Interest was calculated using an 11% rate
on $181.0 million of bank borrowings and a 14.75% rate on $139.0 million senior
discount notes.
8) To remove the interest expense associated with Arch's discount notes
which will be converted into common stock in connection with the Arch exchange.
9) To remove the operating results of Vast, which shares will be
distributed as part of the overall transaction involving Arch and PageNet. This
adjustment removes only the direct expenses of Vast, as no expenses allocated to
Vast by PageNet were assumed to be eliminated as a result of the distribution.
10) To remove the interest expenses associated with PageNet's senior
subordinated notes which will be converted into common stock as part of the
PageNet exchange as well as the amortization of PageNet's deferred financing
costs which are included in interest expenses.
11) To adjust PageNet's 1999 cost of sales and depreciation to be
consistent with Arch's pager useful life of three years per unit.
12) To record amortization of the excess of purchase price over the
tangible and intangible assets in the PageNet acquisition on a straight-line
basis in the amount of $19.6 million for the year ended December 31, 1999. It is
Arch's policy to amortize goodwill on a straight-line basis over 10 (ten) years.
The actual amortization recorded after consummation of the PageNet transaction
may differ from these amounts due to the full allocation of purchase price to
assets and liabilities assumed pursuant to APB No. 16. The amortization relates
to $452.5 million assumed fair value of intangible assets consisting primarily
of FCC licenses with an assumed fair value of $426.4 million and goodwill with
an assumed fair value of $26.1 million. PageNet's historical amortization was
adjusted by $34.8 million for the year ended December 31, 1999 to conform
PageNet's 40 year estimated useful life of FCC licenses and goodwill to Arch's
10 year estimated useful life.
13) To record additional interest expense on pro forma consolidated bank
debt. Interest was calculated assuring a 10% interest rate on the average bank
debt outstanding for the year ended December 31, 1999. Additional interest
expense on bank borrowings would be as follows if interest rates were to
increase or decrease by 1/4 of a percent (in thousands):
<TABLE>
<CAPTION>
ASSUMED INTEREST EXPENSES
YEAR ENDED
ASSUMED CHANGE IN INTEREST RATE DECEMBER 31, 1999
------------------------------- -------------------------
<S> <C>
Increase of 1/4%........................................... $23,541
Decrease of 1/4%........................................... $20,663
</TABLE>
126
<PAGE> 136
14) The pro forma financial statements of Arch assume 100% conversion of
Arch's $393.9 million (accreted value) discount notes. The following table
illustrates the impact on Arch's pro forma financial statements as of December
31, 1999 in the event that only 1% of discount noteholders elect to convert
their discount notes into Arch common stock (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
ASSUMING 1%
DISCOUNT NOTE
CONVERSION
-------------
<S> <C>
Total long-term debt, less current maturities............... $1,920.7
Stockholders' equity........................................ $ 557.5
Interest expense, net....................................... $ 183.4
Income (loss) before extraordinary item and cumulative
effect of accounting change............................... $ (412.8)
Basic/diluted income (loss) per common share before
extraordinary item and cumulative effect of accounting
change.................................................... $ (2.60)
</TABLE>
15) To record the repurchase of $157.4 million accreted value of discount
notes by Arch during February and March 2000 in exchange for 11,640,321 shares
of Arch common stock and to adjust the related interest expense for the notes
repurchased. In February and March 2000, Arch completed several transactions
with senior discount noteholders in which Arch issued 11,640,321 shares of Arch
common stock in exchange for $157.4 million accreted value ($176.0 million
maturity value) of discount notes. The conversion of the discount notes resulted
in a gain from the early extinguishment of debt of $7.6 million.
16) To record issuance of Arch common stock in conjunction with the
MobileMedia acquisition.
17) To record issuance of Arch common stock in conjunction with the
repurchase of $16.3 million accreted value of discounts in October 1999.
18) To record the exchange of $91.1 million ($100 million maturity value)
accreted value of Arch's discount notes in exchange for $91.1 million of Arch's
Series D preferred stock in May 2000 and to adjust related interest expense for
the discount notes exchanged. The Series D preferred stock was issued to
Resurgence Asset Management and will be convertible into 6,613,180 shares of
Arch common stock at any time at the option of Resurgence or will be subject to
mandatory conversion into common stock upon the completion of the PageNet
merger. The conversion of the preferred stock will result in a gain of $51.2
million.
19) All share information reflects a 1-for-3 reverse stock split effected
by Arch during June 1999.
127
<PAGE> 137
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA -- PAGENET
The following table sets forth selected historical consolidated financial
and operating data of PageNet as of and for the years ended December 31, 1995,
1996, 1997, 1998, and 1999. The selected financial and operating data as of
December 31, 1995, 1996, 1997, 1998, and 1999 and for each of the five years in
the period ended December 31, 1999, has been derived from PageNet's audited
consolidated financial statements and notes. The following consolidated
financial information should be read in conjunction with "PageNet Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
PageNet's consolidated financial statements and notes.
The provision for asset impairment for the year ended December 31, 1999
represents a charge for the impairment of the assets of PageNet's majority-owned
Spanish subsidiaries. The provision for asset impairment for the year ended
December 31, 1996 represents a provision to write off subscriber devices leased
by PageNet to customers under an agreement with a national marketing affiliate.
The provision for asset impairment for the year ended December 31, 1997
represents a provision to write down certain subscriber devices to their net
realizable value. The restructuring charges for the years ended December 31,
1998 and 1999 represent a charge in 1998 and adjustment of such charge in 1999,
for the abandonment of facilities and property and related severance costs
associated with the reorganization of PageNet's domestic operations. The
extraordinary item for the year ended December 31, 1997, represents the loss on
the early retirement of all $200 million of PageNet's outstanding 11.75% senior
subordinated notes in May 1997. The cumulative effect of a change in accounting
principle for the year ended December 31, 1999 represents the write-off of all
remaining unamortized start-up costs as of January 1, 1999, upon the adoption of
AICPA Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities." Effective April 1, 1999, PageNet changed the depreciable lives for
its subscriber devices and a portion of its network equipment. As a result of
these changes, depreciation expense increased by approximately $78 million
during the year ended December 31, 1999. Further discussion of these items is
included in "PageNet Management's Discussion and Analysis of Financial Condition
and Results of Operations" and PageNet's consolidated financial statements and
notes.
Earnings before interest, income taxes, depreciation and amortization is
commonly used by analysts and investors as a principal measure of financial
performance in the wireless messaging industry. Earnings before interest, income
taxes, depreciation and amortization is also one of the primary financial
measures used to calculate whether PageNet and its subsidiaries are in
compliance with financial covenants under their debt agreements. These
covenants, among other things, limit the ability of PageNet and its subsidiaries
to: incur additional indebtedness, advance funds to some of PageNet's
affiliates, pay dividends, grant liens on its assets, merge, sell or acquire
assets, repurchase or redeem capital stock, incur capital expenditures and
prepay certain indebtedness. Earnings before interest, income taxes,
depreciation and amortization is also one of the financial measures used by
analysts to value PageNet. Therefore, PageNet's management believes that the
presentation of earnings before interest, income taxes, depreciation and
amortization provides relevant information to investors. Adjusted earnings
before interest, income taxes, depreciation and amortization, as determined by
PageNet, does not reflect other non-operating (income) expense, provision for
asset impairment, restructuring charge, extraordinary items, and cumulative
effect of a change in accounting principle; consequently adjusted earnings
before interest, income taxes, depreciation and amortization may not necessarily
be comparable to similarly titled data of other wireless messaging companies.
Earnings before interest, income taxes, depreciation and amortization and
adjusted earnings before interest, income taxes, depreciation and amortization
should not be construed as alternatives to operating income or cash flows from
operating activities as determined in accordance with generally accepted
accounting principles or as a measure of liquidity. Amounts reflected as
earnings before interest, income taxes, depreciation and amortization or
adjusted earnings before interest, income taxes, depreciation and amortization
are not necessarily available for discretionary use as a result of restrictions
imposed by the terms of existing indebtedness and limitations imposed by
applicable law upon the payment of dividends or distributions, among other
things. See "PageNet Management's Discussion and Analysis of Financial Condition
and Results of Operations".
128
<PAGE> 138
Adjusted earnings before interest, income taxes, depreciation and
amortization margin is calculated by dividing PageNet adjusted earnings before
interest, income taxes, depreciation and amortization by total revenues less
cost of products sold. Earnings before interest, income taxes, depreciation and
amortization margin is a measure commonly used in the wireless messaging
industry to evaluate a company's earnings before interest, income taxes,
depreciation and amortization relative to total revenues less cost of products
sold as an indicator of the efficiency of a company's operating structure.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
-------- --------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Services, rent and maintenance
revenues........................... $532,079 $ 685,960 $ 818,461 $ 945,524 $ 897,348
Product sales........................ 113,943 136,527 142,515 100,503 92,375
-------- --------- --------- ---------- ----------
Total revenues....................... 646,022 822,487 960,976 1,046,027 989,723
Cost of products sold................ (93,414) (116,647) (121,487) (77,672) (57,901)
-------- --------- --------- ---------- ----------
552,608 705,840 839,489 968,355 931,822
Services, rent and maintenance
expenses........................... 109,484 146,896 173,058 210,480 267,043
Selling expenses..................... 67,561 82,790 102,995 104,350 97,413
General and administrative
expenses........................... 174,432 219,317 253,886 320,586 361,386
Depreciation and amortization
expense............................ 148,997 213,440 289,442 281,259 327,101
Provision for asset impairment....... -- 22,500 12,600 -- 17,798
Restructuring charge................. -- -- -- 74,000 (23,531)
-------- --------- --------- ---------- ----------
Total operating expenses............. 500,474 684,943 831,981 990,675 1,047,210
-------- --------- --------- ---------- ----------
Operating income (loss).............. 52,134 20,897 7,508 (22,320) (115,388)
Interest expense..................... (102,846) (128,014) (151,380) (143,762) (150,921)
Interest income...................... 6,511 3,679 3,689 2,070 3,902
Other non-operating income
(expense).......................... -- (882) (1,220) 2,003 851
-------- --------- --------- ---------- ----------
Loss before extraordinary item and
cumulative effect of a change in
accounting principle............... (44,201) (104,320) (141,403) (162,009) (261,556)
Extraordinary loss................... -- -- (15,544) -- --
Cumulative effect of a change in
accounting principle............... -- -- -- -- (37,446)
-------- --------- --------- ---------- ----------
Net loss............................. $(44,201) $(104,320) $(156,947) $ (162,009) $ (299,002)
======== ========= ========= ========== ==========
Per common share data (basic and
diluted):
Loss before extraordinary item and
cumulative effect of a change in
accounting principle............... $ (0.43) $ (1.02) $ (1.38) $ (1.57) $ (2.52)
Extraordinary loss................... -- -- (0.15) -- --
Cumulative effect of a change in
accounting principle............... -- -- -- -- (0.36)
-------- --------- --------- ---------- ----------
Net loss per share................... $ (0.43) $ (1.02) $ (1.53) $ (1.57) $ (2.88)
======== ========= ========= ========== ==========
</TABLE>
129
<PAGE> 139
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Capital expenditures............. $ 312,289 $ 437,388 $ 328,365 $ 268,183 $ 234,926
Cash flows provided by operating
activities..................... 160,629 110,382 150,503 248,101 77,866
Cash flows used in investing
activities..................... (589,387) (601,122) (459,929) (285,586) (237,319)
Cash flows provided by financing
activities..................... 624,489 296,335 308,573 37,638 188,520
Earnings before interest, income
taxes, depreciation and
amortization................... 201,131 233,455 280,186 260,942 175,118
Adjusted earnings before
interest, income taxes,
depreciation and
amortization................... 201,131 256,837 309,550 332,939 205,980
Adjusted earnings before
interest, income taxes,
depreciation and amortization
margin......................... 36.4% 36.4% 36.9% 34.4% 22.1%
Units in service at end of
period......................... 6,738,000 8,588,000 10,344,000 10,110,000 8,991,000
</TABLE>
The following table reconciles PageNet's net loss to earnings before
interest, income taxes, depreciation and amortization and adjusted earnings
before interest, income taxes, depreciation and amortization:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
-------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net loss.............................. $(44,201) $(104,320) $(156,947) $(162,009) $(299,002)
Interest expense...................... 102,846 128,014 151,380 143,762 150,921
Interest income....................... (6,511) (3,679) (3,689) (2,070) (3,902)
Depreciation and amortization
expense............................. 148,997 213,440 289,442 281,259 327,101
-------- --------- --------- --------- ---------
Earnings before interest, income
taxes, depreciation and
amortization........................ 201,131 233,455 280,186 260,942 175,118
Other non-operating (income)
expense............................. -- 882 1,220 (2,003) (851)
Provision for asset impairment........ -- 22,500 12,600 -- 17,798
Restructuring charge.................. -- -- -- 74,000 (23,531)
Extraordinary loss.................... -- -- 15,544 -- --
Cumulative effective of a change in
accounting principle................ -- -- -- -- 37,446
-------- --------- --------- --------- ---------
Adjusted earnings before interest,
income taxes, depreciation and
amortization........................ $201,131 $ 256,837 $ 309,550 $ 332,939 $ 205,980
======== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................... $ 259,096 $ 95,550 $ 105,214 $ 108,961 $ 130,930
Total assets....................... 1,228,338 1,439,613 1,597,233 1,581,244 1,422,560
Long-term obligations in default... -- -- -- -- 1,945,000
Long-term obligations, less current
maturities....................... 1,150,000 1,459,188 1,779,491 1,815,137 58,127
Total shareowners' deficit......... (80,784) (182,175) (337,931) (490,419) (789,839)
</TABLE>
130
<PAGE> 140
PAGENET MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
INTRODUCTION
PageNet is a provider of wireless communications services throughout the
United States and in the U.S. Virgin Islands, Puerto Rico, and Canada. PageNet
provides services in all 50 states and the District of Columbia, including the
100 most populated markets in the United States. PageNet also owns a minority
interest in a wireless communications company in Brazil. During 1999 and early
2000, several significant events have occurred:
- On November 8, 1999, PageNet announced a merger with Arch. Under the
merger, PageNet will become a wholly owned subsidiary of Arch. Also as
part of the merger, up to 80.5% of PageNet's advanced wireless data and
wireless solutions business will be distributed to PageNet's noteholders
and stockholders. See discussion under "The Merger Agreement" and "The
Vast Distribution."
- PageNet's deteriorating financial results and defaults under its debt
agreements have resulted in significant liquidity constraints. The report
of PageNet's independent auditors expresses substantial doubt about its
ability to continue as a going concern. See "-- Liquidity and Capital
Resources."
- In February and April 2000, PageNet failed to make the semi-annual
interest payments due under its $1.2 billion of senior subordinated
notes. PageNet is also not in compliance with several financial covenants
of its domestic revolving credit facility. See "-- Liquidity and Capital
Resources."
- As a result of billing software and system implementation problems
encountered throughout 1999 and the proposed merger with Arch, PageNet
initially postponed and subsequently suspended the conversions of certain
local offices to its new billing and customer service platforms. As a
result of these suspensions, in the fourth quarter of 1999 PageNet
reversed $24 million of a restructuring charge that it had recorded in
1998. See "Restructuring."
- Units in service with subscribers decreased from approximately 10.1
million units at December 31, 1998, to approximately 9.0 million units at
December 31, 1999. Units in service further declined significantly in the
first quarter of 2000 and are expected to continue to decline throughout
2000.
- In June 1999, PageNet consolidated its initiative to develop advanced
services including wireless data and wireless solutions into its wholly
owned subsidiary, Vast. Vast is a development stage company and, since
its inception, has been engaged primarily in product research and
development and developing markets for its products and services. In
1999, Vast had only $1 million of total revenues and incurred an
operating loss of approximately $36 million as a result of these startup
activities.
- PageNet's Spanish subsidiaries ceased operations during the third quarter
of 1999. PageNet had recorded a provision of $18 million during the first
quarter of 1999 for the impairment of the assets of the Spanish
subsidiaries.
- PageNet incurred a net loss of $299 million for the year ended December
31, 1999. The net loss for 1999 includes an increase in depreciation
expense of $78 million resulting from changes in the depreciable lives of
subscriber devices and network equipment and a charge of $37 million for
the cumulative effect of adopting a new accounting standard. See "Results
of Operations."
MERGER AGREEMENT
On November 7, 1999, PageNet signed a definitive agreement to merge with
Arch. Under the terms of the merger agreement, each share of PageNet's common
stock will be exchanged for 0.1247 share of Arch common stock. Under the terms
of the merger agreement, PageNet's senior subordinated notes along with all
accrued interest thereon, will be exchanged in a registered exchange offer under
which the holders of each $1,000 of outstanding principal of senior subordinated
notes will receive, upon consummation of the merger, approximately 64 shares of
common stock of Arch.
131
<PAGE> 141
As part of the merger, PageNet intends to distribute up to 80.5% of its
interest in Vast, a wholly owned subsidiary of PageNet, to holders of its senior
subordinated notes and PageNet's common stock. Holders of the senior
subordinated notes will receive up to a 68.9% interest in Vast, while holders of
PageNet's common stock will receive up to an 11.6% interest. The remaining
interest will be held by the combined company following the merger.
The merger agreement requires 97.5% acceptance by the holders of the senior
subordinated notes and affirmative votes of a majority of PageNet's and Arch's
stockholders to complete the merger. Consent of the lenders under PageNet's
credit agreement is also required. The merger agreement also provides for
PageNet to file a "pre-packaged" chapter 11 reorganization plan if the level of
acceptances from the holders of the senior subordinated notes is below 97.5%,
but greater than 66 2/3% in amount and a majority in number required under the
Bankruptcy Code for the noteholder class to accept the "pre-packaged" chapter 11
reorganization plan.
Consummation of the merger is subject to customary regulatory review,
certain third-party consents, including PageNet's lenders, and the approvals
noted above. PageNet has received approval from the Department of Justice and
the Federal Communications Commission to proceed with the merger, and
anticipates completing the merger during the third quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
General
PageNet's deteriorating financial results and liquidity have caused PageNet
to be in default of the covenants of all of its domestic debt agreements. On
February 2, 2000, PageNet failed to make the semi-annual interest payment on its
8.875% senior subordinated notes due 2006, and its 10.125% senior subordinated
notes due 2007. As of March 2, 2000, the non-payment of interest constituted a
default under the indentures of these notes. As of April 17, 2000, PageNet
failed to make the semi-annual interest payment on its 10% senior subordinated
notes due 2008, and does not expect to make additional cash interest payments on
any of its senior subordinated notes. As a result of this default, PageNet's
bondholders could demand at any time that PageNet immediately pay $1.2 billion
of its senior subordinated notes in full. Should this happen, PageNet would
immediately file for protection under chapter 11 of the United States Bankruptcy
Code.
PageNet is also in default of several of the financial and other covenants
of its credit agreement. As a result of these defaults, the lenders under the
credit agreement could demand at any time that PageNet immediately pay the $745
million outstanding under the credit agreement in full. Should this happen,
PageNet would immediately file for protection under chapter 11 of the Bankruptcy
Code.
PageNet is prohibited from additional borrowings and has classified all of
its outstanding indebtedness under its credit agreement and the senior
subordinated notes as a current liability as of December 31, 1999. As of May 1,
2000, PageNet had approximately $55 million in cash. PageNet believes that this
cash, plus the cash expected to be generated from operations, is sufficient to
meet its obligations, except for the cash interest payments due under its senior
subordinated notes, into the third quarter of 2000. However, if PageNet's
financial results continue to deteriorate, PageNet may not have enough cash to
meet such obligations through the third quarter of 2000. PageNet is considering
alternatives to ensure that it has sufficient liquidity through the completion
of the merger. However, there can be no assurance that PageNet's efforts to
obtain additional liquidity will be timely or successful or that the merger will
be completed. As a result, PageNet may have to reduce the level of its
operations and/or file for protection under chapter 11 to complete the merger
and/or restructure its obligations. PageNet is negotiating a
debtor-in-possession loan facility with its lenders to be made available in the
event it commences a chapter 11 case. Filing for bankruptcy would have a
material impact on PageNet's results of operations and financial position.
PageNet's deteriorating financial condition and lack of additional
liquidity indicate that PageNet may not be able to continue as a going concern
for a reasonable period of time. PageNet's ability to continue as
132
<PAGE> 142
a going concern is dependent upon several factors, including, but not limited
to, the continued non-demand for immediate payment of outstanding indebtedness
by the holders of the senior subordinated notes and the lenders under its credit
agreement and PageNet's ability to (1) generate sufficient cash flows to meet
its obligations, other than the cash interest payments due under the senior
subordinated notes, on a timely basis, (2) obtain additional or restructured
financing, including potential debtor-in-possession borrowings if PageNet is
required to file for protection under chapter 11, (3) continue to obtain
uninterrupted supplies and services from its vendors, and (4) reduce capital
expenditures and operating expenses. PageNet is proceeding with these
initiatives as well as also proceeding with its plan to complete the merger
described above.
Vast Solutions
Since the inception of Vast, PageNet has funded substantially all of its
operations, which are in the development stage. However, as a result of the
above described defaults, PageNet is prohibited from providing any additional
funding to Vast. Of PageNet's cash on hand at May 1, 2000, approximately $7
million was held by Vast. Vast believes this cash is sufficient to meet its
obligations into the third quarter of 2000. However, without additional
financing, Vast may not have sufficient liquidity to meet its obligations
through the third quarter of 2000. Vast is currently involved in discussions
with third parties regarding potential private equity investments, which, if
consummated, would be expected to close simultaneously with the merger and
related Vast distribution. However, there can be no assurance that these efforts
will prove successful or that Vast will have adequate liquidity to meet its
obligations through the date of the Vast distribution. Furthermore, the
financial position and debt defaults of PageNet make it difficult for Vast to
obtain separate debt or equity financing prior to the completion of the merger
and Vast distribution. As a result, Vast may be required to reduce or cease its
current level of development stage operations. Such events would have a material
impact on PageNet.
Cash Provided by Operating Activities
Net cash provided by operating activities was $78 million for the year
ended December 31, 1999, compared to $248 million for the year ended December
31, 1998, and $151 million for the year ended December 31, 1997. The decrease in
cash provided from operating activities of $170 million from 1998 to 1999 was
primarily attributable to a continuing decline in revenues associated with the
decline of units in service and duplicative costs which were incurred as
centralized service centers were operating in advance of field offices being
closed. In addition, PageNet expanded its use of temporary personnel due to
turnover in employees and used outside consultants to a greater extent than in
the previous years. Furthermore, accounts receivable increased over 1998 as a
result of a reduced level of collection efforts, and accounts payable decreased
due to lower levels of capital expenditures and reduced purchases of paging
devices. The increase of $97 million from 1997 to 1998 resulted primarily from a
decrease in net loss before non-cash charges, an increase in accounts payable,
and a decrease in inventories. The increase in accounts payable in 1998 was due
to the high level of accounts payable at December 31, 1998, resulting from
additional expenses incurred late in the fourth quarter of 1998 related to the
restructuring of PageNet's operations. The decrease in inventories during 1998
was the result of programs PageNet began instituting in 1997 to utilize
subscriber devices more effectively and to more closely control subscriber
device purchases.
Cash Provided by Financing Activities
Net cash provided by financing activities was $309 million, $38 million,
and $189 million, respectively, for the years ended December 31, 1997, 1998, and
1999. The primary source of financing for each period was net borrowings under
PageNet's domestic revolving credit agreement, which increased by $519 million,
$30 million, and $187 million, respectively, for the years ended December 31,
1997, 1998, and 1999. During the year ended December 31, 1997, PageNet redeemed
all its outstanding 11.75% senior subordinated notes utilizing funds borrowed
under the credit agreement. As a result, PageNet recorded an extraordinary loss
on the early retirement of debt of approximately $16 million during the year
ended December 31, 1997. Net cash provided by financing activities has been used
for capital expenditures,
133
<PAGE> 143
working capital, and other general corporate purposes, which included expansion
of its existing business and acquisition of new paging frequencies.
Cash Used in Investing Activities
PageNet's operations and expansion into new markets and product lines have
required substantial capital investment. Furthermore, PageNet has been building
an advanced messaging network, which will enable it to offer new advanced
messaging services, and has converted certain back office functions from
decentralized field offices into centralized processing facilities. PageNet
substantially completed building its advanced messaging network in early 2000.
PageNet continued to convert certain back office functions from its
decentralized field offices into the centralized processing facilities through
January 2000, at which time PageNet suspended further conversions. Cash used in
investing activities was $460 million, $286 million, and $237 million,
respectively, for the years ended December 31, 1997, 1998, and 1999. Capital
expenditures, excluding payments for spectrum licenses, were $328 million, $268
million, and $235 million, respectively, for the years ended December 31, 1997,
1998, and 1999, and consisted primarily of expenditures for PageNet's
traditional paging operations, PageNet's advanced messaging operations, and its
restructuring initiative. Payments for spectrum licenses were $93 million, $13
million, and $4 million, respectively, for the years ended December 31, 1997,
1998, and 1999, and consisted primarily of expenditures for the acquisition of
exclusive rights to certain specialized mobile radio frequency licenses from
incumbent operators.
Capital expenditures related to PageNet's traditional paging operations,
excluding capital expenditures related to the restructuring, were $224 million,
$136 million, and $84 million, respectively, for the years ended December 31,
1997, 1998, and 1999. The decreases in traditional paging capital expenditures
have been primarily due to a reduction in PageNet's network-related expenditures
pertaining to geographic coverage and capacity expansion. Also, during 1997
PageNet began instituting programs to utilize subscriber devices more
effectively and to more closely control subscriber device capital expenditures.
In addition to the programs to utilize subscriber devices more effectively, the
decrease in traditional paging capital expenditures in 1997 was also due to
increased efficiencies in infrastructure deployment.
Capital expenditures related to advanced messaging operations were $104
million, $75 million, and $113 million, respectively, for the years ended
December 31, 1997, 1998, and 1999. PageNet launched its send-and-receive
messaging services on its advanced messaging network on February 1, 2000.
PageNet expects to spend an additional $15 million in capital expenditures to
complete the buildout of sites started in the fourth quarter of 1999 and expand
capacity in certain cities throughout the nation during the first half of 2000.
This will substantially complete PageNet's investment in its advanced messaging
network.
Capital expenditures related to establishing PageNet's centralized
processing facilities, including new system implementations, were $57 million
and $38 million, respectively, for the years ended December 31, 1998 and 1999.
In January 2000, PageNet suspended further capital expenditures for its
centralized processing facilities, pending the decision as to which operating
platforms will be used by the combined company.
The amount of capital expenditures may fluctuate from quarter to quarter
and on an annual basis due to several factors, including the variability of
units in service with subscribers. With the substantial completion of the
buildout of its advanced messaging network and the suspension of the
restructuring initiatives beyond January 2000, PageNet expects its capital
expenditures in 2000 to decrease to approximately $100 million. PageNet expects
to fund these capital expenditures through cash on hand, additional cash
generated from operations prior to its contemplated merger with Arch, and
potential debtor-in-possession borrowings if PageNet is required to file for
protection under chapter 11 of the Bankruptcy Code.
In 1994, PageNet acquired three nationwide narrowband PCS frequencies in a
Federal Communications Commission auction for $197 million. During April 1996,
PageNet concluded its participation in a Federal Communications Commission
auction of specialized mobile radio frequency licenses, and ultimately acquired
rights to two to four blocks of two-way spectrum in markets across the United
States. During the remainder of 1996 and through 1999, PageNet purchased the
exclusive rights to certain of
134
<PAGE> 144
these specialized mobile radio frequencies from incumbent operators. The total
cost of PageNet's investment in its nationwide specialized mobile radio
frequencies was $221 million. PageNet has employed the nationwide PCS and
specialized mobile radio frequencies for its advanced messaging network.
Credit Agreements
Under the terms of its credit agreement, PageNet was able to borrow,
provided it met certain financial and other covenants, the lesser of $1.0
billion or an amount based primarily upon PageNet's domestic earnings before
interest, income taxes, depreciation, and amortization for the most recent
fiscal quarter. As of April 11, 2000, PageNet has agreed to reduce its total
maximum commitment under the credit agreement to approximately $745 million.
PageNet's maximum borrowings under the credit agreement are to be permanently
reduced beginning on June 30, 2001, by the following amounts: 2001 -- $150
million; 2002 -- $200 million; 2003 -- $250 million; and 2004 -- $147 million.
The credit agreement expires on December 31, 2004. PageNet does not anticipate
being able to make additional borrowings under the credit agreement in the
future. As of December 31, 1999, there were $745 million of outstanding
borrowings under the credit agreement.
Under the credit agreement, PageNet may designate all or a portion of
outstanding borrowings to be either a base rate loan or a loan based on the
London interbank offered rate. As of December 31, 1999, PageNet had designated
all $745 million of borrowings as London interbank offered rate loans, which
bear interest at a rate equal to London interbank offered rate plus a spread of
2.00%. The interest rates for the $745 million of London interbank offered rate
loans as of December 31, 1999 ranged from 7.94% to 8.17%. As a result of the
defaults described in Note 2 to the consolidated financial statements, PageNet's
lenders have the right to collect default interest up to 12.00% for PageNet's
outstanding balances under its credit agreement. PageNet is currently
negotiating with its lenders and expects to receive relief from this default
interest rate as part of its efforts associated with the merger. The credit
agreement prohibits PageNet from paying cash dividends or other cash
distributions to stockholders. The credit agreement also prohibits PageNet from
paying more than a total of $2 million in connection with the purchase of common
stock owned by employees whose employment is terminated. The credit agreement
contains other covenants that, among other things, limit the ability of PageNet
and its subsidiaries to incur indebtedness, engage in transactions with
affiliates, dispose of assets, and engage in mergers, consolidations, and other
acquisitions without the prior written consent of its lenders. Amounts owing
under the credit agreement are secured by a security interest in substantially
all of PageNet's assets, the assets of PageNet's subsidiaries, and the capital
stock of the subsidiaries of PageNet, other than the international subsidiaries
and Vast.
The two credit agreements of PageNet's Canadian subsidiaries provide for
total borrowings of approximately $75 million. The lenders are Toronto Dominion
Bank, Canadian Imperial Bank of Commerce and National Bank of Canada. Amounts
available under the two credit agreements begin reducing in the first quarter of
2002 and reduce to zero on December 31, 2004. Borrowings of up to approximately
$40 million require security in the form of cash or government securities.
Borrowings of up to approximately $35 million require a first security in the
assets of the Canadian subsidiaries. Furthermore, PageNet is required to provide
an additional $2 million of cash collateral by September 30, 2000. However, as a
result of the above described defaults, PageNet is precluded from providing any
additional funding on behalf of its Canadian subsidiaries. The ability of
PageNet's Canadian subsidiaries to continue as a going concern is dependent on
meeting the terms of their credit agreements, either by providing the additional
cash collateral or by establishing alternative arrangements satisfactory to the
lenders. PageNet and its Canadian subsidiaries have taken and plan to take
actions that management believes will mitigate any adverse conditions and events
resulting from the likely failure of PageNet to provide the required cash
collateral. However, there is no certainty that these actions or other
strategies will be sufficient to allow PageNet's Canadian subsidiaries to meet
the terms of their credit agreements.
As of December 31, 1999, approximately $56 million of borrowings were
outstanding under the Canadian credit facilities. Additional borrowings are
available to PageNet's Canadian subsidiaries under these facilities, so long as
the borrowings are either collateralized or the financial covenants in the
credit agreements are met. The interest rate for borrowings secured by cash or
government securities is the
135
<PAGE> 145
bankers' acceptance rate for bankers' acceptances reported by Toronto Dominion
Bank plus 0.5%. The interest rate for borrowings secured by the assets of the
Canadian subsidiaries is the bankers' acceptance rate for bankers' acceptances
reported by Toronto Dominion Bank plus 1%, 2%, 3%, or 4%, depending on the
current debt ratio of the Canadian subsidiaries. The current bankers' acceptance
rate for bankers' acceptances reported by Toronto Dominion Bank is 5.4% and the
current spread required for borrowings secured by the assets of the Canadian
subsidiaries is 4%.
RESTRUCTURING
In February 1998, PageNet's board of directors approved the restructuring
of the Company's domestic operations. PageNet's restructuring plan called for
the elimination of redundant administrative operations by consolidating key
support functions located in offices throughout the country into centralized
processing facilities. In addition the restructuring plan called for the
conversion to new billing and customer service software platforms. The
restructuring plan specified local and regional office closures, the disposition
of certain furniture, fixtures, and equipment and the termination of
approximately 1,950 employees by job function and location. Having adopted a
formal plan of restructuring, PageNet recorded a restructuring charge of $74
million during the quarter ended March 31, 1998. While progress in establishing
the centralized processing facilities was made, PageNet's efforts to convert its
offices to its new billing and customer service software platforms fell behind
the original schedule of being completed during the second quarter of 1999.
Billing software and system implementation problems surfaced during the first
office conversions, and as a result, PageNet had to postpone the conversion of
many of its other offices. These postponements resulted in delays in office
closures which deferred the payments of amounts accrued for lease obligations
and terminations and severance and related benefits. Additional implementation
problems surfaced during 1999 and caused further delays. In November 1999, and
in conjunction with the announcement of PageNet's planned merger with Arch,
PageNet decided to suspend further conversions after January 2000 pending the
decisions as to which operating platforms will be used by the combined company.
As a result of the decision to suspend the restructuring indefinitely, PageNet
recorded a reversal of the unused portion of the original restructuring charge
of $24 million during the quarter ended December 31, 1999.
PageNet has converted to its new billing and customer service software
platforms all of its customer units placed in service by its resellers and
approximately 50% of its direct customer units. As a result, PageNet will
realize a portion of the anticipated cost savings resulting from its
restructuring initiative and will eliminate some of the duplicative costs that
have adversely affected its results of operations. However, due to the
suspension of future conversions, combined with the impact of the contemplated
merger on its operations, PageNet is unable to determine the amount of future
cost savings resulting from the centralized processing facilities initiative.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
PageNet's consolidated financial statements and notes. Earnings before interest,
income taxes, depreciation and amortization is a commonly used measure of
financial performance in the wireless messaging industry and is one of the
financial measures used to calculate whether PageNet is in compliance with the
financial covenants under its debt agreements. Earnings before interest, income
taxes, depreciation and amortization is defined as earnings before interest,
income taxes, depreciation, and amortization. Adjusted earnings before interest,
income taxes, depreciation and amortization is defined as earnings before
interest, income taxes, depreciation, amortization, other non-operating income
(expense), provision for asset impairment, restructuring charge, extraordinary
items, and cumulative effect of a change in accounting principle. Adjusted
earnings before interest, income taxes, depreciation and amortization should not
be considered an alternative to operating income or cash flows from operating
activities as determined in accordance with generally accepted accounting
principles. One of PageNet's financial objectives is to increase its adjusted
earnings before interest, income taxes, depreciation and amortization, since
adjusted earnings before interest, income taxes, depreciation and amortization
is a significant source of funds for servicing
136
<PAGE> 146
indebtedness and for investment in continued growth, including purchase of
paging units and paging system equipment and the construction and expansion of
paging systems. Adjusted earnings before interest, income taxes, depreciation
and amortization, as determined by PageNet, may not be comparable to similarly
titled data of other wireless messaging companies. Amounts described as adjusted
earnings before interest, income taxes, depreciation and amortization are not
necessarily available for discretionary use as a result of restrictions imposed
by the terms of existing or future indebtedness, including the repayment of such
indebtedness or the payment of associated interest, limitations imposed by law
upon the payment of dividends or distributions or capital expenditure
requirements.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998
Services, Rent and Maintenance Revenues
Revenues from services, rent and maintenance, which PageNet considers its
primary business, decreased 5.1% to $897 million for the year ended December 31,
1999, compared to $946 million for the year ended December 31, 1998. The average
revenue per unit for PageNet's traditional domestic paging operations increased
to $7.80 for the year ended December 31, 1999, compared to $7.71 for the year
ended December 31, 1998. However, the increases in average revenue per unit,
which resulted from the shift of PageNet's subscriber base toward higher revenue
products and services during early 1999, were offset by an 11.1% reduction in
the number of units in service during the year ended December 31, 1999.
The number of units in service with subscribers at December 31, 1999 was
approximately 8,991,000, compared to 10,110,000 and 10,344,000 units in service
with subscribers at December 31, 1998 and December 31, 1997. This reduction was
mainly due to the impact of price increases to some of its customers,
intensifying price competition in the market for wireless communications
services, disruptions in customer service caused by conversions to new
centralized processing facilities systems and infrastructure, and the degree to
which cellular, PCS, and other mobile telephone services, are being subscribed
to instead of traditional paging services such as those offered by PageNet.
Approximately two-thirds of the loss in units in service was a result of
continued weakness in PageNet's reseller channel. Many of the factors that
reduced PageNet's units in service in the fourth quarter of 1999 have continued
to exist in 2000. As a result, PageNet estimates it has lost approximately
570,000 net subscribers in the first quarter of 2000.
Product Sales
Product sales decreased 8.1% to $92 million for the year ended December 31,
1999, compared to $101 million for the year ended December 31, 1998. The
decreases in product sales and cost of products sold from 1998 to 1999 resulted
primarily from increased price competition and competition from cellular, PCS,
and other mobile telephone services, both of which resulted in a substantial
decrease in sales through PageNet's reseller channel. In addition, the decrease
in cost of products sold from 1998 to 1999 also resulted from the decrease in
the depreciable lives of PageNet's subscriber devices from three years to two
years, effective April 1, 1999. This change had the effect of increasing
depreciation expense and thereby reducing the net book values of sold subscriber
devices.
Services, Rent and Maintenance Expenses
Services, rent and maintenance expenses increased 26.9% to $267 million for
year ended December 31, 1999, compared to $210 million for the year ended
December 31, 1998. The increase in services, rent and maintenance expenses for
the year ended December 31, 1999 was primarily due to:
- increased contracted dispatch costs of approximately $17 million,
primarily related to advanced messaging units placed in service during
1998 and 1999;
- increased transmitter site rent expense of approximately $17 million,
mainly related to the adoption of the provisions of AICPA Statement of
Position 98-5 "Reporting on the Costs of Start-up Activities" (SOP 98-5),
effective January 1, 1999, which required start-up costs to be expensed
as
137
<PAGE> 147
incurred, and an increase in transmitter sites in connection with the
buildout of PageNet's advanced messaging network;
- increased telephone expenses of approximately $8 million, primarily
associated with the operation of the advanced messaging network;
- increased salaries and payroll costs of technical personnel of
approximately $7 million, primarily related to the buildout of the
advanced messaging network; and
- increased pager parts, repairs and scrap expense of approximately $4
million.
Selling Expenses
Selling expenses decreased 6.6% to $97 million for the year ended December
31, 1999, compared to $104 million for the year ended December 31, 1998. The
decrease in selling expenses for the year ended December 31, 1999 was primarily
due to a decrease in salaries and payroll costs of sales personnel of
approximately $7 million, mainly due to reduced costs incurred associated with
PageNet's telemarketing and reseller sales program. Marketing research,
development costs, and advertising expenses associated with PageNet's
traditional paging and advanced messaging operations are expected to be scaled
back in future periods.
General and Administrative Expenses
General and administrative expenses increased 12.7% to $361 million for the
year ended December 31, 1999, compared to $321 million for the year ended
December 31, 1998. The increase in general and administrative expenses was
primarily due to:
- increased contract labor and outside consulting expense of approximately
$39 million, primarily related to the transition to the centralized
processing facilities in 1999 and costs for temporary workforce personnel
associated with PageNet's higher than normal employee turnover during
1999;
- increased provision of bad debt expense of approximately $8 million,
related to an increased amount of uncollectible receivables written-off
from customer accounts during 1999 due to a deterioration of the aging of
the accounts receivable customer base.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 16.3% to $327 million for
the year ended December 31, 1999, compared to $281 million for the year ended
December 31, 1998. The increase in depreciation and amortization expense
resulted primarily from PageNet's change in the depreciable lives of its
subscriber devices and some of its network equipment, effective April 1, 1999.
PageNet changed the depreciable lives of its subscriber devices from three years
to two years and the depreciable life of some of its network equipment from
seven years to ten years. The changes resulted from PageNet's review of the
historical usage periods of its subscriber devices and its network equipment and
PageNet's expectations regarding future usage periods for subscriber devices
considering current and projected technological advances. PageNet determined
that the appropriate useful life of its subscriber devices is two years as a
result of technological advances, customer desire for new pager technology, and
the company's decreasing ability to redeploy older pager models. PageNet
determined that the appropriate useful life of its network equipment is ten
years since this equipment is operational for a longer time period given current
technology. As a result of these changes, depreciation expense increased by
approximately $78 million during the year ended December 31, 1999. PageNet also
commenced depreciation and amortization on the assets related to its centralized
processing facilities during the third quarter of 1999. This increased
depreciation and amortization expense during 1999 by approximately $4 million.
PageNet has commenced depreciation and amortization on the assets related to its
advanced messaging operations during the first quarter of 2000, which is
expected to increase depreciation and amortization expense during 2000 by
approximately $24 million.
138
<PAGE> 148
Provision for Asset Impairment
PageNet recorded a provision of $18 million during the year ended December
31, 1999, for the impairment of the assets of PageNet's majority-owned Spanish
subsidiaries. See Note 5 to PageNet's consolidated financial statements for the
year ended December 31, 1999.
Restructuring Charge
PageNet recorded a partial reversal of its restructuring charge in the
amount of $24 million during the year ended December 31, 1999. See Note 4 to
PageNet's consolidated financial statements for the year ended December 31,
1999.
Interest Expense
Interest expense, net of amounts capitalized, was $151 million for the year
ended December 31, 1999, compared to $144 million for the year ended December
31, 1998. The increase in interest expense from 1998 to 1999 was primarily due
to the higher average level of indebtedness outstanding during 1999. The average
level of indebtedness outstanding during 1999 was $1.9 billion, compared to $1.8
billion outstanding during 1998.
Change in Accounting Principle
PageNet adopted the provisions of SOP 98-5 effective January 1, 1999 and
recorded a charge of $37 million as the cumulative effect of a change in
accounting principle to write-off all remaining unamortized start-up costs as of
January 1, 1999. See Note 6 to PageNet's consolidated financial statements for
the year ended December 31, 1999.
Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization
As a result of the factors outlined above, adjusted earnings before
interest, income taxes, depreciation and amortization decreased 38.1% to $206
million for the year ended December 31, 1999, compared to $333 million for the
same period in 1998. Adjusted earnings before interest, income taxes,
depreciation and amortization and adjusted earnings before interest, income
taxes, depreciation and amortization as a percentage of total revenues less cost
of products sold for 1999 were negatively impacted by declines in PageNet's
revenues (of $56 million and 6.0%, respectively), the costs associated with its
advanced messaging operations ($57 million and 6.2%, respectively), the costs of
development and implementation of its centralized processing facilities ($16
million and 1.7%, respectively), and the costs of adoption of SOP 98-5 ($21
million and 2.3%, respectively).
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
Services, Rent and Maintenance Revenues
Revenues from services, rent and maintenance increased 15.5% to $946
million for the year ended December 31, 1998, compared to $818 million for the
year ended December 31, 1997. The increase in revenues from services, rent and
maintenance was primarily due to an increase in average revenue per unit
resulting from the shift of PageNet's subscriber base toward higher revenue
products and services.
The average revenue per unit for PageNet's traditional paging domestic
operations increased to $7.71 for the year ended December 31, 1998, compared to
$7.20 for the corresponding period of 1997. The number of units in service with
subscribers at December 31, 1998, was 10,110,000, a decrease of approximately
234,000 units in service compared to 10,344,000 units in service with
subscribers at December 31, 1997.
139
<PAGE> 149
Product Sales
Product sales decreased 29.5% to $101 million for the year ended December
31, 1998 compared to $143 million for the year ended December 31, 1997. The
decrease in product sales and corresponding decrease in cost of products sold
from 1997 to 1998 resulted primarily from PageNet's price increases and other
factors, including increased competition from cellular, PCS, and other mobile
phones, which resulted in a substantial decrease in sales through the reseller
channel.
Services, Rent and Maintenance Expenses
Services, rent and maintenance expenses increased 21.6% to $210 million for
the year ended December 31, 1998, compared to $173 million for the year ended
December 31, 1997. The increase in services, rent, and maintenance expenses was
partially a result of:
- increased telephone expenses of approximately $6 million, mainly
associated with the enactment of regulations requiring that the providers
of pay phones be compensated for all calls placed from pay phones to
toll-free numbers. This requirement increased PageNet's cost of providing
toll-free number service commencing in the fourth quarter of 1997;
- increased contracted dispatch costs of approximately $8 million, mainly
related to advanced messaging units placed in service during 1998;
- increased transmitter site rent expense of approximately $5 million
associated with an increase in the number of transmitter sites;
- increased pager parts and repairs expense of approximately $12 million,
primarily the result of management's decision to increase its pager
redeployment efforts.
Selling Expenses
Selling expenses were $104 million for the year ended December 31, 1998,
compared to $103 million for the year ended December 31, 1997. The decrease in
selling expenses as a percentage of total revenues from 1997 to 1998 resulted
primarily from a decrease in advertising expenses of approximately $3 million,
mainly related to a decline in marketing research, development costs, and
advertising expenses associated with the suspension of the promotion of
PageNet's VoiceNow service.
General and Administrative Expenses
General and administrative expenses increased 26.3% to $321 million for the
year ended December 31, 1998, compared to $254 million for the year ended
December 31, 1997. The increase in general and administrative expenses from 1997
to 1998 was primarily related to:
- increased contract labor expense of approximately $43 million, mainly
associated with increased levels of contract labor utilized during the
transition to the centralized processing facilities;
- approximately $6 million attributable to expenses associated with
establishing PageNet's centralized processing facilities and redundant
operating costs associated with operating both the new centralized
processing facilities infrastructure and the traditional decentralized
infrastructure.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased 2.8% to $281 million for
the year ended December 31, 1998, compared to $289 million for the year ended
December 31, 1997. The decrease in depreciation and amortization expense from
1997 to 1998 resulted primarily from certain property and equipment becoming
fully depreciated, certain non-current assets becoming fully amortized, and the
decline in capital expenditures of approximately $60 million.
140
<PAGE> 150
Restructuring Charge
PageNet recorded a restructuring charge of $74 million during the year
ended December 31, 1998, as a result of a restructuring approved by PageNet's
board of directors in February 1998. See Note 4 of PageNet's consolidated
financial statements.
Interest Expense
Interest expense, net of amounts capitalized, was $144 million for the year
ended December 31, 1998, compared to $151 million for the year ended December
31, 1997. The decrease in interest expense from 1997 to 1998 was primarily
attributable to an increase in interest capitalized of approximately $6 million,
a decrease in interest rates on outstanding borrowings under PageNet's credit
agreement, and the redemption of PageNet's 11.75% subordinated notes on May 14,
1997 with lower interest rate funds borrowed under the credit agreement.
Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization
Adjusted earnings before interest, income taxes, depreciation and
amortization increased 7.6% to $333 million for the year ended December 31,
1998, compared to $310 million for the year ended December 31, 1997. Adjusted
earnings before interest, income taxes, depreciation and amortization and
adjusted earnings before interest, income taxes, depreciation and amortization
as a percentage of total revenues less cost of products sold for 1998 were
negatively impacted by the costs associated with PageNet's advanced messaging
operations ($25 million and 2.6%, respectively), the costs of forming of its
centralized processing facilities ($13 million and 1.3%, respectively), and its
international operations ($6 million and 0.6%, respectively).
Inflation
Inflation has not had a material effect on PageNet's operations to date.
Paging systems equipment and operating costs have generally not increased in
price and PageNet's pager costs have declined substantially in recent years.
This reduction in costs has generally been reflected in lower pager prices
charged to subscribers who purchase their units. PageNet's general and
administrative operating expenses, such as salaries, employee benefits and
occupancy costs are subject to normal inflationary pressures.
Year 2000 Compliance
PageNet implemented a task force, and developed a comprehensive plan to
address Year 2000 issues. PageNet completed all of the phases for its critical
business processes and, to date, has not experienced any material Year
2000-related errors. PageNet spent approximately $4 million correcting Year 2000
problems. PageNet believes that all mission critical vendors have successfully
readied their systems for the Year 2000 and, to date, has not experienced any
Year 2000-related errors in its systems.
141
<PAGE> 151
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA -- ARCH
The following table sets forth selected historical consolidated financial
and operating data of Arch for each of the five years ended December 31, 1999.
The selected financial and operating data as of December 31, 1995, 1996, 1997,
1998 and 1999 and for each of the five years ended December 31, 1998 have been
derived from Arch's audited consolidated financial statements and notes. You
should read the following consolidated financial information in conjunction with
"Arch Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Arch's consolidated financial statements and notes set forth
below.
In the following table, equity in loss of affiliate represents Arch's share
of net losses of USA Mobile Communications Holdings, Inc. for the period of time
from Arch's acquisition of its initial 37% interest in USA Mobile on May 16,
1995 through the completion of Arch's acquisition of USA Mobile on September 7,
1995 and Arch's share of net losses of Benbow PCS Ventures, Inc. since Arch's
acquisition of Westlink Holdings, Inc. in May 1996. See "Arch Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
The extraordinary item is an extraordinary gain or loss resulting from
prepayment of indebtedness. See "Arch Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations".
Adjusted earnings before interest, taxes, depreciation and amortization, as
determined by Arch, does not reflect restructuring charge, equity in loss of
affiliate, and extraordinary items; consequently adjusted earnings before
interest, taxes, depreciation and amortization may not necessarily be comparable
to similarly titled data of other wireless communications companies. Earnings
before interest, taxes, depreciation and amortization is commonly used by
analysts and investors as a principal measure of financial performance in the
wireless communications industry. Adjusted earnings before interest, taxes,
depreciation and amortization is also one of the primary financial measures used
to calculate whether Arch and its subsidiaries are in compliance with financial
covenants under their debt agreements. These covenants, among other things,
limit the ability of Arch and its subsidiaries to: incur additional
indebtedness, make investments, pay dividends, grant liens on its assets, merge,
sell or acquire assets, repurchase or redeem capital stock, incur capital
expenditures and prepay certain indebtedness. Earnings before interest, taxes,
depreciation and amortization is also one of the financial measures used by
analysts to value Arch. Therefore Arch management believes that the presentation
of earnings before interest, taxes, depreciation and amortization provides
relevant information to investors. Earnings before interest, taxes, depreciation
and amortization should not be construed as an alternative to operating income
or cash flows from operating activities as determined in accordance with
generally accepted accounting procedures or as a measure of liquidity. Amounts
reflected as earnings before interest, taxes, depreciation and amortization or
adjusted earnings before interest, taxes, depreciation and amortization are not
necessarily available for discretionary use as a result of restrictions imposed
by the terms of existing indebtedness and limitations imposed by applicable law
upon the payment of dividends or distributions, among other things. See "Arch
Management's Discussion and Analysis of Financial Condition and Results of
Operation".
Adjusted earnings before interest, taxes, depreciation and amortization
margin is calculated by dividing Arch's adjusted earnings before interest,
taxes, depreciation and amortization by total revenues less cost of products
sold. Earnings before interest, taxes, depreciation and amortization margin is a
measure commonly used in the wireless communications industry to evaluate a
company's earnings before interest, taxes, depreciation and amortization
relative to total revenues less cost of products sold as an indicator of the
efficiency of a company's operating structure.
142
<PAGE> 152
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Service, rental and maintenance
revenues........................... $ 138,466 $ 291,399 $ 351,944 $ 371,154 $ 591,389
Product sales........................ 24,132 39,971 44,897 42,481 50,435
---------- ---------- ---------- ---------- ----------
Total revenues....................... 162,598 331,370 396,841 413,635 641,824
Cost of products sold................ (20,789) (27,469) (29,158) (29,953) (34,954)
---------- ---------- ---------- ---------- ----------
141,809 303,901 367,683 383,682 606,870
Operating expenses:
Service, rental and maintenance.... 29,673 64,957 79,836 80,782 132,400
Selling............................ 24,502 46,962 51,474 49,132 84,249
General and Administrative......... 40,448 86,181 106,041 112,181 180,726
Depreciation and Amortization...... 60,205 191,871 232,347 221,316 309,434
Restructuring charge............... -- -- -- 14,700 (2,200)
---------- ---------- ---------- ---------- ----------
Operating income (loss).............. (13,019) (86,070) (102,015) (94,429) (97,739)
Interest and non-operating Expenses,
net................................ (22,522) (75,927) (97,159) (104,213) (188,249)
Equity in loss of affiliate.......... (3,977) (1,968) (3,872) (5,689) (3,200)
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax
benefit, extraordinary item and
accounting change.................. (39,518) (163,965) (203,046) (204,331) (289,188)
Income tax benefit................... 4,600 51,207 21,172 -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
item and accounting change......... (34,918) (112,758) (181,874) (204,331) (289,188)
Extraordinary item................... (1,684) (1,904) -- (1,720) 6,963
Cumulative effect of accounting
change............................. -- -- -- -- (3,361)
---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ (36,602) $ (114,662) $ (181,874) $ (206,051) $ (285,586)
========== ========== ========== ========== ==========
Basic/diluted income (loss) per
common share before extraordinary
item and accounting change......... $ (7.79) $ (16.59) $ (26.31) $ (29.34) $ (9.21)
Extraordinary item per basic/diluted
common share....................... (0.37) (0.27) -- (0.25) 0.22
Cumulative effect of accounting
change per basic/diluted common
share.............................. -- -- -- -- (0.11)
---------- ---------- ---------- ---------- ----------
Basic/diluted net income (loss) per
common share....................... $ (8.16) $ (16.86) $ (26.31) $ (29.59) $ (9.10)
========== ========== ========== ========== ==========
OTHER OPERATING DATA:
Capital expenditures, excluding
acquisitions....................... $ 60,468 $ 165,206 $ 102,769 $ 113,184 $ 113,651
Cash flows provided by operating
activities......................... $ 14,749 $ 37,802 $ 63,590 $ 83,380 $ 99,536
Cash flows used in investing
activities......................... $ (192,549) $ (490,626) $ (102,769) $ (82,868) $ (627,166)
Cash flows provided by (used in)
financing activities............... $ 179,092 $ 452,678 $ 39,010 $ (2,207) $ 529,158
Adjusted earnings before interest,
taxes, depreciation and
amortization....................... $ 47,186 $ 105,801 $ 130,332 $ 141,587 $ 209,495
Adjusted earnings before interest,
taxes, depreciation and
amortization margin................ 33% 35% 35% 37% 35%
Units in service at end of period.... 2,006,000 3,295,000 3,890,000 4,276,000 6,949,000
</TABLE>
143
<PAGE> 153
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets......................... $33,671 $ 43,611 $ 51,025 $ 50,712 $ 85,303
Total assets........................... 785,376 1,146,756 1,020,720 904,285 1,353,045
Long-term debt, less current
maturities........................... 457,044 918,150 968,896 1,001,224 1,322,508
Redeemable preferred stock............. 3,376 3,712 -- -- --
Stockholders' equity (deficit)......... 246,884 147,851 (33,255) (213,463) (217,559)
</TABLE>
The following table reconciles net income to the presentation of Arch's
adjusted earnings before interest, taxes, depreciation and amortization:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)....................... $(36,602) $(114,662) $(181,874) $(206,051) $(285,586)
Interest and non-operating expenses,
net................................... 22,522 75,927 97,159 104,213 188,249
Income tax benefit...................... (4,600) (51,207) (21,172) -- --
Depreciation and amortization........... 60,205 191,871 232,347 221,316 309,434
Restructuring charge.................... -- -- -- 14,700 (2,200)
Equity in loss of affiliate............. 3,977 1,968 3,872 5,689 3,200
Extraordinary item...................... 1,684 1,904 -- 1,720 (6,963)
Cumulative effect of accounting
charge................................ -- -- -- -- 3,361
-------- --------- --------- --------- ---------
Adjusted earnings before interest,
taxes, depreciation and
amortization.......................... $ 47,186 $ 105,801 $ 130,332 $ 141,587 $ 209,495
======== ========= ========= ========= =========
</TABLE>
144
<PAGE> 154
ARCH MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis should be read in conjunction with
Arch's consolidated financial statements and notes.
Arch derives the majority of its revenues from fixed monthly or other
periodic fees charged to subscribers for wireless communication services. Such
fees are not generally dependant on usage. As long as a subscriber remains on
service, operating results benefit from the recurring payments of the fixed
periodic fees without incurrence of additional selling expenses. Arch's service,
rental and maintenance revenues and the related expenses exhibit substantially
similar growth trends. Arch's average revenue per subscriber has declined over
the last three years for two principal reasons:
- primarily due to an increase in competition in certain of the markets in
which Arch operates; and
- to a lesser extent, an increase in the number of reseller customers whose
airtime is purchased at wholesale rates.
The reduction in average revenue per subscriber resulting from these trends
has been offset by the reduction of expenses so that Arch's margins had been
improving until the consummation of the MobileMedia merger in June 1999 which
resulted in redundant management and administrative headcount. Arch expects the
margins to improve as the integration of the two companies eliminates these
redundant expenses.
Arch has achieved significant growth in units in service and adjusted
earnings before interest, income taxes, depreciation and amortization through
acquisitions and, prior to 1999, internal growth. During 1999, units in service
decreased by 89,000 units, excluding the addition of subscribers from the
MobileMedia acquisition. From January 1, 1997 through December 31, 1999, Arch's
total number of units in service grew from 3.3 million to 6.9 million units.
Arch's total revenues have increased from $396.8 million in the year ended
December 31, 1997 to $413.6 million in the year ended December 31, 1998 and to
$641.8 million in the year ended December 31, 1999. Arch had net losses of
$181.9 million, $206.1 million and $285.6 million in the years ended December
31, 1997, 1998 and 1999, respectively, as a result of significant depreciation
and amortization expenses related to acquired and developed assets and interest
charges associated with indebtedness. As its subscriber base has grown, Arch's
adjusted earnings before interest, income taxes, depreciation and amortization
have increased from $130.3 million in the year ended December 31, 1997 to $141.6
million in the year ended December 31, 1998 and to $209.5 million in the year
ended December 31, 1999.
Earnings before interest, income taxes, depreciation and amortization is a
commonly used measure of financial performance in the wireless communications
industry. Adjusted earnings before interest, income taxes, depreciation and
amortization is also one of the financial measures used to calculate whether
Arch and its subsidiaries are in compliance with the covenants under their
respective debt agreements. Adjusted earnings before interest, income taxes,
depreciation and amortization should not be construed as an alternative to
operating income or cash flows from operating activities as determined in
accordance with generally accepted accounting principles. One of Arch's
financial objectives is to increase its adjusted earnings before interest,
income taxes, depreciation and amortization, since this is a significant source
of funds for servicing indebtedness and for investment in continued growth,
including purchase of messaging units and messaging system equipment,
construction and expansion of messaging systems, and possible acquisitions.
Adjusted earnings before interest, income taxes, depreciation and amortization,
as determined by Arch, may not necessarily be comparable to similarly titled
data of other wireless communications companies. Amounts reflected as adjusted
earnings before interest, income taxes, depreciation and amortization are not
necessarily available for discretionary use as a result of restrictions imposed
by the terms of existing or future indebtedness, including the repayment of such
indebtedness or the payment of
145
<PAGE> 155
associated interest, limitations imposed by applicable law upon the payment of
dividends or distributions or capital expenditure requirements.
POTENTIAL EFFECTS OF THE PAGENET MERGER
If Arch acquires PageNet as described in this prospectus, the combined
company will have substantially larger assets, liabilities, revenues and
expenses. On a pro forma basis at December 31, 1999, the combined company would
have had approximately 15.5 million units in service, total assets of $2.9
billion and total long term debt of $1.8 billion, assuming that all of the
outstanding discount notes are exchanged for common stock. For the year ended
December 31, 1999, the combined company would have had pro forma total revenues
of $1.7 billion, adjusted pro forma earnings before interest, income taxes,
depreciation and amortization of $473.9, and net loss of $399.9. This pro forma
net loss excludes the effects of an extraordinary gain relating to the
extinguishment of debt of $6.9 million and the negative $40.8 million cumulative
effect of an accounting change relating to Arch's and PageNet's original
application of Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities." This amount also excludes the impact of expected operational cost
synergies. For the year ended December 31, 1999, the combined company's pro
forma cash flows provided by operating activities, used in investing activities
and provided by financing activities would have been $324.8, $420.0 and $340.6,
respectively. The adjusted pro forma cash flow information assumes that the
merger and related transactions had been effected as of January 1, 1999.
Leverage for the combined company on a pro forma basis, as measured by the ratio
of total debt to annualized adjusted pro forma earnings before interest, income
taxes, depreciation and amortization for the year ended December 31, 1999, would
have been 3.8 to 1. This also excludes the impact of expected operational cost
synergies. Adjusted pro forma earnings before interest, income taxes,
depreciation and amortization is earnings before interest, income taxes,
depreciation and amortization, net of restructuring charges, bankruptcy related
expenses, equity in loss of affiliates, income tax benefit, interest and
non-operating expenses (net) and extraordinary items. See "Unaudited Pro Forma
Condensed Consolidated Financial Statements." The PageNet merger is expected to
increase amortization charges by approximately $54.4 million per year.
The PageNet merger is subject to stockholder, noteholder and lender
consents and many other conditions and, therefore, it may not take place. If
Arch does not acquire PageNet, the contemplated benefits of the merger will not
be realized, despite the incurrence of substantial transaction costs which are
estimated at $10.0 million each for Arch and PageNet. If the merger agreement is
terminated after Arch pursues an alternative offer, Arch will be required to pay
to PageNet a termination fee of $40 million.
MOBILEMEDIA MERGER
In June 1999, Arch acquired MobileMedia Communications, Inc., which is now
a wholly owned subsidiary of Arch. MobileMedia had been operating as a
debtor-in-possession under Chapter 11 of the Bankruptcy Code.
Arch acquired MobileMedia for a combination of cash and Arch securities, as
follows:
- Arch paid approximately $479.0 million in cash to secured creditors of
the MobileMedia;
- Arch paid a total of $37.6 million of fees, expenses and other debts;
- Arch issued 4,781,656 shares of its common stock to unsecured creditors
of MobileMedia;
- Arch issued and sold 36,207,265 additional shares of its common stock to
unsecured creditors of MobileMedia and Arch stockholders for a total
purchase price of $217.2 million; and
- Arch issued to four unsecured creditors, who had agreed to act as standby
purchasers and to purchase shares not purchased by other unsecured
creditors, warrants to acquire 1,225,219 shares of its common stock on or
before September 1, 2001 for $9.03 per share.
146
<PAGE> 156
Arch also issued to the holders of its common stock and Series C preferred
stock on January 27, 1999 non-transferable rights to acquire up to 14,964,388
shares of its common stock at a price of $6.00 per share. A total of 102,964
non-transferable rights were exercised. Because non-transferable rights to
acquire 14,861,424 shares were not exercised, Arch issued in their place
warrants to purchase 14,861,424 shares of its common stock for $9.03 per share.
Subsidiaries of Arch also borrowed a total of $320.8 million to help fund
the MobileMedia acquisition.
During the third quarter of 1999, Arch's board of directors approved plans
covering the elimination of redundant headcount and facilities in connection
with the overall integration of operations. It is expected that the integration
will be completed by December 31, 2000. Because Arch anticipates a net reduction
of approximately 10% of MobileMedia's workforce and the closing of some
facilities and tower sites, it established a $14.5 million acquisition reserve
which is included as part of the purchase price of MobileMedia. The initial
acquisition reserve consisted of approximately:
- $6.1 million for employee severance;
- $7.9 million for lease obligations and terminations; and
- $0.5 million of other costs.
There can be no assurance that the desired cost savings will be achieved or
that the integration of the two companies will be accomplished smoothly,
expeditiously or successfully. See Note 9 to the Notes to Arch's consolidated
financial statements.
RESULTS OF OPERATIONS
The following table presents certain items from Arch's consolidated
statements of operations as a percentage of net revenues and certain other
information for the periods indicated (dollars in thousands except per unit
data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Total revenues................................... 107.9% 107.8% 105.8%
Cost of products sold............................ (7.9) (7.8) (5.8)
--------- -------- ---------
Net revenues..................................... 100.0 100.0 100.0
Operating expenses:
Service, rental and maintenance................ 21.7 21.1 21.8
Selling........................................ 14.0 12.8 13.9
General and administrative..................... 28.8 29.2 29.8
Depreciation and amortization.................. 63.2 57.7 51.0
Restructuring charge........................... -- 3.8 (0.4)
--------- -------- ---------
Operating income (loss).......................... (27.7)% (24.6)% (16.1)%
========= ======== =========
Net income (loss)................................ (49.5)% (53.7)% (47.1)%
========= ======== =========
Cash flows provided by operating activities...... $ 63,590 $ 83,380 $ 99,536
Cash flows used in investing activities.......... $(102,769) $(82,868) $(627,166)
Cash flows provided by (used in) financing
activities..................................... $ 39,010 $ (2,207) $ 529,158
Adjusted earnings before interest, taxes,
depreciation and amortization.................. 35.4% 36.9% 34.5%
========= ======== =========
Annual service, rental and maintenance expenses
per unit in service............................ $ 22 $ 20 $ 23
</TABLE>
Adjusted earnings before interest, income taxes, depreciation and
amortization, as determined by Arch, does not reflect restructuring charge,
equity in loss of affiliate, and extraordinary items; consequently
147
<PAGE> 157
adjusted earnings before interest, income taxes, depreciation and amortization
may not necessarily be comparable to similarly titled data of other wireless
communications companies. Earnings before interest, income taxes, depreciation
and amortization is commonly used by analysts and investors as a principal
measure of financial performance in the wireless communications industry.
Adjusted earnings before interest, income taxes, depreciation and amortization
is also one of the primary financial measures used to calculate whether Arch and
its subsidiaries are in compliance with financial covenants under their debt
agreements. These covenants, among other things, limit the ability of Arch and
its subsidiaries to:
- incur additional indebtedness;
- make investments;
- pay dividends;
- grant liens on its assets;
- merge, sell or acquire assets;
- repurchase or redeem capital stock;
- incur capital expenditures; and
- prepay certain indebtedness.
Earnings before interest, income taxes, depreciation and amortization is also
one of the financial measures used by analysts to value Arch. Therefore Arch
management believes that the presentation of earnings before interest, income
taxes, depreciation and amortization provides relevant information to investors.
Earnings before interest, income taxes, depreciation and amortization should not
be construed as an alternative to operating income or cash flows from operating
activities as determined in accordance with general accepted accounting
principles or as a measure of liquidity. Amounts reflected as earnings before
interest, income taxes, depreciation and amortization or adjusted earnings
before interest, income taxes, depreciation and amortization are not necessarily
available for discretionary use as a result of restrictions imposed by the terms
of existing indebtedness and limitations imposed by applicable law upon the
payment of dividends or distributions, among other things.
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Total revenues increased to $641.8 million, a 55.2% increase, in 1999 from
$413.6 million in 1998 as the number of units in service increased from 4.3
million at December 31, 1998 to 6.9 million at December 31, 1999 entirely due to
the MobileMedia acquisition in June 1999. Net revenues increased to $606.9
million, a 58.2% increase, in 1999 from $383.7 million in 1998. Total revenues
and net revenues in 1999 were adversely affected by (1) the declining demand for
basic paging services and (2) Arch subscriber cancellations which led to a
decrease of 89,000 units in service excluding the addition of subscribers from
the MobileMedia acquisition. Revenues were also adversely affected in the fourth
quarter of 1998 and in 1999 by:
- Arch's decision, in anticipation of the MobileMedia acquisition, not to
replace normal attrition among direct sales personnel; and
- to a lesser extent, the reduced effectiveness of Arch's reseller channels
of distribution;
- reduced sales through Arch-operated retail stores; and
- subscriber cancellations during 1999.
Arch expects revenue to continue to be adversely affected in 2000 by
declining demand for basic numeric and alphanumeric paging services. Arch
believes that the basic paging industry did not grow during 1999, that demand
for basic paging services will decline in 2000 and the following years and that
any significant future growth in the paging industry will be attributable to
advanced messaging services. See "Industry Overview." As a result, Arch believes
that it will experience a net decline in the number of its units in service in
2000, excluding the addition of subscribers from the PageNet acquisition, as
Arch's addition of advanced messaging subscribers is likely to be exceeded by
its loss of basic paging subscribers.
148
<PAGE> 158
Service, rental and maintenance revenues, which consist primarily of
recurring revenues associated with the sale or lease of units, increased to
$591.4 million, a 59.3% increase, in 1999 from $371.2 million in 1998. These
increases in revenues were due primarily to the net increase in the number of
units in service from 4.3 million at December 31, 1998 to 6.9 million at
December 31, 1999. This net increase was entirely due to the acquisition of
MobileMedia on June 3, 1999, offset by a net decrease from other sources of
89,000 units in service. Maintenance revenues represented less than 10% of total
service, rental and maintenance revenues in 1999 and 1998. Arch does not
differentiate between service and rental revenues. Product sales, less cost of
products sold, increased to $15.5 million, a 23.6% increase, in 1999 from $12.5
million in 1998, respectively, as a result of a the MobileMedia acquisition.
Service, rental and maintenance expenses, which consist primarily of
telephone line, third party carrier fees and site rental expenses, increased to
$132.4 million, 21.8% of net revenues, in 1999 from $80.8 million, 21.1% of net
revenues, in 1998. The increase was due primarily to increased expenses
associated with the provision of wireless communications services to a greater
number of units due to the MobileMedia acquisition. Annualized service, rental
and maintenance expenses per unit increased to $23 in 1999 from $20 in 1998.
This increase was due primarily to the increase in wireless messaging systems
and associated expenses as a result of the MobileMedia merger. However, the per
unit costs should decrease in the future if expected synergies are achieved and
as existing systems become more populated through the addition of new units and
the fixed costs of operating these systems are spread over a larger unit base.
Selling expenses increased to $84.2 million, 13.9% of net revenues, in 1999
from $49.1 million, 12.8% of net revenues, in 1998. The increase in absolute
dollars was primarily due to increased headcount and the increase as a
percentage of net revenues was primarily due to redundant headcount as a result
of the MobileMedia merger.
General and administrative expenses increased to $180.7 million, 29.8% of
net revenues, in 1999 from $112.2 million, 29.2% of net revenues, in 1998. The
increase in absolute dollars was due primarily to increased headcount,
administrative and facility costs and the increase as a percentage of net
revenues was primarily due to the redundant headcount, administrative and
facility costs associated with MobileMedia.
Depreciation and amortization expenses increased to $309.4 million in 1999
from $221.3 million in 1998. The increase in these expenses principally
reflected the acquisition of MobileMedia. Additionally, depreciation expense in
1999 included the write-off of approximately $7.1 million of costs associated
with the development of an integrated billing and management system. Arch
decided to discontinue further development of that system due to the
capabilities of the system acquired through the MobileMedia merger.
Operating losses were $97.7 million in 1999 compared to $94.4 million in
1998, as a result of the factors outlined above.
Net interest expense increased to $143.0 million in 1999 from $102.3
million in 1998. The increase was principally attributable to an increase in
Arch's outstanding debt due to the MobileMedia acquisition. Interest expense for
1999 included approximately $41.6 million of accreted interest on Arch's senior
discount notes, the payment of which is deferred. Interest expense for 1998
included approximately $37.1 million of accretion on these notes.
Other expense increased to $45.2 million in 1999 from $2.0 million in 1998.
Other expense in 1999 included:
- a $6.5 million for a write-off of Arch's entire investment in CONXUS
Communications, Inc., a holder of narrowband PCS licenses. CONXUS filed
for bankruptcy protection in May 1999.
- a $35.8 million write-off of Arch's investment in Benbow PCS Ventures,
Inc., another holder of narrowband PCS licenses. In June 1999, Arch,
Benbow and Benbow's controlling shareholder agreed to terminate their
business relationship and wind-up Benbow's business. For additional
information see "Liquidity and Capital Resources -- Other Commitments and
Contingencies".
149
<PAGE> 159
In October 1999, Arch recognized an extraordinary gain of $7.0 million on
the retirement of debt exchanged for Arch common stock. In June 1998, Arch
recognized an extraordinary charge of $1.7 million representing the write-off of
unamortized deferred financing costs associated with the prepayment of
indebtedness under prior credit facilities.
On January 1, 1999, Arch adopted the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants Statement of
Position 98-5 (SOP 98-5). SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application of SOP 98-5
resulted in a $3.4 million charge which was reported as the cumulative effect of
a change in accounting principle. This charge represents the unamortized portion
of start-up and organization costs which had been deferred in prior years.
Net loss increased to $285.6 million in 1999 from $206.1 million in 1998,
as a result of the factors outlined above.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Total revenues increased to $413.6 million, a 4.2% increase, in 1998, from
$396.8 million in 1997 as the number of units in service increased from 3.9
million at December 31, 1997 to 4.3 million at December 31, 1998. Net revenues
increased to $383.7 million , a 4.4% increase in 1998 from $367.7 million in
1997. Total revenues and net revenues in 1998 were adversely affected by a
general slowing of industry growth, compared to prior years. Revenues were also
adversely affected in the fourth quarter of 1998 by:
- Arch's decision, in anticipation of the MobileMedia acquisition, not to
replace normal attrition among direct sales personnel; and
- to a lesser extent, the reduced effectiveness of Arch's reseller channel
of distribution; and reduced sales through Arch-operated retail stores.
Service, rental and maintenance revenues, increased to $371.2 million, a
5.5% increase, in 1998 from $351.9 million in 1997. These increases in revenues
were due primarily to the increase, through internal growth, in the number of
units in service from 3.9 million at December 31, 1997 to 4.3 million at
December 31, 1998. Maintenance revenues represented less than 10% of total
service, rental and maintenance revenues in 1998 and 1997. Product sales, less
cost of products sold, decreased to $12.5 million, a 20.4% decrease, in 1998
from $15.7 million in 1997, respectively, as a result of a decline in the
average revenue per unit sold.
Service, rental and maintenance expenses, increased to $80.8 million, 21.1%
of net revenues, in 1998 from $79.8 million, 21.7% of net revenues, in 1997. The
increase was due primarily to increased expenses associated with system
expansions and an increase in the number of units in service. Annualized
service, rental and maintenance expenses per subscriber were $20 in 1998
compared to $22 in 1997.
Selling expenses decreased to $49.1 million, 12.8% of net revenues, in 1998
from $51.5 million, 14.0% of net revenues, in 1997. The decrease was due
primarily to nonrecurring marketing costs incurred in 1997 to promote Arch's new
Arch Paging brand identity and to a lesser degree to a decrease in the number of
net new units in service. Internal growth decreased by 35.1% in 1998 compared to
1997 primarily due to the factors set forth above that adversely affected
revenues.
General and administrative expenses increased to $112.2 million, 29.2% of
net revenues, in 1998, from $106.0 million, 28.8% of net revenues, in 1997. The
increase was due primarily to administrative and facility costs associated with
supporting more units in service.
Depreciation and amortization expenses decreased to $221.3 million in 1998
from $232.3 million in 1997. Depreciation and amortization expenses principally
reflect Arch's acquisitions in prior periods
150
<PAGE> 160
accounted for as purchases. They also reflect investment in units and other
system expansion equipment to support growth.
Operating losses were $94.4 million in 1998 compared to $102.0 million in
1997, as a result of the factors outlined above.
Net interest expense increased to $104.2 million in 1998 from $97.2 million
in 1997. The increase was principally attributable to an increase in Arch's
outstanding debt. Interest expense for 1998 included approximately $37.0 million
of interest which accretes on Arch's senior discount notes even though the cash
payment of the interest is deferred. Interest expense for 1997 included
approximately $33.3 million of accretion on these notes.
Arch recognized an income tax benefit of $21.2 million in 1997. This
benefit represented the tax benefit of operating losses incurred subsequent to
the acquisitions of USA Mobile and Westlink which were available to offset
deferred tax liabilities arising from those acquisitions. The tax benefit of
these operating losses was fully recognized during 1997. Accordingly, Arch has
established a valuation reserve against its deferred tax assets which reduced
the income tax benefit to zero as of December 31,1998. Arch does not expect to
recover its deferred tax asset in the foreseeable future and will continue to
increase its valuation reserve accordingly. See Note 5 to Arch's Consolidated
Financial Statements.
In June 1998, Arch recognized an extraordinary charge of $1.7 million
representing the write-off of unamortized deferred financing costs associated
with the prepayment of indebtedness under prior credit facilities.
Net loss increased to $206.1 million in the year ended December 31, 1998
from $181.9 million in the year ended December 31, 1997, as a result of the
factors outlined above.
LIQUIDITY AND CAPITAL RESOURCES
Arch's business strategy requires the availability of substantial funds to
finance the expansion of existing operations, to fund capital expenditures for
subscriber equipment and network system equipment, to service debt and to
finance acquisitions. Arch's net cash flows from operating, investing and
financing activities for the periods indicated in the table below are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net cash provided by operating activities................ $ 63.6 $ 83.4 $ 99.5
Net cash used for investing activities................... $(102.8) $(82.9) $(627.2)
Net cash provided by (used in) financing activities...... $ 39.0 $ (2.2) $ 529.2
</TABLE>
Investing activities in 1999 included $516.6 million for the acquisition of
MobileMedia. Financing activities in 1999 included $217.2 million from the sale
of common stock to unsecured creditors of MobileMedia and borrowings of $320.8
million in connection with the acquisition of MobileMedia as described above.
Capital Expenditures and Commitments
Excluding acquisitions of wireless messaging businesses, Arch's capital
expenditures were $102.8 million in 1997, $113.2 million in 1998 and $113.7
million in 1999. To date, Arch generally has funded its capital expenditures
with net cash provided by operating activities and the incurrence of debt.
Arch's 1999 capital expenditures primarily involved the purchase of
wireless messaging units, system and transmission equipment, information systems
and capitalized financing costs.
Arch estimates the amount of capital that will be required to fund capital
expenditures for 2000 will be approximately $120 million ($227 million on a pro
forma basis if the PageNet merger were consummated on January 1, 2000). Arch
estimates that capital expenditures for 2001-2003 will be
151
<PAGE> 161
approximately $230 million per year. Such expenditures will be used primarily
for subscriber equipment, network infrastructure, information systems and the
construction of certain markets for the nationwide network of narrowband PCS.
However, the actual amount of capital to be required by the combined company
will depend on a number of factors. These include subscriber growth, the type of
products and services demanded by customers, service revenues, the nature and
timing of Arch's strategy to deploy its narrowband personal communications
services network, and acquisition strategies and opportunities. Arch believes
that it will have sufficient cash available from operations and credit
facilities to fund its capital expenditures for 2000.
Other Commitments and Contingencies
Interest payments commence September 15, 2001 on the $172.4 million
principal amount at maturity of Arch's 10 7/8% senior discount notes outstanding
as of May 5, 2000. Unless all of the senior discount notes are tendered in the
exchange offer, Arch expects to service such interest payments out of cash made
available to it by its subsidiaries. Based on the principal amount outstanding
at May 9, 2000 and assuming that no additional notes are tendered, such interest
payments will equal a maximum of $9.4 million on March 15 and September 15 of
each year until scheduled maturity on March 15, 2008.
If the PageNet Merger agreement is terminated after Arch pursues an
alternative offer, Arch may be required to pay a termination fee of $40.0
million.
Arch acquired a 49.9% equity interest in Benbow PCS Ventures, Inc. in May
1996. Benbow holds exclusive rights to a narrowband PCS license in each of the
five regions of the United States. Arch was formerly obligated to advance Benbow
sufficient funds to service debt obligations to the Federal Communications
Commission incurred by Benbow in connection with its acquisition of its
narrowband PCS licenses and to finance construction of a narrowband PCS system
unless funds were available to Benbow from other sources. Arch estimates that
this obligation totaled approximately $100 million at March 31, 1999. This
obligation was subject to the approval of Arch's designee on Benbow's board of
directors. As of March 31, 1999, Arch had advanced approximately $23.7 million
to Benbow. In June 1999, Arch, Benbow and Benbow's controlling stockholder
agreed that:
- the stockholders agreement, the management agreement and the employment
agreement governing the establishment and operation of Benbow will be
terminated;
- Benbow will not make any further Federal Communications Commission
payments and will not pursue construction of a narrowband PCS system;
- Arch will not be obligated to fund Federal Communications Commission
payments or construction of a narrowband PCS system by Benbow; and
- the closing of the transaction will occur on the earlier of January 23,
2001 or receipt of Federal Communications Commission approval.
On December 20, 1999, Benbow filed with the Federal Communications
Commission a proposal for debt forgiveness which, if approved, would result in
(1) surrender by Benbow of its five narrowband PCS licences back to the
government, and (2) forgiveness by the government of the remaining debt owed on
the surrendered licenses and waiver of any applicable default payments. A total
of approximately $35.25 million in principal debt to the government remains
payable by Benbow on the five narrowband PCS licenses. Benbow's debt forgiveness
proposal is pending and Arch can not determine whether the Federal
Communications Commission ultimately will approve it. In its debt-forgiveness
proposal, however, Benbow demonstrated that the proposal meets standards for
debt forgiveness under applicable federal law.
The June 1999 agreement between Arch, Benbow and Benbow's controlling
shareholder provides, regardless of the outcome of the debt forgiveness
proposal, that (1) Arch will fulfill all of its current financial obligations to
Benbow, (2) Arch is released from any further obligations to provide funding to
Benbow, and (3) Benbow's controlling shareholder will be paid for the Benbow
stock consistent with the preexisting agreement with Arch which requires Arch to
pay the controlling stockholder in Benbow, in
152
<PAGE> 162
installments, an aggregate amount of $3.5 million if the transaction closes
before January 23, 2001 or $3.8 million if the transaction closes on January 23,
2001. In addition to the narrowband PCS licenses, Benbow holds conventional
paging licenses which would be transferred to Arch upon Federal Communications
Commission approval.
As a result of these arrangements, Benbow will not have any meaningful
business operations and is unlikely to retain its narrowband PCS licenses. The
closing of the transaction will not affect the funding obligations of Arch in
connection with Benbow's acquisition of PageCall in June 1998 described below.
On June 29, 1998, Benbow acquired all of the outstanding stock of PageCall
by issuing to PageCall's former stockholders preferred stock and a 12%
promissory note for $17.2 million. Benbow also agreed to pay one of PageCall's
stockholders $911,000 over five years for consulting services. Benbow's
preferred stock and promissory note became automatically exchangeable for 2.9
million shares of Arch common stock on April 8, 2000 and the shares will be
issued upon receipt of required documentation from PageCall's stockholders.
Arch guaranteed all obligations of Benbow under the Benbow preferred stock,
promissory note and consulting agreement described above. Arch may elect to make
payments under its guarantee in common stock or cash. If Arch issues common
stock or pays cash pursuant to its guarantees, Arch will receive from Benbow a
promissory note and non-voting, non-convertible preferred stock of Benbow with
an annual yield of 14.5% payable upon an acquisition of Benbow or earlier to the
extent that available cash and applicable law permit. PageCall's former
stockholders received customary registration rights for the shares of common
stock issued in exchange for Benbow's preferred stock and promissory note and
for any other shares of common stock issued or pursuant to Arch's guarantees.
Since it is unlikely that Benbow will be able to meet these obligations and Arch
is currently required to settle the obligation in stock, Arch has recorded the
issuance of $22.8 million of its common stock in additional paid-in capital and
as a charge to operations, to satisfy the obligation in April 2000.
Sources of Funds
Arch believes that its capital needs for the foreseeable future will be
funded with borrowings under current and future credit facilities, net cash
provided by operations and, depending on Arch's needs and market conditions,
possible sales of equity or debt securities. For additional information, see
Note 3 to Arch's consolidated financial statements. Arch's ability to borrow in
the future will depend, in part, on its ability to continue to increase its
adjusted earnings before interest, taxes, depreciation and amortization.
Recent Issuance of Notes
In June 1999, a subsidiary of Arch issued $147.0 million principal amount
of 13 3/4% senior notes due 2008 in a private placement pursuant to Rule 144A
under the Securities Act of 1933. The notes were sold at 95.091% of the face
amount for net proceeds of $134.6 million.
Credit Facility
An Arch subsidiary has a senior credit facility that currently permits it
to borrow up to $577.9 million consisting of (i) a $175.0 million reducing
revolving Tranche A facility, (ii) a $100.0 million Tranche B term loan and
(iii) a $302.9 million Tranche C term loan.
The Tranche A facility will be reduced on a quarterly basis commencing on
September 30, 2000 and will mature on June 30, 2005. The Tranche B term loan
will be amortized in quarterly installments commencing September 30, 2000, with
an ultimate maturity date of June 30, 2005. The Tranche C term loan began
amortizing in annual installments on December 31, 1999, with an ultimate
maturity date of June 30, 2006.
On March 23, 2000, the senior credit facility was amended to add a $746.6
million Tranche B-1 term loan to be used to repay obligations under PageNet's
existing credit facility upon completion of the pending PageNet merger. The
Tranche B term loan will be amortized in quarterly installments commencing March
31, 2001, with an ultimate maturity date of June 30, 2006.
153
<PAGE> 163
Equity Issued in Exchange for Debt
In October 1999, Arch issued 809,545 shares of Arch common stock, which had
a weighted average closing price of $4.03 per share as of the dates of the
transactions, and warrants to purchase 540,487 shares of Arch common stock for
$9.03 per share in exchange for $8.9 million principal amount of Arch
convertible debentures. Arch also issued 2,327,120 shares of Arch common stock,
which had a weighted average closing price of $4.01 per share as of the dates of
the transactions, in exchange for $16.3 million accreted value ($19.0 million
maturity value) of its senior discount notes.
In February and March 2000, Arch issued 285,715 shares of its common stock,
which had a closing price of $10.875 per share as of the date of the
transaction, in exchange for $3.5 million principal amount of Arch convertible
debentures. Arch also issued 11,640,321 shares of its common stock, which had a
weighted average closing price of $12.87 per share as of the dates of the
transactions in exchange for $157.4 million accreted value ($176.0 million
maturity value) of its senior discount notes. Following these transactions, on
March 16, 2000, Arch had $1.0 million principal amount of the convertible
debentures and $244.6 million accreted value ($272.4 million maturity value) of
discount notes outstanding.
In May 2000, Arch issued 1,000,000 shares of its Series D convertible
preferred stock in exchange for $91.1 million accreted value ($100.0 million
maturity value) of senior discount notes held by various entities affiliated
with Resurgence Asset Management L.L.C. The terms of the Series D preferred
stock are described under "Description of Arch's Equity Securities."
Resurgence has agreed to use commercially reasonable efforts to complete,
on or before June 15, 2000, the sale of $53,865,000 principal amount at maturity
of senior discount notes owned by Resurgence entities to a third party to be
selected by Resurgence and the exchange by the third party of such notes for
shares of Arch common stock at an exchange ratio of 66.1318 shares of common
stock per $1,000 principal amount at maturity of notes. If Resurgence is not
able to complete such sale despite using commercially reasonable efforts to do
so, Arch has agreed to use commercially reasonable efforts, at Resurgence's
election, to: (1) exchange the remaining senior discount notes held by
Resurgence entities for one share of Series D preferred stock per $100.00 in
principal amount at maturity of notes; and/or (2) exchange the remaining notes
for common stock at an exchange ratio of 66.1318 shares of Arch common stock per
$1,000 in principal amount at maturity of notes.
INFLATION
Inflation has not had a material effect on Arch's operations to date.
Systems equipment and operating costs have not increased in price and wireless
messaging units have tended to decline in recent years. This reduction in costs
has generally been reflected in lower prices charged to subscribers who purchase
their wireless communications units. Arch's general operating expenses, such as
salaries, employee benefits and occupancy costs, are subject to normal
inflationary pressures.
RECENT AND PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized in earnings. Arch intends to adopt this standard effective January 1,
2001. Arch has not yet quantified the impact of adopting SFAS No. 133 on its
financial statements; however, adopting SFAS No. 133 could increase volatility
in earnings and other comprehensive income.
The Securities and Exchange Commission released Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition in Financial Statements", on December 3,
1999. This SAB provides additional guidance on the accounting for revenue
recognition, including both broad conceptual discussions as well as certain
industry-specific guidance. The guidance is effective for the second quarter of
fiscal 2000. Arch does not expect SAB 101 to have a material impact on its
results of operations upon adoption.
154
<PAGE> 164
MARKET PRICE INFORMATION AND DIVIDEND POLICY
PAGENET AND ARCH COMMON STOCK
PageNet common stock is traded on the Nasdaq SmallCap Market under the
symbol "PAGEE." Arch stock is traded on the Nasdaq National Market under the
symbol "APGR." The following table sets forth the high and low trading prices
per share of PageNet common stock and Arch common stock for the quarterly
periods indicated, which correspond to the companies' respective quarterly
fiscal periods for financial reporting purposes.
<TABLE>
<CAPTION>
PAGENET ARCH
COMMON STOCK COMMON STOCK
---------------------- ----------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1998:
First Quarter............................. $16.37500 $ 9.50000 $18.37500 $ 9.00000
Second Quarter............................ $16.62500 $12.50000 $20.81250 $10.50000
Third Quarter............................. $14.62500 $ 4.81250 $15.00000 $ 5.06250
Fourth Quarter............................ $ 7.37500 $ 3.56250 $ 5.43750 $ 2.06250
Fiscal Year Ended December 31, 1999:
First Quarter............................. $ 7.00000 $ 3.87500 $ 7.50000 $ 3.18750
Second Quarter............................ $ 4.93750 $ 3.00000 $11.62500 $ 3.37500
Third Quarter............................. $ 6.87500 $ 0.71875 $ 8.87500 $ 3.90625
Fourth Quarter............................ $ 1.71875 $ 0.59375 $ 7.75000 $ 3.50000
Fiscal Year Ended December 31, 2000:
First Quarter............................. $ 6.03125 $ 0.71875 $16.25000 $ 5.56250
Second Quarter (through May 10, 2000)..... $ 3.00000 $ 0.93750 $ 8.50000 $ 5.50000
--------- --------- --------- ---------
</TABLE>
The following table presents trading information for PageNet common stock
and Arch common stock for November 5, 1999 and , 2000. November 5,
1999 was the last full trading day prior to the public announcement of the
proposed merger. , 2000 was the last practicable trading day for
which information was available prior to the date of the first mailing of this
prospectus. The table provides trading information for (1) one share of PageNet
common stock, (2) one share of Arch common stock and (3) 0.1247 shares of Arch
common stock, which is the equivalent of one share of PageNet common stock based
on the exchange ratio to be used in the merger, exclusive of the value of shares
of Vast to be received by PageNet stockholders.
<TABLE>
<CAPTION>
PAGENET ARCH ARCH
COMMON STOCK COMMON STOCK PRO FORMA EQUIVALENT
------------------------------ -------------------------- ------------------------------
HIGH LOW CLOSE HIGH LOW CLOSE HIGH LOW CLOSE
-------- -------- -------- ------- ------ ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 5, 1999..... $1.03125 $0.90625 $0.96875 $ 7.125 $6.375 $6.8125 $0.88849 $0.79496 $0.84952
, 2000....
</TABLE>
155
<PAGE> 165
PAGENET NOTES
PageNet's 8.875%, 10.125% and 10% senior subordinated notes are traded over
the counter. The following table sets forth the high and low closing prices per
$1,000 principal amount of PageNet's senior subordinated notes and per share of
PageNet common stock and Arch common stock for the quarterly periods indicated,
which correspond to PageNet's and Arch's quarterly fiscal periods for financial
reporting purposes.
<TABLE>
<CAPTION>
PAGENET
8.875% NOTES 10.125% NOTES 10% NOTES COMMON STOCK
------------------- --------------------- --------------------- ---------------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
--------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended
December 31, 1998:
First Quarter...... $ 998.75 $ 980.00 $ 1,055.00 $ 1,035.00 $ 1,055.00 $ 1,032.50 $ 16.25000 $ 9.75000
Second Quarter..... $ 1,003.75 $ 981.25 $ 1,065.00 $ 1,035.00 $ 1,065.00 $ 1,032.50 $ 16.50000 $ 12.93750
Third Quarter...... $ 1,003.75 $ 890.00 $ 1,055.00 $ 950.00 $ 1,055.00 $ 950.00 $ 14.43750 $ 5.31250
Fourth Quarter..... $ 990.00 $ 900.00 $ 1,042.50 $ 952.50 $ 1,041.25 $ 945.00 $ 7.03125 $ 3.93750
Fiscal Year Ended
December 31, 1999:
First Quarter...... $ 947.50 $ 790.00 $ 971.25 $ 860.00 $ 970.00 $ 850.00 $ 6.81250 $ 4.00000
Second Quarter..... $ 840.00 $ 620.00 $ 880.00 $ 640.00 $ 860.00 $ 630.00 $ 4.81250 $ 3.15625
Third Quarter...... $ 805.00 $ 255.00 $ 830.00 $ 265.00 $ 840.00 $ 255.00 $ 6.12500 $ 0.81250
Fourth Quarter..... $ 380.00 $ 230.00 $ 380.00 $ 235.00 $ 390.00 $ 240.00 $ 1.40625 $ 0.59375
Fiscal Year Ended
December 31, 2000:
First Quarter...... $ 820.00 $ 290.00 $ 820.00 $ 290.00 $ 820.00 $ 290.00 $ 6.00000 $ 0.75000
Second Quarter
(through May 10,
2000).............. $ 690.00 $ 510.00 $ 690.00 $ 510.00 $ 690.00 $ 510.00 $ 2.84375 $ 1.03125
<CAPTION>
ARCH
COMMON STOCK
---------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended
December 31, 1998:
First Quarter...... $ 18.00000 $ 10.12500
Second Quarter..... $ 19.68750 $ 11.62500
Third Quarter...... $ 13.87500 $ 5.06250
Fourth Quarter..... $ 5.25000 $ 2.15625
Fiscal Year Ended
December 31, 1999:
First Quarter...... $ 6.93750 $ 3.28125
Second Quarter..... $ 10.59375 $ 3.65625
Third Quarter...... $ 8.75000 $ 4.00000
Fourth Quarter..... $ 7.62500 $ 3.81250
Fiscal Year Ended
December 31, 2000:
First Quarter...... $ 14.25000 $ 5.75000
Second Quarter
(through May 10,
2000).............. $ 8.00000 $ 6.06250
</TABLE>
- ---------------
The following table presents comparative trading information for PageNet
common stock, Arch common stock and PageNet senior subordinated notes for
November 5, 1999 and , 2000. November 5, 1999 was the last full
trading day prior to the public announcement of the proposed merger.
, 2000 was the last practicable trading day for which information
was available prior to the date of the first mailing of this prospectus. The
table provides trading information for (1) one share of PageNet common stock,
(2) one share of Arch common stock, (3) $1,000 principal amount of each series
of senior subordinated notes, (4) 64.492, 64.693 and 63.388 shares of Arch
common stock, which would have been the equivalent of $1,000 principal amount of
the 8.875% notes, $1,000 principal amount of 10.125% notes and $1,000 principal
amount of 10% notes, respectively, if the exchange offer and merger had occurred
on November 5, 1999, based on the exchange ratios to be used in the exchange
offer and the merger, exclusive of the value of shares of Vast to be received by
PageNet noteholders, assuming 100% of the senior subordinated notes were
exchanged in the exchange offer, and (5) , and shares of
Arch common stock, which would have been the equivalent of $1,000 principal
amount of the 8.875% notes, $1,000 principal amount of 10.125% notes and $1,000
amount of 10% notes, respectively, if the exchange offer and merger had occurred
on , 2000, based on the exchange ratios to be used in the exchange
offer and the merger, exclusive of the value of Vast shares to be received
156
<PAGE> 166
by PageNet noteholders, assuming 100% of the senior subordinated notes were
exchanged in the exchange offer.
<TABLE>
<CAPTION>
PAGENET ARCH 8.875% 10.125% 10%
COMMON STOCK COMMON STOCK NOTES NOTES NOTES
---------------------------- ---------------------------- -------- -------- --------
HIGH LOW CLOSE HIGH LOW CLOSE CLOSE(1) CLOSE(1) CLOSE(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 5, 1999................ $1.03125 $0.90625 $0.96875 $7.12500 $6.37500 $6.81250 $350.00 $350.00 $350.00
, 2000................
</TABLE>
<TABLE>
<CAPTION>
ARCH PRO FORMA
EQUIVALENT(2)
------------------------------------------------------------------------------------------------
8.875% 10.125% 10%
NOTES NOTES NOTES
-------------------------------- --------------------------- -----------------------------
HIGH LOW CLOSE HIGH LOW CLOSE HIGH LOW CLOSE
-------- -------- -------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 5, 1999..... $459.50 $411.13 $439.35 $460.94 $412.42 $440.72 $451.64 $404.10 $431.83
, 2000.....
</TABLE>
- ---------------
(1) Prices for PageNet senior subordinated notes as of November 5, 1999 and as
of , 2000 reflect closing prices obtained from FactSet Research
Systems, Inc.
(2) Pro forma equivalent calculations assume that 100% of the notes have been
exchanged.
DIVIDEND POLICY
Neither PageNet nor Arch has ever declared or paid any cash dividends on
its common stock. Arch anticipates that substantially all of its earnings in the
foreseeable future will be used to finance the continued growth and development
of its business and has no current intention to pay cash dividends. Arch's
future dividend policy will depend on its earnings, capital requirements and
financial condition, as well as requirements of its financing agreements and
other factors that Arch's board of directors considers relevant. Arch's secured
credit facility prohibits declaration or payment of cash dividends to Arch
stockholders without the written consent of a majority of the lenders. The terms
of other outstanding indebtedness only permit the declaration or payment of cash
dividends if specified leverage and cash flow requirements are met. Arch does
not currently meet these requirements. See "Description of Arch's Equity
Securities" and "Description of Indebtedness -- Arch".
157
<PAGE> 167
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following table sets forth historical per share data of Arch and
PageNet and combined per share data on an unaudited pro forma basis after giving
effect to the merger based on the purchase method of accounting. This data
should be read in conjunction with the selected financial data and the
historical financial statements of Arch and PageNet and notes. The pro forma
information is presented for informational purposes only and is not necessarily
indicative of the financial position or results of operations that would have
occurred if Arch and PageNet had been a single entity during the period
presented nor is it necessarily indicative of the results of operations which
may occur in the future.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------- ---------
PAGENET ARCH COMBINED
------- ------- ---------
<S> <C> <C> <C>
As of and for the year ended December 31, 1999:
Earnings per common share -- basic and diluted............ $(2.88) $ (9.10) $(2.35)
Book value per common share............................... $(7.60) $ (4.25) $ 4.20
</TABLE>
158
<PAGE> 168
INDUSTRY OVERVIEW
The mobile wireless telecommunications industry currently consists of
multiple voice and data providers which compete among one another, both directly
and indirectly, for subscribers. Traditional paging carriers like PageNet and
Arch provide customers with services such as numeric and alphanumeric paging.
Customers receive these paging services through a small, handheld device known
as a pager. A pager signals a customer when a message is received through a tone
and/or vibration and displays the incoming message on a small screen. With
numeric paging services the pager displays numeric messages, such as a telephone
number. With alphanumeric paging services the pager is capable of displaying
numeric messages and text messages on their pagers. These two types of paging
services are commonly referred to as messaging services.
Traditional paging carriers like PageNet and Arch also provide other
services via pagers, commonly referred to as advanced messaging services.
Advanced messaging services include confirmed receipt paging services, which
enable subscribers to receive acknowledgements that their messages were
delivered, services which enable subscribers to respond to messages with their
messaging devices by using pre-scripted replies, and send-and-receive services,
which enable subscribers to initiate messages and to respond to messages with
their messaging devices by using pre-scripted replies or by creating original
replies. Advanced messaging services have only been offered for a short period
of time, and account for less than 1% of revenue for both PageNet and Arch.
Paging carriers also offer enhanced wireless communications services such as
stock quotes, news, voice mail and personalized greeting.
Mobile telephone service providers such as cellular and broadband PCS
carriers provide telephone voice services as well as services that are
functionally identical to the messaging and advanced messaging services provided
by paging carriers such as PageNet and Arch. Customers subscribing to cellular,
broadband PCS or other mobile phone services utilize a wireless handset through
which they can make and receive voice telephone calls. These handsets are
commonly referred to as a cellular or PCS phones. These handsets are also
capable of receiving numeric and alphanumeric messages as well as information
services, such as stock quotes, news, voice mail, personalized greeting and
message storage and retrieval.
Technological improvements have generally contributed to strong growth in
the market for mobile wireless services and the provision of better quality
services at lower prices to subscribers. Companies providing traditional
messaging services have benefited from technological advances resulting from
research and development conducted by vendors of paging units and transmission
equipment. These advances include microcircuitry, liquid crystal display
technology and standard digital encoding formats. These advances have enhanced
the capability and capacity of mobile wireless messaging services while lowering
equipment and air time costs. However, these technological improvements, and the
degree of similarity in pagers, coverage and battery life have resulted in
messaging services becoming commodity products with price likely to be the most
significant factor in a subscriber's decision making.
Other mobile wireless alternatives, particularly cellular and PCS services,
have similarly experienced rapid changes through technological improvement which
has resulted in more consumer interest and demand. Messaging services offered by
cellular, PCS and other mobile phone providers are substantially similar to the
numeric and alphanumeric messaging services offered by PageNet and Arch and are
now available in conjunction with most mobile phone services.
The number of new subscribers to cellular, PCS and other mobile phone
services continues to increase each year. By one analyst's estimates, there were
a total of over 86 million such subscribers in the United States at the end of
1999. This estimate reflects an increase of approximately 25% over the
approximately 69 million subscribers estimated at the end of 1998. This trend is
expected to continue. The same analyst predicts an average annual subscriber
growth rate of approximately 13% through the year 2003 for cellular, PCS and
other mobile phone services.
With regard to the messaging market, Arch believes that a total of 44.7
million subscribers subscribed to basic numeric and alphanumeric paging services
in the United States as of the end of 1999. This estimate reflects an increase
of approximately 4% over the approximately 43 million subscribers at the end
159
<PAGE> 169
of 1998. This growth rate reflects a significant decline from earlier growth
rates. Arch believes that the number of subscribers to basic messaging services
will decline each year hereafter through 2003 at the average rate of 5% per
year. The combined number of subscribers for all types of messaging services is
expected to continue to decline in the future. The decline is attributable to a
new trend of traditional paging customers discontinuing their use of messaging
services in favor of using their mobile phones for combined voice and messaging
services. Although there can be no assurances they will be successful, PageNet
and Arch are committed to expanding their service offerings, especially their
advanced messaging services, to ensure that their services remain competitive
under rapidly changing market conditions.
Messaging subscribers such as those served by PageNet and Arch typically
pay a flat monthly service fee for paging services, unlike subscribers to
cellular telephone or PCS services, whose bills historically have had a
significant variable usage component. However, cellular, PCS and other mobile
phone companies now offer flat rate pricing plans which include both local and
long distance minutes for use at no additional charge. These and other plans
have lowered the price point so that these services compete directly with the
services PageNet and Arch offer. PageNet and Arch are sensitive to these
technological and availability changes and are working to design competitively
attractive values for the consumer even in the midst of these changes by
cellular, PCS and other mobile phone service providers.
The mobile wireless communications industry originally distributed its
services through direct marketing and sales activities. Additional channels of
distribution have evolved. These channels include: (1) company-operated stores,
(2) resellers, who purchase services on a wholesale basis from the companies and
resell those services on a retail basis to their own customers; (3) agents who
solicit customers for companies and are compensated on a commission basis; (4)
retail outlets that often sell a variety of merchandise, including pagers and
other telecommunications equipment; and (5) most recently, the Internet.
REGULATION
Federal Regulation -- Overview
PageNet's and Arch's wireless messaging operations are subject to
regulation by the Federal Communications Commission under federal communications
laws and regulations. The Federal Communications Commission has granted PageNet
and Arch licenses to use the radio frequencies necessary to conduct their
business. Licenses issued by the Federal Communications Commission to PageNet
and Arch set forth the technical parameters, such as power strength and tower
height, under which PageNet and Arch are authorized to use those frequencies.
Each Federal Communications Commission license held by PageNet or Arch has
construction and operational requirements that must be satisfied within set time
frames. The Federal Communications Commission has the authority to auction most
new licenses over which wireless mobile services are traditionally offered but
does not have the authority to use auctions for license renewals or license
modifications.
The Federal Communications Commission licenses granted to PageNet and Arch
have varying terms of up to 10 years, at the end of which time renewal
applications must be approved by the Federal Communications Commission. In the
past, Federal Communications Commission renewal applications have been routinely
granted, in most cases upon a demonstration of compliance with Federal
Communications Commission regulations and adequate service to the public. The
Federal Communications Commission has granted each renewal license PageNet and
Arch have filed, other than those which are pending. Although PageNet and Arch
are unaware of any circumstances which would prevent the grant of any pending or
future renewal applications, no assurance can be given that any of PageNet's or
Arch's licenses will be renewed by the Federal Communications Commission.
Furthermore, although revocation and involuntary modification of licenses are
extraordinary regulatory measures, the Federal Communications Commission has the
authority to restrict the operation of licensed facilities or revoke or modify
licenses. PageNet is seeking an extension of time in which to meet construction
benchmarks for licenses acquired at auction. Failure to obtain such extensions
could result in PageNet or Arch having to
160
<PAGE> 170
make capital expenditures it would prefer to delay. No license of PageNet or
Arch has ever been revoked or modified involuntarily.
The Federal Communications Commission's review and revision of rules
affecting companies such as PageNet and Arch is ongoing. The regulatory
requirements to which PageNet and Arch are subject may change significantly over
time. For example, the Federal Communications Commission has adopted rules for
licensing particular messaging channels throughout a broad geographic area.
These licenses are being awarded through an auction. Incumbent messaging
carriers that are already licensed by the Federal Communications Commission in
these broad geographic areas are entitled to continue to operate without
interference from the auction winners.
In many instances, PageNet and Arch still require the prior approval of the
Federal Communications Commission before they can implement any significant
changes to their messaging networks. Once the Federal Communications
Commission's broad geographic licensing rules are implemented, however, many of
these licensing obligations will be eliminated.
The Federal Communications Commission has sought comment on adopting new
rules for certain frequencies licensed to and operated by PageNet and Arch on a
nationwide basis. If the Federal Communications Commission were to impose
additional, more stringent coverage requirements for these nationwide
frequencies, PageNet and Arch might have to accelerate the build out of their
systems.
Federal communications laws and regulations require licensees such as
PageNet and Arch to obtain prior approval from the Federal Communications
Commission for the transfer of control of any construction permit or station
license. These regulations also require prior approval by the Federal
Communications Commission of acquisitions of other messaging companies by
PageNet and Arch and transfers by PageNet and Arch of a controlling interest in
any of their licenses or construction permits. The Federal Communications
Commission has approved each acquisition and transfer of control for which
PageNet or Arch have sought approval, including those contemplated in connection
with the merger. PageNet and Arch also regularly apply for Federal
Communications Commission authority to use additional frequencies, modify the
technical parameters of existing licenses, expand their service territory,
provide new services, and modify the conditions under which they provide
service. Although there can be no assurance that any requests for approval of
applications filed by PageNet and Arch will be approved or acted upon in a
timely manner by the Federal Communications Commission, or that the Federal
Communications Commission will grant the relief requested, PageNet and Arch know
of no reason to believe any such requests, applications, or relief will not be
approved or granted. Neither PageNet nor Arch make any representations, however,
about the continued availability of additional frequencies used to provide their
services.
Foreign Ownership Restrictions
Foreign ownership of entities that directly or indirectly hold certain
licenses from the Federal Communications Commission is limited, including some
of those held by PageNet or Arch. Because PageNet and Arch hold licenses from
the Federal Communications Commission only through subsidiaries, up to 25% of
either company's common stock can be owned or voted by aliens or their
representatives, a foreign government or its representatives, or a foreign
corporation, without restriction. However, if more than 25% of either company's
common stock is owned or voted by aliens or their representatives, a foreign
corporation, or a foreign government or its representatives, the Federal
Communications Commission has the right to revoke or refuse to grant licenses if
it finds that such revocation or refusal serves the public interest. The Federal
Communications Commission has indicated that, pursuant to the World Trade
Organization Telecommunications Agreement, it would waive the 25% limitation in
appropriate circumstances. Based upon information obtained by PageNet and Arch,
each of PageNet and Arch believe that substantially less than 25% of their
issued and outstanding common stock is owned by aliens or their representatives,
foreign governments or their representatives, or foreign corporations. PageNet
and Arch subsidiaries that are radio common carrier licensees are subject to
more stringent requirements and may
161
<PAGE> 171
have only up to 20% of their stock owned or voted by aliens or their
representatives, a foreign government or their representatives or a foreign
corporation. This ownership restriction is not subject to waiver.
Limitations on Allocation of Numbers
Increased demand for telephone numbers, particularly in metropolitan areas,
is causing depletion of numbers in some of the more popular area codes. Recent
plans to address this increased demand have included elements that could impact
PageNet's and Arch's operations, including the take-back of numbers already
assigned for use and service-specific plans whereby only some services, such as
paging and cellular, would be assigned numbers using a new area code, or plans
which require the pooling of blocks of numbers for use by multiple carriers.
Neither PageNet nor Arch can provide any assurance as to whether such plans will
be adopted by a federal or state commission, or whether such plans will require
PageNet or Arch to incur further, substantial expenses in order to continue to
obtain telephone numbers for their subscribers.
Interconnection
Recent amendments to federal communications laws are intended to promote
competition in the provision of phone services by removing legal or other
barriers to entry. Specifically, all telecommunications carriers have the duty
to interconnect with the facilities and equipment of other telecommunications
carriers. The Federal Communications Commission, and the 9th Circuit Court of
Appeals, among others, have interpreted this duty as requiring certain local
telephone companies to compensate mobile wireless companies for calls originated
by customers of the local telephone companies which terminate on a mobile
wireless company's network. The Federal Communications Commission has also found
to be unlawful charges to messaging companies in the past that have been
assessed on a monthly basis by certain local telephone companies for the use of
interconnection facilities, including telephone numbers. These findings by the
Federal Communications Commission have been challenged at the Federal
Communications Commission and in the courts. Neither PageNet nor Arch can
predict with certainty the ultimate outcome of these proceedings. Compensation
amounts may be determined in subsequent proceedings either at the federal or
state level, or may be determined based on negotiations between the local
telephone companies and the messaging companies. Any agreements reached between
the local telephone companies and the messaging companies may be required to be
submitted to a state regulatory commission for approval. PageNet has negotiated
interconnection agreements with some major local telephone companies and is in
negotiations with other local telephone companies but can provide no assurances
that it will obtain interconnection agreements with all local telephone
companies. Arch is also in negotiations with local telephone companies, but as
with PageNet in markets where PageNet has not reached agreements, it may or may
not be successful in securing refunds, future relief, or both, with respect to
charges for termination of local telephone companies originated local traffic.
If these issues are ultimately decided in favor of the local telephone
companies, Arch, and to a lesser extent PageNet because of the agreements it has
reached, may be required to pay past due contested charges and may also be
assessed interest and late charges for amounts withheld.
Additional Regulatory Obligations and Benefits
The Federal Communications Commission has determined that companies such as
PageNet and Arch are required to contribute to "Universal Service" or other
funds to assure the continued availability of local phone service to high cost
areas, as well as to contribute funds to cover other designated costs or
societal goals. Further, providers of payphones must be compensated for all
calls placed from pay telephones to toll-free numbers. This latter requirement
increases PageNet's and Arch's costs of providing toll-free number service, and
there are no assurances that either PageNet or Arch will be able to continue to
pass on to their subscribers these, or other increased costs imposed by federal
or state telecommunication regulators. Beneficially, the laws now limit the
circumstances under which states and local governments may deny a request by
most wireless companies to place transmission facilities in residential
communities
162
<PAGE> 172
and business districts, and give the Federal Communications Commission the
authority to preempt the states in some circumstances.
The laws require some telecommunications companies, including PageNet and
Arch, to modify the design of their equipment or services to ensure that
electronic surveillance or interceptions can be performed. Technical parameters
applicable to the messaging industry have been established but not acknowledged
by all governmental bodies to date. Therefore, neither PageNet nor Arch can
determine at this time what compliance measures will be required or the costs
thereof. In addition, the Federal Communications Commission has instituted
proceedings addressing the manner in which telecommunications carriers are
permitted to jointly market certain types of services, and the manner in which
telecommunications carriers render bills for these services. Depending on the
outcome of these proceedings, PageNet, Arch, and other telecommunications
carriers could incur higher administration and other costs in order to comply.
State Regulation
In addition to potential regulation by the Federal Communications
Commission, some states have the authority to regulate messaging services,
except where such regulation affects or relates to the rates charged to
customers and/or the ability of companies like Arch or PageNet to enter a
market. Such regulations have been preempted by the federal communications laws.
States may petition the Federal Communications Commission for authority to
continue to regulate commercial mobile radio service rates if certain conditions
are met. State filings seeking rate authority have all been denied by the
Federal Communications Commission, although new petitions seeking such authority
may be filed in the future. Furthermore, some states and localities continue to
exert jurisdiction over (1) approval of acquisitions of assets and transfers of
licenses of mobile wireless systems and (2) resolution of consumer complaints.
PageNet and Arch believe that to date all required filings for their respective
messaging operations have been made. All state approvals of acquisitions or
transfers made by PageNet and Arch have been approved, and neither PageNet nor
Arch knows of any reason to believe such approvals will not continue to be
granted in connection with any future requests, even if states exercise that
review.
The laws do not preempt state regulatory authority over other aspects of
PageNet's and Arch's operations, and some states may choose to exercise such
authority. Some state and local governments have imposed additional taxes or
fees upon some of the activities in which PageNet and Arch are engaged. In
addition, the construction and operation of radio transmitters may be subject to
zoning, land use, public health and safety, consumer protection and other state
and local taxes, levies and ordinances. As noted above, the Federal
Communications Commission may delegate to the states authority over telephone
number allocation and assignment.
163
<PAGE> 173
ARCH'S BUSINESS
Arch is a leading provider of wireless communications services in the
United States. Arch has established a market presence in major metropolitan
markets as well as in middle and small markets. In addition, Arch's third-party
retail distribution agreements complement the more than 375 Arch-operated retail
outlets. Similarly, Arch's nationwide coverage utilizing two paging frequencies
enables Arch to provide its services on a nationwide basis to more subscribers.
Arch's nationwide coverage also enhances Arch's local coverage and provides an
opportunity for Arch to take advantage of Arch's distribution networks.
Arch's plan to deploy its nationwide narrowband PCS spectrum using its
existing network infrastructure, together with its strategic alliances, should
permit Arch to market narrowband PCS services, including advanced messaging
services, sooner than it would otherwise be able to. These services are expected
to offer higher revenue and more growth potential than basic messaging services.
Finally, Arch's investments to date in two national call centers and additional
regional call centers should supplement its previously developed call center and
complement its strategy of evolving to regional customer service centers.
Achieving these intended benefits, however, will depend on a number of factors
and no assurance can be given that the benefits will be realized, in whole or in
part. See "Arch Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "-- Networks and Licenses".
The expected effects of the PageNet merger on Arch's business are described
under "The Combined Company -- Business".
BUSINESS STRATEGY
Arch's strategic objective is to strengthen its position as one of the
leading providers of wireless communications services in the United States and
at the same time begin to position itself to remain competitive in the rapidly
expanding wireless communications market which now includes major
telecommunications companies such as MCI/Worldcom, AT&T and SBC Communications.
Arch is committed to continuing to provide high-quality service to its
current customers while at the same time working to expand the wireless
communications choices it provides them. Arch has already begun to offer
advanced messaging services and seeks to continue that development. Arch has
recognized that in order to fully serve its current customers it will need to
have a strong presence in the narrowband PCS market which will allow it to
expand its present offerings even further. The wireless communications industry
is expected to continue to change and Arch seeks to position itself to offer
wireless communication options that are broad enough to meet the needs of most
potential customers. At the same time, Arch recognizes the need to offer a good
value to customers, letting them utilize the services they need at economical
prices. This means providing its messaging services on a local, regional and
nationwide basis so that customers can choose the type of coverage that they
require. Arch is aggressively seeking cost savings and working to continue to
operate more efficiently.
Operating Strategy. Arch's operating objectives are to increase its
adjusted earnings before interest, income taxes, depreciation and amortization,
deploy its capital efficiently, reduce its financial leverage and expand its
customer relationships. Arch will pursue the following strategies to achieve its
operating objectives:
- Low-Cost Operating Structure. Arch has selected a low-cost
operating strategy as its principal competitive tactic. Management believes
that a low-cost operating structure, compared to differentiated premium
pricing and niche positioning, the other two fundamental competitive
tactics in the wireless communications industry, will maximize its
flexibility to offer competitive prices while still achieving target
margins and adjusted earnings before interest, income taxes, depreciation
and amortization. Arch will continue to improve its low-cost operating
structure by consolidating some operating functions, including centralized
purchases from key vendors, to achieve economies of scale, and installing
technologically advanced and reliable transmission systems.
164
<PAGE> 174
- Efficient Capital Deployment. Arch's principal financial objective
is to reduce financial leverage by reducing capital requirements and
increasing adjusted earnings before interest, income taxes, depreciation
and amortization. To reduce capital expenditures, Arch has already
implemented a company-wide focus on the sale, rather than lease, of pagers.
This is because subscriber-owned units require a lower level of capital
investment than company-owned units.
- Balanced Distribution. Arch's combination of direct sales,
company-owned stores and third party resellers are supplemented by its
local market direct sales force and its distribution agreements with
third-party regional and national retailers. In addition, Arch's national
accounts sales force is enabling Arch to improve distribution to nationwide
customers.
- Capitalize on Revenue Enhancement Opportunities. Arch has one of
the broadest product offerings in the industry, including messaging
services, advanced messaging services and enhanced wireless communications
services such as wireless e-mail and content delivery services. Arch has
entered into a strategic alliance with Weblink Wireless, formerly known as
PageMart Wireless, to accelerate delivery of these new services, utilizing
portions of Weblink Wireless' narrowband PCS network in conjunction with
Arch's own network while sharing specified costs with Weblink Wireless.
This will provide Arch with more economical and broader access to higher
average revenue per unit nationwide, regional or text messaging services.
To date, Arch has marketed these services only on a limited basis through
the resale of other carriers' services on less attractive terms. Arch
believes there will be a number of new revenue opportunities associated
with its approximately 6.9 million units in service, including selling
enhanced services which add value such as voice mail, resale of long
distance service and fax storage and retrieval. See "-- Wireless
Communications Services, Products and Operations" and "-- Networks and
Licenses".
Arch's strategic plans following the PageNet merger are described under
"The Combined Company -- Strategy".
WIRELESS COMMUNICATIONS SERVICES, PRODUCTS AND OPERATIONS
Arch provides wireless messaging services and advanced messaging services.
Arch operates in all 50 states and the District of Columbia and in each of the
100 largest markets in the United States. Arch offers these services on a local,
regional and nationwide basis employing digital networks covering more than 90%
of the United States population.
The following table sets forth information about the approximate number of
units in service with Arch subscribers and net increases in number of units
through internal operations and acquisitions since 1995:
<TABLE>
<CAPTION>
NET INCREASE
UNITS IN SERVICE (DECREASE) IN INCREASE IN UNITS UNITS IN SERVICE
AT BEGINNING OF UNITS THROUGH THROUGH AT END OF
YEAR ENDED DECEMBER 31, PERIOD INTERNAL OPERATIONS(1) ACQUISITIONS(2) PERIOD
- ----------------------- ---------------- ---------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
1995...................... 538,000 366,000 1,102,000 2,006,000
1996...................... 2,006,000 815,000 474,000 3,295,000
1997...................... 3,295,000 595,000 -- 3,890,000
1998...................... 3,890,000 386,000 -- 4,276,000
1999...................... 4,276,000 (89,000) 2,762,000 6,949,000
</TABLE>
Net increase (decrease) in units through internal operations includes
internal changes from acquired paging businesses after their acquisition by Arch
and is net of subscriber cancellations during each applicable period. Increase
in units through acquisitions is based on units in service of acquired paging
businesses at the time of their acquisition by Arch.
Numeric paging service, which was introduced by the paging industry nearly
20 years ago, currently represents a majority of all units in service. The
growth of alphanumeric paging service, which was introduced in the mid-1980s,
has been constrained by its difficulties, such as inputting data, specialized
165
<PAGE> 175
equipment requirements and its relatively high use of system capacity during
transmission, which has, to some extent, been relieved by deploying alternate
communications pathways, such as the Internet.
The following table summarizes the types of Arch's units in service at
specified dates:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
--------------- --------------- ---------------
UNITS % UNITS % UNITS %
<S> <C> <C> <C> <C> <C> <C>
Local Numeric.............................. 3,284,000 85% 3,586,000 84% 5,299,000 76%
Local Alphanumeric......................... 524,000 13 621,000 14 1,215,000 18
Tone-only.................................. 82,000 2 69,000 2 48,000 1
Nationwide Numeric......................... -- -- -- -- 219,000 3
Nationwide Alphanumeric.................... -- -- -- -- 168,000 2
--------- --- --------- --- --------- ---
Total............................. 3,890,000 100% 4,276,000 100% 6,949,000 100%
========= === ========= === ========= ===
</TABLE>
Arch provides messaging service to subscribers for a monthly fee.
Subscribers either lease the unit from Arch for an additional fixed monthly fee
or they own the unit, having purchased it either from Arch or from another
vendor. Arch-owned units leased to subscribers require capital investment by
Arch, while customer-owned and maintained units, commonly referred to as COAM
units, and those owned by resellers do not. The monthly service fee is generally
based upon the type of service provided, the geographic area covered, the number
of units provided to the customer and the period of the subscriber's commitment.
Subscriber-owned units provide a more rapid recovery of Arch's capital
investment than units owned and maintained by Arch, but may generate less
recurring revenue. Arch also sells units to third-party resellers who lease or
resell units to their own subscribers and resell Arch's wireless messaging
services under marketing agreements. Resellers are responsible for sales,
billing, collection and equipment maintenance costs. Arch sells other products
and services, including units and accessories and unit replacement and
maintenance contracts. The following table summarizes the number of Arch-owned
and leased, subscriber-owned and reseller-owned units in service at specified
dates. Although the following table reflects an increase in Arch-owned and
leased units, this increase is due to Arch's acquisition of MobileMedia in 1999.
MobileMedia had a customer base that had proportionately larger accounts that
negotiated for leased units rather than subscriber-owned units:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
--------------- --------------- ---------------
UNITS % UNITS % UNITS %
<S> <C> <C> <C> <C> <C> <C>
Arch-owned and leased...................... 1,740,000 45% 1,857,000 43% 3,605,000 52%
Subscriber-owned........................... 1,087,000 28 1,135,000 27 1,518,000 22
Reseller-owned............................. 1,063,000 27 1,284,000 30 1,826,000 26
--------- --- --------- --- --------- ---
Total............................. 3,890,000 100% 4,276,000 100% 6,949,000 100%
========= === ========= === ========= ===
</TABLE>
Arch provides enhanced wireless communications services such as voice mail,
wireless information delivery services, personalized greetings, message storage
and retrieval, pager loss protection and pager maintenance services. Voice mail
allows a caller to leave a recorded message that is stored in Arch's
computerized message retrieval center. When a message is left, the subscriber
can be automatically alerted through the subscriber's pager and can retrieve the
stored message by calling Arch's paging terminal. Personalized greetings allow
the subscriber to record a message to greet callers who reach the subscriber's
pager or voice mail box. Message storage and retrieval allows a subscriber who
leaves Arch's service area to retrieve calls that arrived during the
subscriber's absence from the service area. Pager loss protection allows
subscribers who lease pagers to limit their costs of replacement upon loss or
destruction of a pager. Pager maintenance services are offered to subscribers
who own their own equipment. Wireless information delivery allows subscribers to
receive stock quotes, news and weather through their Arch service. Arch is also
in the process of test marketing various other services that add value, and can
be integrated with existing paging services.
166
<PAGE> 176
NETWORKS AND LICENSES
Arch operates local, regional and national networks which enable its
customers to receive pages over a broad geographic area. Many of these networks
were acquired in the MobileMedia acquisition. Arch's extensive geographic
coverage may be attractive to large corporate clients and retail chains which
frequently demand national network coverage from their paging service provider.
Arch's networks provide local, regional and national coverage and its
networks operate over numerous frequencies. Although the capacity of Arch's
networks varies significantly market by market, Arch has an adequate amount of
spectrum licensed to meet the capacity demands of projected growth for the next
several years.
Arch is seeking to improve overall network efficiency by deploying paging
terminals, consolidating subscribers on fewer, higher capacity networks and
increasing the transmission speed, or baud rate, of certain of its existing
networks. Arch believes its investments in its network infrastructure will
facilitate and improve the delivery of high quality communications services
while at the same time reducing associated costs of such services.
Nationwide Wireless Networks
Arch operates two nationwide 900 MHz networks. As part of its acquisition
of MobileMedia, Arch acquired MobileMedia's fully operational nationwide
wireless "8875" network, which was upgraded in 1996 to incorporate high-speed
FLEX(TM) technology developed by Motorola. In addition, in 1996, MobileMedia
completed the construction of a second nationwide "5375" network that uses
FLEX(TM) technology. The use of FLEX(TM) technology significantly increases
transmission capacity and represents a marked improvement over other systems
that use older paging protocols.
Narrowband PCS Networks and Licenses
Narrowband PCS networks enable wireless communications companies to offer
advanced messaging services and to make more efficient use of radio spectrum
than do traditional paging networks. Arch has taken the following steps to
position itself to participate in new and emerging narrowband PCS applications.
Arch's Narrowband Personal Communications Services Licenses. MobileMedia
purchased five regional licenses through the Federal Communications Commission's
1994 auction of narrowband PCS licenses, providing the equivalent of a
nationwide 50 kHz outbound/12.5 kHz inbound narrowband PCS system. In addition,
MobileMedia acquired a second narrowband PCS license for a nationwide inbound
system. In order to retain these narrowband PCS licenses, Arch must comply with
specified minimum build-out requirements. With respect to each of the regional
narrowband PCS licenses purchased at the Federal Communication Commission's 1994
auction, Arch has built out the related narrowband PCS system to cover 150,000
sq. km. or 37.5% of each of the five regional populations in compliance with the
Federal Communications Commission's applicable build-out requirements. Arch is
still required to build-out this system to cover 300,000 sq. km. or 75% of each
of the five regional populations by April 27, 2005. With respect to the
nationwide narrowband PCS license acquired as part of the MobileMedia
acquisition, Arch built out the related narrowband system to cover 750,000 sq.
km. or 37.5% of the U.S. population by September 29, 1999 in compliance with
applicable Federal Communications Commission build-out requirements. Arch is
still required to extend the build-out of this system to cover 1,500,000 sq. km.
or 75% of the U.S. population by September 29, 2004. In each instance, the
population percentage will be determined by reference to population figures at
the time of the applicable deadline. Arch estimates that the costs of these
minimum build-outs would be approximately $9.0 million; however, Arch may exceed
these minimum build-out requirements in order to be able to provide nationwide
narrowband PCS. If Arch chooses to exceed its minimum narrowband PCS build-out
requirements, Arch estimates that the costs will exceed $9.0 million.
167
<PAGE> 177
Strategic Alliances. Arch has entered into strategic alliances which it
believes provide it with an economical means to launch and offer narrowband PCS
services, including advanced messaging services, to its customers by leveraging
its own network with those of its strategic partners while it assesses the
extent it will expand its network. Arch believes that its reseller agreement
with Weblink Wireless, Inc., formerly PageMart Wireless, Inc., together with its
agreement with PageNet, provides it with access to additional spectrum to
accommodate customer demands for higher volume and bandwidth. Arch currently
estimates that the total amount of future cash expenditures for its narrowband
PCS network requirements through 2003 with Weblink and its reseller agreement
with PageNet, including expenditures for network expansion as well as
commitments under its strategic alliances, will approximate $50 million.
SUBSCRIBERS AND MARKETING
Arch's wireless communications accounts are generally businesses with
employees who travel frequently but must be immediately accessible to their
offices or customers. Arch's subscribers include proprietors of small
businesses, professionals, management personnel, field sales personnel and
service forces, members of the construction industry and construction trades,
real estate brokers and developers, medical personnel, sales and service
organizations, specialty trade organizations, manufacturing organizations and
governmental agencies.
Arch markets its services through three primary sales channels: direct,
reseller and retail.
Direct. In the direct channel, Arch leases or sells equipment directly to
its customers and bills and services such customers. Arch markets its services
through a direct marketing and sales organization which operated approximately
375 retail stores as of December 31, 1999. Arch's direct customers range from
individuals and small-and medium-sized businesses to Fortune 500 accounts and
government agencies. Business and government accounts typically experience less
turnover than consumer accounts. The direct channel will continue to have the
highest priority among Arch's marketing and sales efforts, because of its
critical contribution to recurring revenue and projected growth. Arch has been
engaged in efforts to improve sales productivity and strengthen its direct
channel sales force, segments of which had previously suffered from high
turnover and open positions under MobileMedia's ownership and management. In
addition, Arch commenced implementing consumer direct marketing techniques in
1998. As of December 31, 1999, the direct channel accounted for approximately
86.6% of recurring revenue.
Reseller. In the reseller channel, Arch sells access to its transmission
networks in bulk to a third party, who then resells such services to consumers
or small businesses or other end users. Arch offers access to its network to
resellers at bulk discounted rates. The third party reseller provides customer
service, is responsible for pager maintenance and repair costs, invoices the end
user and retains the credit risk of the end user, although Arch retains the
credit risk of the reseller. Because resellers are responsible for customer
equipment, the capital costs that would otherwise be borne by Arch are reduced.
Arch's resellers generally are not exclusive distributors of Arch's
services and often have access to networks of more than one provider.
Competition among service providers to attract and maintain reseller
distribution is based primarily upon price, including the sale of equipment to
resellers at discounted rates. Arch intends to continue to be an active
participant in the reseller channel and to concentrate on accounts that are
profitable and where longer term partnerships can be established with selected
resellers. As of December 31, 1999, the reseller channel accounted for
approximately 8.4% of recurring revenue.
Retail. In the retail channel, Arch sells equipment to retailers and,
after the consumer purchases the pager from the retailer, the consumer contacts
Arch to activate service. The retail channel is targeted at the consumer market
and consists primarily of national retail chains. Consumers served by the retail
channel typically purchase, rather than lease, equipment. This reduces Arch's
capital investment requirements. Subscribers obtained through retailers are
billed and serviced directly by Arch. Retail distribution permits Arch to
penetrate the consumer market by supplementing direct sales efforts. As of
December 31, 1999, the retail channel accounted for approximately 5.0% of
recurring revenue.
168
<PAGE> 178
SOURCES OF EQUIPMENT
Arch does not manufacture any of the messaging equipment or other equipment
used in operations. The equipment used in Arch's paging operations is generally
available for purchase from multiple sources. Arch centralizes price and
quantity negotiations for all of its operating subsidiaries to achieve cost
savings from volume purchases. Arch buys customer equipment primarily from
Motorola, NEC and Panasonic and purchased terminals and transmitters primarily
from Glenayre and Motorola. Motorola has announced its intention to discontinue
manufacturing transmitters and other paging infrastructure during 2000, although
it will continue to maintain and service existing infrastructure into the
future. Arch anticipates that equipment will continue to be available in the
foreseeable future, consistent with normal manufacturing and delivery lead
times.
Because of the high degree of compatibility among different models of
transmitters, computers and other equipment manufactured by suppliers, Arch is
able to design its systems without being dependent upon any single source of
such equipment. Arch routinely evaluates new developments in technology in
connection with the design and enhancement of its paging systems and selection
of products to be offered to subscribers. Arch believes that its system
equipment is among the most technologically sophisticated in the paging
industry.
COMPETITION
The wireless communications industry is highly competitive. Companies in
this industry compete on the basis of price, coverage area offered to
subscribers, available services offered, transmission quality, system
reliability and customer service.
Arch competes by maintaining competitive pricing of its products and
services, by providing broad coverage options through high-quality, reliable
transmission networks and by furnishing subscribers a superior level of customer
service. Arch, the second largest messaging carrier in the United States, offers
messaging services, advanced messaging services and enhanced, or complementary,
wireless communication services such as voice mail and voice mail notifications,
news, sports, weather reports, stock quotes and other information delivery
services. Arch's primary competitors in the messaging market include Metrocall,
Vodafone/AirTouch and Weblink Wireless, all of which are among the top eight
largest paging carriers in the United States and offer highly similar services.
The products and services Arch offers also compete with a broad array of
wireless communications services provided by cellular and PCS phone companies.
This competition has intensified as prices for these services have declined
rapidly, and these providers have incorporated messaging capability into their
handsets. Even people who recognize the advantages of traditional messaging may
discontinue subscription to these services in favor of subscription to a single
device which incorporates both traditional voice and messaging services. Many of
these companies possess financial, technical and other resources greater than
those of Arch. Such providers currently competing with Arch in one or more
markets include AT&T Wireless, SBC BellSouth, MCI/WorldCom/SkyTel, Sprint PCS,
Vodafone/AirTouch/Bell Atlantic (now called Verizon) and Nextel.
The number of new subscribers to cellular, PCS and other mobile phone
services continues to increase each year. By one analyst's estimates, there were
a total of over 86 million such subscribers in the U.S. at the end of 1999. This
estimate reflects an increase of approximately 25 percent over the approximately
69 million subscribers estimated at the end of 1998. This trend is expected to
continue. The same analysts predict an average annual subscriber growth rate of
approximately 13% through the year 2003 for this segment of the wireless
communications industry.
With regard to the messaging market, analysts estimate a total of 44.7
million subscribers to basic numeric and alphanumeric paging services in the
United States at the end of 1999. This estimate reflects an increase in
approximately 5 percent over the approximately 43 million subscribers at the end
of 1998. This growth rate reflects a significant decline from earlier growth
rates. Arch projects that the total number of subscribers of traditional paging
services will decline each year hereafter through 2003 at an average rate of 5%
per year. The subscriber growth rates for basic messaging service are expected
to continue this decline in the future. It is hoped that advanced messaging
services will account for significant
169
<PAGE> 179
future subscriber growth. PageNet and Arch are committed to expanding their
service offerings, especially their advanced messaging services, to ensure that
their services remain competitive under rapidly changing market conditions.
Insofar as cellular, PCS and other mobile phone service providers provide
subscribers with both messaging and voice service using the same hand-held
device, services like cellular and PCS are more sophisticated than basic
messaging services and command a greater price. The price of cellular and PCS
and other mobile phone services, however, has fallen dramatically. The decline
in price of these services is reflected in the decline of the average monthly
bill for cellular and PCS services from $43.86 in June 1997 to $40.24 in June
1999. Moreover, today many cellular and PCS providers offer basic service
packages for approximately $20 per month. By contrast, the average revenue per
unit for pagers is estimated to be $9.25 per month in mid-1999.
While cellular, PCS and other mobile phone services are more expensive than
basic messaging services, such mobile telephone service providers typically
provide messaging service as an element of their basic service package without
additional charges. Subscribers that purchase these combined services no longer
need to subscribe to a separate messaging service as well. As a result, a large
number of messaging customers can readily switch from messaging to cellular, PCS
and other mobile telephone services. The dramatic decrease in prices for
cellular, PCS and other mobile telephone services has led many customers to
select combined voice and messaging services as an alternative to stand alone
messaging services. Indeed, survey data indicates that roughly 20 percent of
paging customers that drop their service do so in favor of cellular, PCS and
other mobile phone services. PageNet and Arch are sensitive to these
technological and availability changes and are working to design competitively
attractive values for the customer even in the midst of these changes by
cellular, PCS and other mobile phone service providers.
EMPLOYEES
At March 31, 2000, Arch employed approximately 4,900 persons. None of
Arch's employees is represented by a labor union. Arch believes that its
employee relations are good.
TRADEMARKS
In May 1997, Arch established a single national identity, Arch Paging, for
its paging services which previously had been marketed under various trademarks.
In addition, Arch adopted a new corporate logo, developed a corporate-wide
positioning strategy tied to customer service delivery, and launched its
Internet Web site at www.arch.com. At present, Arch has continued to market to
former MobileMedia customers under the MobileComm and MobileMedia brand names,
but is working to transition its marketing under the Arch name.
Arch owns the service marks "Arch," "Arch Paging" and "Arch
Communications", and holds federal registrations for the service marks
"MobileComm" and "MobileMedia" as well as various other trademarks.
PROPERTIES
At March 31, 2000, Arch owned 10 office buildings and leased office space,
including its executive offices, in approximately 375 locations in 42 states for
use in its paging operations. Arch leases transmitter sites and/or owns
transmitters on commercial broadcast towers, buildings and other fixed
structures in approximately 4,800 locations in all 50 states, the U.S. Virgin
Islands and Puerto Rico. Arch's leases are for various terms and provide for
monthly lease payments at various rates. Arch believes that it will be able to
obtain additional space as needed at acceptable cost. Substantially all of
Arch's and MobileMedia's tower sites were sold during 1998 and 1999 and Arch
currently rents transmitter space.
170
<PAGE> 180
LITIGATION
Arch, from time to time, is involved in lawsuits arising in the normal
course of business. Arch believes that its currently pending lawsuits will not
have a material adverse effect on its financial condition or results of
operations.
THE COMPANY
A predecessor to Arch, also named Arch Communications Group, Inc., was
incorporated in January 1986 in Delaware and conducted its operations through
wholly owned direct and indirect subsidiaries. On September 7, 1995, this
predecessor completed its acquisition of USA Mobile Communications Holdings,
Inc. through the merger of the predecessor with and into USA Mobile, which
simultaneously changed its name to Arch Communications Group, Inc. and continued
in existence as a Delaware corporation. See Note 2 to Arch's consolidated
financial statements. On June 3, 1999, Arch acquired the business of
MobileMedia, which was then operating as a debtor-in-possession under chapter 11
of the Bankruptcy Code.
171
<PAGE> 181
ARCH'S MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Arch are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Chairman of the Board, Chief Executive Officer and
C. Edward Baker, Jr.................. 49 Director
Lyndon R. Daniels.................... 47 President and Chief Operating Officer
John B. Saynor....................... 59 Executive Vice President and Director
J. Roy Pottle........................ 41 Executive Vice President and Chief Financial Officer
Executive Vice President/Technology and Regulatory
Paul H. Kuzia........................ 58 Affairs
Edwin M. Banks(2).................... 37 Director
R. Schorr Berman(2).................. 51 Director
James S. Hughes(1)................... 57 Director
John Kornreich....................... 54 Director
H. Sean Mathis(1).................... 53 Director
Allan L. Rayfield(2)................. 64 Director
John A. Shane(1)..................... 67 Director
</TABLE>
- ---------------
(1) Member of the audit committee
(2) Member of the executive compensation and stock option committee
C. EDWARD BAKER, JR. has served as Chief Executive Officer and a director
of Arch since 1988. Mr. Baker became Chairman of the Board of Arch in 1989. He
also served as President of Arch from 1988 to January 1998. From 1986 until
joining Arch in March 1988, Mr. Baker was President and Chief Executive Officer
of US West Paging.
LYNDON R. DANIELS joined Arch in January 1998 as President and Chief
Operating Officer. From November 1993 to January 1998, Mr. Daniels was the
President and Chief Executive Officer of Pacific Bell Mobile Services, a
subsidiary of SBC Communications Inc. From May 1988 until November 1993, Mr.
Daniels was the Chief Financial Officer of Pactel Corp., a mobile telephone
company.
JOHN B. SAYNOR has served as a director of Arch since 1986. Mr. Saynor has
served as Executive Vice President of Arch since 1990. Mr. Saynor is a founder
of Arch and served as President and Chief Executive Officer of Arch from 1986 to
March 1988 and as Chairman of the Board from 1986 until May 1989.
J. ROY POTTLE joined Arch in February 1998 as Executive Vice President and
Chief Financial Officer. From October 1994 to February 1998, Mr. Pottle was Vice
President/Treasurer of Jones Intercable, Inc., a cable television operator. From
September 1989 to October 1994, he served as Vice President and Relationship
Manager at The Bank of Nova Scotia, New York Agency.
PAUL H. KUZIA has served as Executive Vice President/Technology and
Regulatory Affairs of Arch since September 1996. He served as Vice
President/Engineering and Regulatory Affairs of Arch from 1988 to September
1996. Prior to 1988, Mr. Kuzia was director of operations at Message Center Inc.
EDWIN M. BANKS has been a director of Arch since June 1999. He has been
employed by W.R. Huff Asset Management since 1988 and currently serves as a
portfolio manager. From 1985 until he joined W.R. Huff, Mr. Banks was employed
by Merrill Lynch & Company. Mr. Banks also serves as a director of Magellan
Health Services, formerly Charter Medical Corporation, and e.spire Corporation,
formerly American Communications Services, Inc.
R. SCHORR BERMAN has been a director of Arch since 1986. Since 1987, he has
been the President and Chief Executive Officer of MDT Advisers, Inc., an
investment adviser. He is a director of Mercury Computer Systems, Inc. as well
as a number of private companies.
172
<PAGE> 182
JAMES S. HUGHES has been a director of Arch since 1986. Since 1987, he has
been President and Chief Executive Officer of Norwich Corporation, a real estate
investment and service firm, and, since 1992, he has served as President and
Managing Director of Inventa Corporation, an international business development
firm.
JOHN KORNREICH has been a director of Arch since June 1998. Mr. Kornreich
has served as a Managing Director of Sandler Capital Management Co., Inc. since
1988.
H. SEAN MATHIS has been a director of Arch since June 1999. He also has
been the President of Litchfield Asset Holdings, an investment advisory company,
since 1999. He was also the Chairman of the Board and Chief Executive Officer of
Allis Chalmers, Inc. from January 1996 to 1999 and previously served as a Vice
President of that company since 1989. From July 1996 to September 1997, Mr.
Mathis was Chairman of the Board of Universal Gym Equipment Inc., a privately
owned company which filed for protection under the Bankruptcy Code in July 1997.
From 1991 to 1993, Mr. Mathis was President of RCL Acquisition Corp., and from
1993 to 1995 he was President and a director of RCL Capital Corporation, which
was merged into DISC Graphics in November 1995. Previously, Mr. Mathis was a
director and Chief Operating Officer of Ameriscribe Corporation. Mr. Mathis is a
director of Kasper A.S.L. Ltd. and Thousand Trails, Inc.
ALLAN L. RAYFIELD has been a director of Arch since 1997. He has been a
consultant with the Executive Service Corps, a non-profit organization that
provides consulting services to non-profit organizations, since 1995. From
November 1993 until December 1994, Mr. Rayfield served as Chief Executive
Officer of M/A Com Inc., a microwave electrical manufacturing company. From
April 1991 until November 1993, he served as Chief Operating Officer of M/A Com
Inc. He is a director of Parker Hannifin Corporation and Acme Metals
Incorporated.
JOHN A. SHANE has been a director of Arch since 1988. He has been the
President of Palmer Service Corporation since 1972. He was a general partner of
Palmer Partners L.P., a venture capital firm, from 1981 to 1999. He serves as a
director of Overland Data, Inc., United Asset Management Corporation and Gensym
Corporation and as a trustee of Nvest Funds.
Arch's certificate of incorporation and by-laws provide that Arch has a
classified board of directors composed of three classes, each of which serves
for three years, with one class being elected each year. The term of Messrs.
Saynor, Shane and Mathis will expire at Arch's annual meeting of stockholders to
be held in 2000. The term of Messrs. Baker, Berman and Kornreich will expire at
Arch's annual meeting of stockholders to be held in 2001. The term of Messrs.
Hughes, Rayfield and Banks will expire at Arch's annual meeting of stockholders
to be held in 2002.
Two of Arch's stockholders, W.R. Huff Asset Management and Whippoorwill
Associates, Inc., have the right to designate one member each for election to
Arch's board of directors. This right of designation will continue through 2002
for W.R. Huff and 2003 for Whippoorwill if the designating stockholder is still
entitled to cast at least 5% of all votes at an Arch stockholders' meeting, and
will continue afterwards if the designating stockholder is still entitled to
cast at least 10% of all such votes. Under this arrangement, Mr. Banks has been
designed by W.R. Huff and Mr. Mathis has been designed by Whippoorwill.
The holders of Series C preferred stock have the right, voting as a
separate class, to elect one member of Arch's board of directors, and such
director has the right to be a member of any committee of the board. Mr.
Kornreich is currently the director elected by the holders of Series C preferred
stock. This right of designation will terminate if less than 50% of the Series C
preferred stock remains outstanding.
Arch's officers are elected by the board of directors and hold office until
their successors are elected or until their earlier death, resignation or
removal.
Most of Arch's executive officers have entered into non-competition
agreements with Arch which provide that they will not compete with Arch for one
year following termination, or recruit or hire any other Arch employee for three
years following termination. See "Executive Compensation -- Executive Retention
Agreements".
173
<PAGE> 183
For a discussion of the expected effects of the merger, see "The Combined
Company -- Management."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Arch and three other entities have co-founded an offshore corporation to
pursue wireless messaging opportunities in Latin America. Arch and Mr. Hughes
each contributed $250,000 to this offshore corporation. Arch and Mr. Hughes made
subsequent investments of $200,000 and $50,000, respectively, in the offshore
corporation in 1999. Arch and Mr. Hughes currently own 15.4% and 12.4%,
respectively, of the offshore corporation. Arch plans to maintain narrowband PCS
licenses obtained by the offshore corporation in Chile, Argentina and Peru. The
investment required to maintain these licenses is estimated at $30,000. Arch and
other stockholders of the offshore corporation, including Mr. Hughes, are
expected to make additional investments to fund the costs to maintain the
licenses.
Arch's board of directors have approved loans from Arch to Mr. Baker. The
loans bear interest at 5%-9 1/2% annually. As of March 31, 2000, principal and
accrued interest of $387,800 was outstanding.
BOARD COMMITTEES
Arch's board of directors has an audit committee and an executive
compensation and stock option committee. The audit committee reviews the annual
consolidated financial statements of Arch and its subsidiaries before their
submission to Arch's board of directors and consults with Arch's independent
public accountants to review financial results, internal financial controls and
procedures, audit plans and recommendations. The audit committee also recommends
the selection, retention or termination of independent public accountants and
approves services provided by independent public accountants prior to the
provision of such services. The compensation committee recommends to Arch's
board the compensation of executive officers, key managers and directors and
administers Arch's stock option plans. Arch's board of directors has no standing
nominating committee.
INDEMNIFICATION AND DIRECTOR LIABILITY
Arch's certificate of incorporation eliminates the liability of its
directors for monetary damages for breaches of fiduciary duties, for
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions that involve intentional misconduct or a knowing
violation of law. The certificate of incorporation also requires Arch to
indemnify its directors and officers to the fullest extent permitted by the
Delaware corporations statute.
174
<PAGE> 184
SUMMARY COMPENSATION TABLE
The annual and long-term compensation of Arch's Chief Executive Officer and
other executive officers named below was as follows for the years ended December
31, 1997, 1998 and 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------- LONG-TERM
OTHER ANNUAL COMPENSATION
BONUS COMPENSATION --------------
NAME AND PRINCIPAL POSITION DURING 1999 YEAR SALARY $ $(1) ($)(2) OPTIONS (#)(3)
- --------------------------------------- ---- -------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
C. Edward Baker, Jr.......................... 1999 $434,337 $185,000 $ 4,163 150,000
Chairman, President and Chief Executive 1998 373,742 135,000 600 151,554(4)
Officer 1997 353,317 227,500 600 16,545
Lyndon R. Daniels............................ 1999 313,735 203,000 23,363(5) 91,667
President and Chief Operating Officer 1998 295,416 -- 113,905(5) 46,666
(joined Arch in January 1998)
J. Roy Pottle................................ 1999 228,896 140,000 2,317 66,666
Executive Vice President and Chief 1998 179,200 -- 99,304(5) 30,000
Financial Officer (joined Arch in February
1998)
John B. Saynor............................... 1999 161,667 44,092 1,490 20,000
Executive Vice President 1998 157,646 41,770 600 17,247(6)
1997 153,188 72,900 600 5,302
Paul H. Kuzia................................ 1999 190,163 64,480 3,373 41,666
Executive Vice President/Technology 1998 165,489 58,435 600 29,616(7)
and Regulatory Affairs 1997 157,633 77,400 600 5,629
</TABLE>
- ---------------
(1) Represents bonus paid in such fiscal year with respect to prior year.
(2) Represents Arch's matching contributions paid under Arch's 401(k) plan.
(3) No restricted stock awards or SARs were granted to any of the named
executive officers during the years ended December 31, 1997, 1998 or 1999.
(4) Includes options to purchase 136,563 shares granted as part of Arch's
January 16, 1998 option repricing program.
(5) Represents reimbursement for certain relocation costs and associated taxes.
(6) Includes options to purchase 11,968 shares granted as part of Arch's January
16, 1998 option repricing program.
(7) Includes options to purchase 23,229 shares granted as part of Arch's January
16, 1998 option repricing program.
EXECUTIVE RETENTION AGREEMENTS
Arch is a party to executive retention agreements with a total of 17
executives, including Messrs. Baker, Daniels, Kuzia, Pottle and Saynor.
Following the merger, the PageNet change of control severance plan will provide
similar severance arrangements for PageNet executives. See "PageNet's
Management".
The purpose of the executive retention agreements is to assure the
continued employment and dedication of the executives without distraction from
the possibility of a change in control of Arch as defined in the executive
retention agreements. The executive will be eligible to receive benefits if a
change in control occurs, and Arch terminates the executive's employment at any
time within the following 12 months except for cause, disability or death, or
the executive terminates employment for good reason,
175
<PAGE> 185
as defined in the executive retention agreements. Such benefits will include (1)
a lump sum cash severance payment equal to a specified multiple of the
executive's annual base salary in effect at the time of the change in control
plus a specified multiple of the executive's average annual bonus paid during
the previous three full calendar years, (2) payment of any accrued but unpaid
base salary plus any other amounts earned but unpaid through the date of
termination and (3) any amounts or benefits required to be paid or provided to
the executive or which the executive is eligible to receive following the
executive's termination under any plan, program, policy, practice, contract or
agreement of Arch. In addition, for up to 12 months after termination, Arch must
provide the executive with life, disability, accident and health insurance
benefits similar to those previously maintained until the executive becomes
reemployed with another employer and is eligible to receive substantially
equivalent benefits. The specified multiple of salary and bonus for Messrs.
Baker, Daniels, Kuzia, Pottle and Saynor is three, and the specified multiple
for the other executives is one or two. Good reason is defined to include, among
other things, a material reduction in employment responsibilities, compensation
or benefits. In the case of Mr. Baker, good reason includes his not becoming the
chief executive officer of any entity succeeding or controlling Arch.
STOCK OPTION GRANTS
The following options were granted to the five executive officers named in
the summary compensation table during 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
OPTIONS/SARS STOCK PRICE APPRECIATION
OPTIONS/SARS GRANTED TO EXERCISE OR FOR OPTIONS TERM(3)
GRANTED EMPLOYEE IN BASE PRICE EXPIRATION -------------------------
(#)(1) FISCAL YEAR ($/SHARE)(2) DATE 5% ($) 10% ($)
------------ ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker,
Jr. ................ 150,000 11.64% $7.8282 06/03/09 $738,467 $1,871,420
Lyndon R. Daniels..... 91,667 7.11 7.8282 06/03/09 451,287 1,143,650
J. Roy Pottle......... 66,666 5.17 7.8282 06/03/09 328,204 831,734
John B. Saynor........ 20,000 1.55 7.8282 06/03/09 98,462 249,523
Paul H. Kuzia......... 41,666 3.23 7.8282 06/03/09 205,126 519,831
</TABLE>
- ---------------
(1) Options generally become exercisable at a rate of 20% of the shares subject
to the option on each of the first five anniversaries of the date of grant.
(2) The exercise price is equal to the fair market value of common stock on the
date of grant.
(3) Amounts represent hypothetical gains that could be achieved for the options
if exercised at the end of the option terms. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from
the date the options were granted and are not intended to forecast future
appreciation of the price of the common stock. The named executive officers
will realize gain upon the exercise of these options only if there is an
increase in the price of common stock which benefits all Arch stockholders
proportionately.
176
<PAGE> 186
OPTION EXERCISES AND YEAR-END OPTION TABLE
The named executive officers exercised stock options during 1999 as
described below. They held the following stock options as of December 31, 1999:
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)
NAME (#) ($)(1) (#) ($)(2)
- ---- ----------- -------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr. .............. -- -- 72,959 228,595 -- --
Lyndon R. Daniels.................. -- -- 16,335 121,998 -- --
John B. Saynor..................... -- -- 6,706 30,541 -- --
J. Roy Pottle...................... -- -- 10,500 86,166 -- --
Paul H. Kuzia...................... -- -- 14,371 56,911 -- --
</TABLE>
- ---------------
(1) Represents the difference between the exercise price and the fair market
value of common stock on the date of exercise.
(2) Based on the fair market value of common stock on December 31, 1999 ($6.5938
per share) less the option exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of Arch's compensation committee are R. Schorr Berman,
Allan L. Rayfield and Edwin M. Banks. Messrs. Berman and Rayfield served on the
compensation committee throughout 1999, and Mr. Banks joined the compensation
committee upon his election as a director in August 1999.
C. Edward Baker, Jr., the chairman and chief executive officer of Arch,
makes recommendations and participates in discussions regarding executive
compensation, but he does not participate directly in discussions regarding his
own compensation. No current executive officer of Arch has served as a director
or member of the compensation committee (or other committee serving an
equivalent function) of any other entity that has an executive officer who
serves as a director of Arch or as a member of the compensation committee of
Arch.
177
<PAGE> 187
ARCH'S PRINCIPAL STOCKHOLDERS
The following table sets forth certain information about the beneficial
ownership of Arch's common stock by
- each person who is known by Arch to beneficially own more than 5% of its
outstanding shares of common stock;
- each current director of Arch;
- Arch's chief executive officer and the other named executive officers;
and
- all current directors and executive officers of Arch as a group.
The table provides information at May 10, 2000 and as adjusted to give
effect to the exchange offer, the PageNet merger and related transactions,
assuming that all of the outstanding discount notes and all of PageNet's
outstanding notes are tendered.
Beneficial ownership is determined in accordance with the rules of the SEC
based upon voting or investment power over the securities. The number of shares
of common stock outstanding that is used in calculating the percentage for each
listed person includes any shares that person has the right to acquire through
exercise of warrants or options within 60 days after May 5, 2000. These shares,
however, are not deemed to be outstanding for the purpose of calculating the
percentage beneficially owned by any other person.
Unless otherwise indicated, each person or entity listed in the table has
sole voting power and investment power, or shares such power with his spouse,
with respect to all shares of capital stock listed as owned by such person or
entity. The inclusion of shares in the table does not constitute an admission
that the named stockholder is a direct or indirect beneficial owner of the
shares.
The table assumes
- the conversion of Series C preferred stock into common stock at the
current conversion ratio of 7.0176 to 1.00; and
- the conversion of Class B common stock into common stock at a one-for-one
conversion ratio.
178
<PAGE> 188
Because Class B common stock is not entitled to vote in the election of
directors, the voting power of its holders is less than their percentages of
beneficial ownership shown in the table. Thus, the Class B stockholders
identified in notes (7) and (8) to the table would be entitled to cast a maximum
of 14.9% of the votes in the election of directors, assuming that they -- and
only they -- exercised outstanding options and warrants. This contrasts with the
more than 17.7% of beneficial ownership which is obtained by adding their
individual beneficial ownership percentages in the table.
<TABLE>
<CAPTION>
SHARES
UNDERLYING
OPTIONS AND
WARRANTS PERCENTAGE
SHARES EXERCISABLE -----------------
OUTSTANDING AT PRIOR TO TOTAL AT
MAY 5, JULY 4, BENEFICIALLY MAY 5, AS
NAME 2000 2000 OWNED 2000 ADJUSTED
- ---- -------------- ----------- ------------ ------ --------
<S> <C> <C> <C> <C> <C>
C. Edward Baker, Jr. ....................... 37,434 181,035 218,469 * *
Lyndon R. Daniels........................... 4,000 46,250 50,250 * *
John B. Saynor.............................. 64,642 123,827 188,469 * *
J. Roy Pottle............................... -- 26,834 26,834 * *
Paul H. Kuzia............................... 1,320 27,813 29,133 * *
R. Schorr Berman(2)......................... 655,671 1,140,948 1,796,619 2.4% 1.0%
James S. Hughes............................. 40,196 77,142 117,338 * *
John Kornreich(3)........................... 1,804,898 2,861,989 4,668,887 6.0% 2.5%
Allan L. Rayfield........................... 334 4,576 4,910 * *
John A. Shane(4)............................ 6,856 18,519 25,375 * *
Edwin M. Banks(5)........................... 8,345,429 569,002 8,914,431 11.7% 5.1%
H. Sean Mathis.............................. -- 1,000 1,000 * *
Sandler Capital Management(6)............... 1,724,019 2,722,110 4,416,796 5.7% 2.4%
W.R. Huff Asset Management Co., L.L.C.(7)... 8,345,429 568,002 8,913,431 11.8% 4.9%
Whippoorwill Associates, Inc.(8)............ 3,939,048 439,904 4,378,952 5.8% 2.4%
Funds affiliated with Resurgence Asset
Management(9)............................. 15,963,776 -- 15,963,776 21.3% 8.7%
Paul Tudor Jones II(10)..................... 4,136,799 126,716 4,262,975 5.7% 2.3%
Citigroup Inc.(11).......................... 6,097,031 -- 6,097,031 8.2% 3.3%
Bay Harbour Management, L.C................. 4,405,201 -- 4,405,201 5.9% 2.4%
State of Wisconsin Investment Board......... 602,776 3,125,556 3,728,332 4.8% 2.0%
All current directors and executive officers
of Arch as a group (12 persons)........... 10,960,780 5,078,935 16,039,715 20.1% 8.5%
</TABLE>
- ---------------
* Less than 1%
(1) Based upon ownership of Arch discount notes, PageNet common stock and
PageNet senior subordinated notes, to the extent Arch is aware of that
ownership.
(2) Includes 649,337 shares and 1,122,334 shares issuable upon exercise of
warrants held by Memorial Drive Trust, over which Mr. Berman may be deemed
to share voting and investment power as administrator and chief executive
officer of Memorial Drive Trust. Mr. Berman disclaims beneficial ownership
of such shares held by Memorial Drive Trust.
(3) Includes 1,724,019 shares and 2,722,110 shares issuable upon exercise of
warrants beneficially owned by Sandler Capital Management, over which Mr.
Kornreich may be deemed to have voting and investment power as managing
director, and 63,334 shares beneficially owned by two limited partnerships,
over which Mr. Kornreich may be deemed to have voting and investment power
as a general partner. Mr. Kornreich disclaims beneficial ownership of all
such shares.
179
<PAGE> 189
(4) Includes 351 shares and 606 shares issuable upon exercise of warrants owned
by Palmer Service Corporation, over which Mr. Shane may be deemed to have
voting and investment power as president and sole stockholder of Palmer
Service Corporation, 159 shares issuable upon conversion of $8,000
principal amount of Arch's 6 3/4% convertible subordinated debentures due
2003 held by Palmer Service Corporation, and 418 shares issuable upon
conversion of Arch's 6 3/4% convertible subordinated debentures held by Mr.
Shane.
(5) Includes 7,548,218 shares and 568,002 shares issuable upon exercise of
warrants W.R. Huff manages on behalf of various discretionary accounts and
1,306,134 shares held by The Huff Alternative Income Fund, L.P., an
affiliate of W.R. Huff. Mr. Banks is a portfolio manager of W.R. Huff. Mr.
Banks disclaims beneficial ownership of all such shares.
(6) Sandler has sole voting and investment power over 104,000 of such shares
and 171,116 of the shares issuable upon exercise of warrants and shared
voting and investment power over the remaining shares and warrants. As
managing director of Sandler, John Kornreich may be deemed to have voting
and investment power of all such shares.
(7) Includes 7,548,218 shares and 568,002 shares issuable upon exercise of
warrants W.R. Huff manages on behalf of various discretionary accounts and
1,306,139 shares held by The Huff Alternative Income Fund, L.P., an
affiliate of W.R. Huff. W.R. Huff disclaims beneficial ownership of these
shares.
(8) All of such shares are owned by various limited partnerships, a limited
liability company, a trust and third party accounts for which Whippoorwill
Associates, Inc. has discretionary authority and acts as general partner or
investment manager. This information is based on Amendment No. 2 to
Schedule 13D filed by Whippoorwill Associates, Inc. on February 29, 2000
and the Form 4 filed by Whippoorwill Associates, Inc. on March 10, 2000
with the Securities and Exchange Commission.
(9) Includes 6,928,466 shares beneficially owned by various funds for which
Resurgence Asset Management, L.L.C. acts as investment manager and/or
general partner, 3,997,554 shares beneficially owned by various funds for
which Resurgence Asset Management International L.L.C. acts as investment
manager and/or general partner, 4,127,398 shares beneficially owned by
various funds for which Re/Enterprise Asset Management, L.L.C. acts as
investment manager and/or general partner, 92,648 shares held by Kingstreet
Ltd., 241,915 shares held by Resurgence Parallel Fund, Inc., 35,560 shares
held by M.D. Sass Associates, Inc. Employees Profit Sharing Plan, 241,317
shares held by James B. Rubin, 154,972 shares held by Devonshire Capital
Partners, L.L.C., 127,041 shares held by J.B. Rubin & Company Profit
Sharing Plan, 6,992 shares held by Guadalupe G. Rubin IRA, 8,458 shares
held by James B. Rubin, IRA and 895 shares held by Resurgence Asset
Management L.L.C. Employee Retirement Plan. Resurgence Asset Management,
L.L.C., Resurgence Asset Management International L.L.C. and Re/Enterprise
Asset Management, L.L.C., may be deemed to beneficially own the shares held
by the funds for which each acts as investment manager and/or general
partner and each disclaims beneficial ownership of such shares. James B.
Rubin serves as chief investment officer and is responsible for the day-to
day investment activities of each of Resurgence Asset Management, L.L.C.,
Resurgence Asset Management International, L.L.C. and Re/Enterprise Asset
Management, L.L.C. This information is based on shares issued pursuant to
transactions described under "Arch Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources," and Amendment No. 1 to Schedule 13G filed by the funds
affiliated with Resurgence Asset Management with the Securities and
Exchange Commission on February 15, 2000.
(10) Includes 960,139 shares and 33,417 shares issuable upon exercise of
warrants held by Tudor BVI Futures, Ltd., 2,745,589 shares and 76,397
shares issuable upon exercise of warrants held by The Raptor Global
Portfolio Ltd., 10,650 shares held by The Alter Rock Fund, L.P., 204,346
shares and 8,181 shares issuable upon exercise of warrants held by The
Upper Mill Capital Appreciation Fund Ltd. and 216,075 shares and 8,181
shares issuable upon exercise of warrants held by Tudor Proprietary
Trading, L.L.C. Tudor Investment Corporation may be deemed to beneficially
own the
180
<PAGE> 190
shares held by Tudor BVI Futures, Ltd., The Raptor Global Portfolio Ltd.,
The Alter Rock Fund, Ltd. and The Upper Mill Capital Appreciation Fund Ltd.
because Tudor Investment Corporation is the sole general partner of The
Alter Rock Fund L.P. and provides investment advisory services to The
Raptor Global Portfolio Ltd., Tudor BVI Futures, Ltd. and The Upper Mill
Capital Appreciation Fund Ltd. Mr. Jones may be deemed to beneficially own
the shares held by Tudor Investment Corporation and Tudor Proprietary
Trading, L.L.C. because he is the indirect controlling equity holder of
Tudor Proprietary Trading, L.L.C. and the controlling stockholder of Tudor
Investment Corporation. This information is based on Amendment No. 1 to
Schedule 13G filed by Paul Tudor Jones, II and Tudor Investment Corporation
with the Securities and Exchange Commission on February 14, 2000.
(11) Includes 3,144,828 shares held by SSB Citi Fund Management LLC and
2,891,513 held by Salomon Smith Barney Inc. Citigroup Inc. may be deemed to
beneficially own all of these shares because Citigroup is the sole
stockholder of Salomon Smith Barney Holdings, Inc. Salomon Smith Barney
Holdings, Inc. is the sole stockholder of each of SSB Citi Fund Management
LLC and Salomon Brothers Holding Company Inc. Salomon Brothers Holding
Company Inc. is the sole stockholder of Salomon Smith Barney Inc. Citigroup
Inc. and Salomon Smith Barney Holdings Inc. each disclaim beneficial
ownership of all of these shares. This information is based on Amendment
No. 1 to Schedule 13G filed by Citigroup Inc. with the Securities and
Exchange Commission on February 8, 2000.
Each person or entity listed in the table has an address c/o Arch except for:
- Sandler Capital Management, 767 Fifth Avenue, 45th Floor, New York, New
York 10153
- W.R. Huff Asset Management Co., L.L.C. 67 Park Place, Ninth Floor,
Morristown, NJ 07960
- Paul Tudor Jones II, c/o Tudor Investment Corporation, 600 Steamboat
Road, Greenwich, CT 06830
- Whippoorwill Associates, Inc. 11 Martine Avenue, White Plains, New York
10606
- Resurgence Asset Management L.L.C., 10 New King Street, 1st Floor, White
Plains, New York 10604
- Citigroup Inc., 153 East 53(rd) Street, New York, New York 10043
- State of Wisconsin Investment Board, P.O. Box 7842, Madison, Wisconsin
53707
- Bay Harbour Management, L.C., 777 South Harbour Island Boulevard, Suite
270, Tampa, Florida 33602
181
<PAGE> 191
PAGENET'S BUSINESS
PageNet is a provider of wireless communications services throughout the
United States and in the U.S. Virgin Islands, Puerto Rico and Canada. It
provides services in all 50 states and the District of Columbia, including
service in the 100 most populated markets in the United States. PageNet also
owns a minority interest in a wireless communications company in Brazil.
The main services of PageNet are numeric and alphanumeric wireless
messaging services. Numeric pagers allow a subscriber to receive a numeric
message, such as a telephone number to call back or a pre-arranged code, and
alphanumeric pagers allow a subscriber to receive numeric and text messages. As
of December 31, 1999, numeric pagers represented approximately 83% of PageNet's
total units in service with subscribers and alphanumeric pagers represented
approximately 16% of PageNet's total units in service with subscribers. The
total units in service has grown from 4,409,000 at December 31, 1994 to
approximately 8,991,000 at December 31, 1999, representing a compounded annual
growth rate of approximately 15.3%. However, total units in service have
declined each quarter since their high of 10,604,000 at June 30, 1998 and are
expected to decline significantly in 2000. In addition, PageNet sells confirmed
receipt paging services, which enable subscribers to receive acknowledgements
that their messages were delivered, services which enable subscribers to respond
to messages with their messaging devices by using pre-scripted replies, and
send-and-receive services, which enable subscribers to initiate messages and to
respond to messages with their messaging devices by using pre-scripted replies
or by creating original replies. These services presently account for less than
1% of PageNet's total units in service. PageNet is currently developing other
applications for its wireless network through its wholly owned subsidiary, Vast,
as described more fully below.
STRATEGY AND RESTRUCTURING
In February 1998, PageNet announced its intention to refocus its strategy
from rapid expansion and subscriber growth towards profitable growth. The major
components of this realignment have included:
- restructuring and consolidation of its operations by eliminating
redundant administrative and support functions located in offices
throughout the country into centralized processing centers;
- completing the build-out of its new advanced messaging network, and
launching new, advanced messaging services for its customers;
- developing other applications for its network to provide "wireless
solutions" to customers;
- focusing PageNet's sales and marketing efforts on more profitable
services, such as alphanumeric and nationwide paging; and
- increasing prices of some services.
RESTRUCTURING OF OPERATIONS. In February, 1998, PageNet's board of
directors approved a restructuring of PageNet's domestic operations. PageNet's
restructuring plan called for the elimination of redundant administrative
operations by consolidating key support functions located in offices throughout
the country into centralized processing facilities. In addition, the
restructuring plan called for the conversion to new billing and customer service
software platforms. The restructuring plan specified local and regional office
closures, the disposition of certain furniture, fixtures, and equipment and the
termination of approximately 1,950 employees by job function and location. While
progress in establishing these centralized processing centers was made,
PageNet's efforts to convert its offices to its new billing and customer service
software platforms fell behind its original schedule of being completed during
the second quarter of 1999. Billing software and system implementation problems
surfaced during the first office conversions, and as a result, PageNet had to
postpone the conversion of many of its other offices. Additional implementation
problems surfaced during 1999 and caused further delays. In November 1999, and
in conjunction with the announcement of PageNet's planned merger with Arch,
PageNet decided to suspend the restructuring after January 2000 pending the
decision as to which operating platforms will be used by the combined company.
182
<PAGE> 192
PageNet has converted to its new billing and customer service software
platforms all of its customer units placed in service by its resellers and
approximately 50% of its direct customer units. However, due to the suspension
of the restructuring, combined with the impact of the contemplated merger on its
operations, PageNet is unable to determine the amount of future savings
resulting from the consolidation initiative.
COMPLETION OF ADVANCED MESSAGING NETWORK. On February 1, 2000, PageNet
launched its advanced messaging services. PageNet currently intends to invest
approximately $15 million in the network during 2000. This investment is
intended to complete the buildout of sites started in the fourth quarter of 1999
and expand capacity in certain cities throughout the nation during the first
half of 2000, and will substantially complete PageNet's investment in its
advanced messaging network.
DEPLOYMENT OF ADVANCED MESSAGING SERVICES AND "WIRELESS
SOLUTIONS." PageNet has been engaged in several efforts to develop additional
uses for its networks. In June 1999, PageNet consolidated its initiative to
develop advanced services, including wireless data and wireless solutions, into
Vast.
Vast is a development stage company and, since its inception, has been
engaged primarily in product research and development and developing markets for
its products and services. In 1999, Vast had only $1 million total revenue and
incurred an operating loss of approximately $36 million as a result of these
startup activities.
Through Vast, PageNet is commencing operations that can provide
comprehensive end-to-end wireless data solutions that connect corporate mobile
users with Internet or corporate data networks using wireless devices. Vast's
initial focus is on large businesses with mobile workforces. Vast intends to
host, deploy, operate and support its wireless solution for customers, allowing
them to outsource their wireless data operations and provide their mobile users
with continuous connectivity to enterprise applications. Vast is an active
member of the WAP Forum and intends to support new technologies and applications
based on emerging standards that support wireless communications.
Annex A to this prospectus describes Vast's business in detail.
REALIGNMENT OF SALES AND MARKETING STRUCTURE. PageNet has reviewed its
customers and prospects in each market in order to design a sales and marketing
structure that is more closely aligned with its customers' needs and with
PageNet's overall goal of having its customers move to higher revenue products.
This new sales structure, which was implemented in April 1999, enables PageNet
to sell a diversified portfolio of products to a sophisticated group of
customers. This structure includes account segmentation and focused selling
skills, career paths for all sales personnel, sales targets, training
curriculums for each selling group, and competitive compensation plans.
PRICE INCREASES. In an effort to improve the profitability of some of its
services, PageNet implemented price increases in late 1998 and 1999 to some of
its customers. As a result of these price increases, increased competition in
the marketplace for wireless communications services, and other factors,
PageNet's units in service have decreased each quarter from the third quarter of
1998 through the first quarter of 2000, and this trend is expected to continue
through 2000. PageNet experienced its first year-to-year increase in average
revenue per unit in 1998, although average revenue per unit has since declined
during the second, third, and fourth quarters of 1999. PageNet continues to
review its pricing structure for all of its services.
SALES AND DISTRIBUTION
PageNet's services are sold to its customers through both direct and
indirect distribution channels. The direct channel consists of selling services
to customers through local employee sales representatives who call on prospects
and customers or take orders at storefront locations, as well as sales completed
through PageNet's internet store. The indirect channel consists of selling
services to customers primarily through resellers. PageNet does not depend upon
any single subscriber or reseller for a significant portion of its net revenues.
183
<PAGE> 193
As of December 31, 1999, direct sales accounted for approximately 48% of
PageNet's overall units in service, and the indirect sales channel accounted for
approximately 52%. In the direct channel, PageNet charges a monthly fee and
either leases or sells its messaging devices to its customers. In the indirect
channel, PageNet provides services to resellers under marketing agreements at
wholesale service rates. PageNet sells or leases messaging devices to resellers,
who sell PageNet's services to end users. Resellers are typically responsible
for all costs associated with servicing their customers. However, in some cases,
resellers may contract with PageNet to provide billing and other customer
service functions.
MARKETING
PageNet promotes its products and services through a variety of programs,
including television, print, newspaper, yellow pages advertising, and co-op
programs with manufacturers and other third parties. Traditionally, PageNet has
focused its marketing efforts primarily on business users, who represent the
majority of its subscribers.
MESSAGING DEVICES AND TRANSMISSION EQUIPMENT
PageNet currently purchases messaging devices primarily from Motorola,
Inc., transmitters from Glenayre Technologies, Inc. and Motorola, and wireless
messaging terminals from Glenayre. Motorola has announced its intention to
discontinue manufacturing transmitters and other paging infrastructure during
2000, although it will continue to maintain and service existing infrastructure
into the future. PageNet believes that it will be able to continue to purchase
messaging devices from Motorola and other sources and be able to purchase paging
infrastructure from sources other than Motorola.
PageNet's technical functions include testing of new messaging devices and
transmission equipment, designing wireless transmission systems and installing
and maintaining transmitters to support PageNet's transmission system. Because
of the compatibility among different transmitters, computers, and other
messaging equipment, PageNet can design its systems without being dependent upon
any single supplier.
As of December 31, 1999, PageNet owned messaging devices having a net book
value of approximately $166 million.
INTERNATIONAL OPERATIONS
PageNet provides services in Canada similar to those offered in the United
States through its wholly owned subsidiary, Paging Network of Canada Inc.
PageNet has sales operations in Montreal, Ottawa, Quebec City, Toronto, and
Vancouver. PageNet services a geographic area containing more than 75% of the
population of Canada.
PageNet holds a minority interest in a wireless messaging company in
Brazil. PageNet, through its subsidiaries, also owns frequency licenses in the
United Kingdom, Argentina, and Chile. PageNet is currently considering options
to return these licenses to the regulatory bodies in each of these countries.
PageNet recorded a provision of $18 million during the first quarter of 1999 for
the impairment of the assets of its majority-owned Spanish subsidiaries in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. During the first quarter of 1999, PageNet made the decision to
narrow its focus to its North American operations and, as a result, made the
decision to sell or otherwise dispose of its operations in Spain. As a result of
this decision, PageNet analyzed the estimated future cash flows expected to be
generated from its Spanish operations and determined that they would not be
sufficient to recover the net book value of the assets of the subsidiaries and
accordingly, recorded a provision to write down the assets of the Spanish
subsidiaries based on the estimated value of PageNet's investment in its Spanish
subsidiaries as of March 31, 1999. No cash costs have been incurred or are
expected as a result of the provision for the impairment of the assets of
PageNet's Spanish subsidiaries.
184
<PAGE> 194
All operations in the Spanish subsidiaries were ceased in the third quarter of
1999. No additional charges are required.
PageNet is not considering opportunities for international expansion at
this time.
COMPETITION
PageNet has numerous competitors in all of the locations in which it
operates. Competition in most geographic markets is based primarily on price,
type and quality of service offered and geographic coverage. In addition to
other wireless messaging companies, PageNet experiences significant competition
from companies which provide PCS and cellular telephones and, more recently,
also offer traditional and advanced messaging services and Internet access. Many
of these competitors possess financial, technical and other resources greater
than those of PageNet. PageNet's competitors currently include wireless
messaging carriers such as Vodafone/AirTouch/Bell Atlantic (a combined company
now called Verizon), BellSouth Wireless Data, L.P., MCI WorldCom, Inc., Skytel
Communications, Inc., Metrocall, Inc., Nextel Communications, Inc., RSR, Sprint
PCS Group, and WebLink Wireless, Inc., formerly known as PageMart Wireless.
Future technological advances in wireless communications could create new
services or products which could be competitive with the services provided by
PageNet. PageNet continuously evaluates new technologies and applications in
wireless services. However, PageNet cannot guarantee that it will not be
adversely affected by technological changes in wireless communications.
TRADEMARKS
PageNet markets its services under various names and marks, including
PageNet(R), PageMail(R), PageMate(R), PageNet Nationwide(R), SurePage(R),
FaxNow(R), and MessageNow(R), all of which are federally registered service
marks. PageNet's federal mark registrations must be renewed at various times
between 2000 and 2005. PageNet has filed applications with the United States
patent and trademark office to register additional names and marks.
CORPORATE ORGANIZATION
Historically, PageNet's subsidiaries operated as independent business units
making their own staffing, administrative, operational and marketing decisions
within guidelines established by the executive officers of PageNet. Effective
December 31, 1998, PageNet merged a substantial number of its operating
subsidiaries into PageNet, Inc., a first tier subsidiary of PageNet. PageNet has
eight wholly owned domestic subsidiaries. As of December 31, 1999, PageNet
conducted its international operations through eleven wholly and partially owned
subsidiaries. In March 2000, PageNet sold its interest in its Spanish
subsidiary.
SEASONALITY
PageNet's results of operations are not significantly affected by seasonal
factors.
EMPLOYEES
PageNet had approximately 4,300 employees as of December 31, 1999. Of these
employees, approximately 1,800 were engaged in administrative, customer service,
and technical capacities at PageNet's headquarters and its centralized
processing facilities. Approximately 2,500, including approximately 1,250 sales
personnel, were employed in PageNet's domestic and international offices. In
addition to its 4,300 employees, PageNet had approximately 1,300 temporary
workers in various customer service and administrative roles as of December 31,
1999. As a result of PageNet's restructuring efforts, PageNet eliminated
approximately 300 permanent and 850 temporary positions during 1999. None of
PageNet's employees is represented by a labor union. During 1999, PageNet
experienced high employee turnover primarily due to its restructuring
initiative. PageNet is currently continuing to experience a high employee
turnover rate due to its deteriorating financial results and its pending merger
with Arch.
185
<PAGE> 195
PROPERTIES
As of December 31, 1999, PageNet leased office space in 112 cities in 35
states in the United States and the District of Columbia, and in six cities in
four provinces in Canada. These leases expire, subject to renewal options, on
various dates through December 31, 2007. PageNet also leases office space for
its corporate headquarters in Dallas, Texas under a lease that expires in June
2003. As of December 31, 1999, PageNet was paying annualized rent of
approximately $28 million. This amount includes amounts paid under leases that
are to be closed as part of PageNet's restructuring, but excludes any potential
income from subleasing these facilities. PageNet has suspended further
restructuring during 2000 pending a determination as to the infrastructure to be
used by the combined company following the merger.
PageNet also leases sites for its transmitters on commercial broadcast
towers, buildings, and other structures. As of December 31, 1999, PageNet leased
transmitter sites for between 10,000 and 12,000 transmitters. A few local
municipalities have suspended on the designation of new transmitter locations
and/or the addition of new towers. Should these suspensions, or others, continue
for an extended period of time, they could affect PageNet's and other wireless
carriers' ability to offer coverage in those areas.
In July 1996, PageNet purchased 44 acres of undeveloped land at the Legacy
Office Park in Plano, Texas for a new corporate headquarters. During 1998,
PageNet decided to lease, rather than build, a new corporate headquarters and
subsequently entered into an agreement in December 1998 with Electronic Data
Systems Corporation, the owner and developer of the Legacy Office Park, for the
marketing and resale of the property. The Legacy Office Park property was sold
in December 1998 for a purchase price of approximately $15 million. Beginning in
June 1998, PageNet leased office space for its corporate headquarters in Dallas,
Texas under a five-year lease term.
LEGAL PROCEEDINGS
PageNet is involved in various lawsuits arising in the normal course of
business. In management's opinion, the ultimate outcome of these lawsuits will
not have a material adverse effect on PageNet's business, financial position, or
results of operations.
186
<PAGE> 196
PAGENET'S MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of PageNet's
directors and executive officers as of April 15, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard C. Alberding................. 69 Director (1)(2)
Lynn A. Bace......................... 47 Executive Vice President and Chief Administrative
Officer
Andreas K. Bremer.................... 43 Vice President of Finance and Treasurer
Hermann Buerger...................... 56 Director (1)(4)(5)
Julian B. Castelli................... 32 Senior Vice President and Chief Financial Officer and
Acting Chief Financial Officer of Vast
Jeffrey M. Cunningham................ 47 Director (3)
J. Barry Duncan...................... 42 Vice President and Controller
Gary J. Fernandes.................... 56 Director (3)(4)(5)
John P. Frazee, Jr. ................. 55 Chairman of the Board of Directors and Chief Executive
Officer of PageNet and Vast (4)
Jason Gillespie...................... 39 Senior Vice President and Chief Technology Officer
Mark A. Knickrehm.................... 37 President and Chief Operating Officer of Vast
John S. Llewellyn, Jr. .............. 65 Director (2)(3)(5)
Robert J. Miller..................... 55 Director (2)(3)
Edward W. Mullinix, Jr. ............. 46 President and Chief Operating Officer
Timothy J. Paine..................... 45 Senior Vice President -- Customer Service
Douglas R. Ritter.................... 42 Senior Vice President -- Sales
G. Robert Thompson................... 38 Senior Vice President -- Operations Staff
Ruth Williams........................ 43 Senior Vice President, General Counsel and Assistant
Secretary
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Board Affairs Committee of the Board of Directors.
(3) Member of the Compensation and Management Development Committee of the Board
of Directors.
(4) Member of the Executive Committee of the Board of Directors.
(5) Member of the Finance Committee of the Board of Directors.
RICHARD C. ALBERDING has been a director of PageNet since 1994. From 1958
through 1991, Mr. Alberding held various management positions with
Hewlett-Packard Co., including Executive Vice President. Mr. Alberding also
serves as a director of Digital Microwave Corporation, Kennametal, Inc., Sybase,
Inc., Walker Interactive Systems, Inc., JLK Direct, Inc. and PCTel, Inc.
LYNN A. BACE has served as Executive Vice President and Chief
Administrative Officer of PageNet since June 1999. She served as Executive Vice
President -- Sales and Marketing from December 1998 through June 1999, and as
Senior Vice President -- Marketing from August 1998 to December 1998. Prior to
that, Ms. Bace was employed in several executive positions with Kraft Foods,
Inc. from September 1993 to April 1997, most recently as Executive Vice
President and General Manager for a division of Kraft.
ANDREAS K. BREMER has served as Vice President of Finance and Treasurer of
PageNet since February 2000, and as Vice President and Treasurer since joining
PageNet in August 1999. Prior to that time, Mr. Bremer served in various
executive positions with Commerzbank AG from 1986 to 1999, most recently as
Senior Vice President and General Manager of various branches in the United
States and Germany.
187
<PAGE> 197
HERMANN BUERGER has been a director of PageNet since 1998. Mr. Buerger has
held the position of Executive Vice President and General Manager of North
American Operations for Commerzbank AG since 1989. Mr. Buerger also serves as a
director of Security Capital Group, Inc. and United Dominion Industries.
JULIAN B. CASTELLI has served as Senior Vice President and Chief Financial
Officer since June 1999. He also serves as Acting Chief Financial Officer of
Vast, a position he has held since December 1999. Mr. Castelli served as Vice
President and Treasurer for PageNet from July 1998 to June 1999. Prior to
joining PageNet, Mr. Castelli was employed by McKinsey & Company, an
international consulting firm, from August 1995 to July 1998, serving as
Engagement Manager from June 1997. Mr. Castelli served in the Corporate Finance
Department of Goldman, Sachs & Co. as an analyst from 1990 to 1993.
JEFFREY M. CUNNINGHAM has been a director of PageNet since 1998. Mr.
Cunningham currently serves as Chairman of ILIFE Holdings. Mr. Cunningham served
as the President of Planet Direct, an internet media company and majority owned
subsidiary of CMGI, Inc., from December 1998 to March 2000. Previously, Mr.
Cunningham served as President and Chief Executive Officer of Knowledge
Universe, an internet media company, from July 1998 through December 1998. From
June 1993 through July 1998, Mr. Cunningham was the Group Publisher for Forbes,
Inc. Mr. Cunningham also serves as a director of Countrywide Credit, Inc., Data
General Corp. and Schindler Holdings.
J. BARRY DUNCAN has served as Vice President and Controller for PageNet
since October 1998 and as Corporate Controller from May 1995 to October 1996.
Mr. Duncan served as Vice President of Finance for the Southwest Region of
Unisource Worldwide, Inc. from October 1996 to October 1998, and as Corporate
Controller for Dal-Tile International from February 1994 to May 1995.
GARY J. FERNANDES has been a director of PageNet since 1999. Mr. Fernandes
is Chairman of the Board of Directors and Chief Executive Officer of
GroceryWorks.com, a Dallas-based Internet home fulfillment service specializing
in groceries since January 2000. Previously, Mr. Fernandes served as Managing
Partner of Convergent Partners LLC, a private equity capital investment firm
from January 1999 to January 2000. Mr. Fernandes previously held the position of
Vice Chairman as well as other senior management positions with Electronic Data
Systems Corporation from 1969 through 1998. Mr. Fernandes also serves as a
director of 7-Eleven Inc. and John Wiley & Sons, Inc.
JOHN P. FRAZEE, JR. has been a director of PageNet since 1995 and has
served as Chairman of the Board of Directors and Chief Executive Officer of
PageNet since June 1999 and of Vast since December 1999. From August 1997
through June 1999, Mr. Frazee served as Chairman of the Board, President and
Chief Executive Officer of PageNet. Mr. Frazee was a private investor from
August 1993 to August 1997. Mr. Frazee also serves as a director of Security
Capital Group, Inc., Dean Foods Company, Cabet Microelectronics Corporation and
Homestead Village Incorporated.
JASON G. GILLESPIE has served as Senior Vice President and Chief Technology
Officer of PageNet since February 2000. From October 1999 through February 2000
Mr. Gillespie served as Senior Vice President of Network Services, and from June
1999 to October 1999 he served as Vice President of Network Services of PageNet.
From December 1997 to June 1999 Mr. Gillespie was Vice President of Field
Operations of PageNet. Mr. Gillespie was a Vice President and General Manager of
PageNet prior to December 1997 and has been employed by PageNet for eight years.
MARK A. KNICKREHM has served as President and Chief Operating Officer of
Vast since December 1999 and has been responsible for the wireless solutions
operations of PageNet since June 1999. He served as Executive Vice President and
Chief Financial Officer for PageNet from February 1998 through June 1999. Mr.
Knickrehm was employed by McKinsey & Company, an international consulting firm,
from 1989 to February 1998, where he served as a Partner beginning in 1995.
JOHN S. LLEWELLYN, JR. has been a director of PageNet since 1997. From 1982
to his retirement in 1997, Mr. Llewellyn held various management positions with
Ocean Spray Cranberries, Inc., including Chief Executive Officer. Mr. Llewellyn
also serves as a director of Dean Foods Company.
188
<PAGE> 198
ROBERT J. MILLER has been a director of PageNet since 1999. From 1989 to
January 1999, Mr. Miller served as the Governor of Nevada. Upon his retirement
as Governor, Mr. Miller became a Senior Partner in the law firm of Jones Vargas
in Las Vegas, Nevada and Reno, Nevada. Mr. Miller also serves as a director of
America West Airlines, International Game Technology, Newmont Mining
Corporation, Zenith Insurance Corp., National Center for Missing & Exploited
Children and the American Cancer Society Foundation; and as a member of the
Advisory Board of the Secretary of Energy, Americans for Technology Leadership
and Com-Net Ericsson.
EDWARD W. MULLINIX, JR. has served as President and Chief Operating Officer
of PageNet since June 1999. He served as Executive Vice President -- Operations
for PageNet from February 1998 through June 1999, and as Senior Vice
President -- Strategic Planning from November 1997 to February 1998. From
September 1995 to October 1997, Mr. Mullinix served as Senior Vice President of
Finance and Administration and Chief Financial Officer of The Haskell Company.
He was Vice President -- Finance for LCI, Ltd. from August 1994 to April 1995.
TIMOTHY J. PAINE has served as Senior Vice President -- Customer Service
for PageNet since March 1998. Prior to joining PageNet, Mr. Paine served in
various positions for American Express Travel Related Services, Inc. from 1982
to March 1998, most recently as Vice President of Credit and Operations for the
new accounts branch of American Express Centurion Bank.
DOUGLAS R. RITTER has served as Senior Vice President -- Sales for PageNet
since January 1999. Mr. Ritter served as Senior Vice President -- Corporate
Development for PageNet from February 1998 to January 1999 and as Vice
President -- Corporate Development for PageNet from December 1997 to February
1998. Mr. Ritter served as Vice President -- Business Planning for PageNet from
January 1996 to December 1997 and as Vice President -- New Business Development
for PageNet from July 1993 to January 1996.
G. ROBERT THOMPSON has served as Senior Vice President -- Staff Operations
since June 1999. He also served as Senior Vice President -- Process Improvement
for PageNet from November 1998 to June 1999. Mr. Thompson served as Vice
President -- Finance for PageNet from February 1995 to November 1998 and was
Corporate Controller for PageNet from 1990 to 1995.
RUTH WILLIAMS has served as Senior Vice President, General Counsel and
Assistant Secretary for PageNet since May 1997. Prior to joining PageNet, Ms.
Williams was Associate General Counsel for First Data Corporation from September
1996 to April 1997. Ms. Williams was employed by Automatic Data Processing, Inc.
from 1986 to 1996, most recently as Staff Vice President and Associate General
Counsel.
COMPENSATION OF DIRECTORS
Directors that are also full-time officers of PageNet do not receive any
additional compensation for serving on the board or its committees. Directors
who are not full-time officers receive an annual retainer of $20,000, plus
$1,500 for each meeting they attend in person, $1,000 for each teleconference
meeting in which they participate, and reimbursement for traveling costs and
other out-of-pocket expenses incurred. Directors who serve on one or more
committees receive $5,000 per year for their service. Directors who serve as a
chairman of one or more of these committees receive an additional $5,000 per
year.
In addition, pursuant to PageNet's 1992 director compensation plan, each
non-employee director is granted an option to purchase 45,000 shares of PageNet
common stock. The exercise price is the fair market value on the date of grant.
The options vest in five equal annual installments so long as the person remains
a director of PageNet. In addition to these initial grants, subsequent grants to
purchase an additional 45,000 shares are made to each director on the date that
the options granted to such director under the 1992 director compensation plan
become fully exercisable. The exercise price for these options is also the fair
market value on the date of the grant. These options vest in five equal annual
installments so long as the person remains a director of PageNet.
189
<PAGE> 199
The 1992 director compensation plan also allows a director to waive his or
her right to the cash retainer and meeting fees and instead:
- receive the number of shares of PageNet common stock equal to the dollar
amount of the annual retainer, meeting and other fees due for such year;
- defer receipt of all compensation until a designated future date, and
invest such compensation in an interest-bearing account; or
- defer receipt of all compensation until a designated future date, and
invest such compensation in a phantom stock account whose value will
increase and decrease with the value of PageNet's stock.
A director who elects to defer receipt of his or her cash retainer and
meeting fees and invest such compensation in a phantom stock plan will be
credited with share units, with one share unit being equivalent to a share of
PageNet common stock. The number of share units deposited in a director's
deferred compensation account is equal to the amount of compensation deferred
divided by the then current trading price of PageNet common stock. Although no
actual shares of PageNet common stock are transferred into the director's
deferred compensation account, the value of the director's share units equal the
trading price of PageNet's common stock from time to time. Directors elect the
form, method and timing of the distribution of the deferred compensation.
Directors may elect to receive distributions of the amounts credited with share
units in the form of cash, shares of PageNet common stock, or in any combination
of cash and shares of PageNet common stock.
In 1998, each director waived his rights to cash payments and elected to
receive deferred shares of PageNet common stock. Messrs. Alberding, Buerger,
Fernandes, Llewellyn, and Mitchell elected to defer their compensation to
phantom stock units in 1999. Messrs. Cunningham and Miller elected to receive
their 1999 compensation in cash. All directors have elected to receive their
2000 compensation in cash.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation paid by PageNet for services rendered in all capacities
for the years ended December 31, 1999, 1998 and 1997 of PageNet's chief
executive officer, and those persons who were, at December 31, 1999, the other
four most highly compensated executive officers of PageNet. Positions indicated
are as of December 31, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ------------------------
SECURITIES
RESTRICTED UNDERLYING ALL
STOCK OPTIONS OTHER
YEAR SALARY BONUS OTHER AWARDS($) (SHARES) COMPENSATION(1)
---- -------- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Frazee, Jr. ............ 1999 $640,385 $ -- $ 95,958(2) $ -- 311,500 $ 2,229
Chairman and 1998 671,875 430,000 90,706(3) -- 100,000 2,333
Chief Executive Officer of 1997 279,571(4) 150,000 50,938(5) 100,000(6) 600,000 20,000(7)
PageNet and Vast
Mark A. Knickrehm(8)............ 1999 299,038 -- 4,172(9) -- 165,000 3,875
President and Chief 1998 266,036 230,000(10) 43,573(11) -- 300,000 --
Operating Officer of Vast 1997 -- -- -- -- -- --
Edward W. Mullinix, Jr.(12)..... 1999 292,949 -- 4,928(13) -- 165,000 4,825
President and Chief 1998 247,916 120,000 41,589(14) -- 50,000 3,750
Operating Officer 1997 45,337 60,000 7,837(15) -- 250,000 --
Lynn A. Bace(16)................ 1999 216,218 -- 2,742(17) -- 115,000 --
Executive Vice President and 1998 93,750 51,000 -- -- 250,000 --
Chief Administrative Officer 1997 -- -- -- -- -- --
William G. Scott(18)............ 1999 213,462 -- 2,043(19) -- 25,000 5,000
Senior Vice President -- Chief 1998 224,583 72,000 -- -- 20,000 5,000
Technology Officer of Vast 1997 215,000 80,000 -- 55,313(20) 113,464 4,750
</TABLE>
- ---------------
(1) Represents matching contributions to PageNet's 401(k) Plan, except where
noted.
(2) Includes housing allowance of $61,069.
(3) Includes housing allowance of $66,158.
190
<PAGE> 200
(4) Annual compensation for 1997 represents compensation for the period from
August 4, 1997, when Mr. Frazee became Chairman, President and Chief
Executive Officer of PageNet, through December 31, 1997.
(5) Includes payment of $23,214 to defray Mr. Frazee's expenses associated with
relocation to the Dallas, Texas area.
(6) Represents the fair market value on the date of grant of 11,510 shares of
PageNet common stock awarded to Mr. Frazee on August 4, 1997.
(7) Represents compensation for services rendered as a non-employee director of
PageNet.
(8) Annual compensation for 1998 represents compensation for the period from
February 4, 1998, when Mr. Knickrehm became employed with PageNet as its
Executive Vice President and Chief Financial Officer, through December 31,
1998. On June 2, 1999, Mr. Knickrehm was promoted to President and Chief
Operating Officer of Vast.
(9) Includes $4,928 of long-term disability insurance premiums paid by PageNet.
(10) Includes a $100,000 employment bonus and $130,000 paid as an annual bonus
for performance in 1998.
(11) Includes payments of $43,573 made to defray Mr. Knickrehm's expenses
associated with relocation to the Dallas, Texas area.
(12) Mr. Mullinix joined PageNet on November 3, 1997 as Senior Vice President of
Strategic Planning, and was promoted to Executive Vice
President -- Operations of PageNet on February 4, 1998. On June 2, 1999,
Mr. Mullinix was promoted to President and Chief Operating Officer of
PageNet.
(13) Includes $4,928 of long-term disability insurance premiums paid by PageNet.
(14) Includes payment of $41,589 made to defray Mr. Mullinix's expenses
associated with relocation to the Dallas, Texas area.
(15) Includes payments of $7,837 made to defray Mr. Mullinix's expenses
associated with relocation to the Dallas, Texas area.
(16) Ms. Bace joined PageNet on August 19, 1998 as Senior Vice President of
Marketing and was promoted to Executive Vice President and Chief
Administrative Officer of PageNet on June 2, 1999.
(17) Includes $2,742 of long-term disability insurance premiums paid by PageNet.
(18) Mr. Scott served as Senior Vice President and Chief Technology Officer of
PageNet from June 1999 through December 1999. Upon Mr. Scott's change to
his current position with Vast, he was no longer an executive officer of
PageNet; therefore, Mr. Scott is not listed as an executive officer of
PageNet in "PageNet's Management."
(19) Includes $2,043 of long-term disability insurance premiums paid by PageNet.
(20) Represents the fair market value on the date of grant of 5,000 shares of
PageNet common stock awarded to Mr. Scott on February 2, 1997, vesting at
the rate of 20% per year beginning on February 2, 1998 through 2002,
contingent upon meeting performance goals.
191
<PAGE> 201
OPTION GRANTS IN 1999
The following table sets forth information on grants of options to purchase
PageNet common stock during the year ended December 31, 1999, to PageNet's chief
executive officer and those persons who were, at December 31, 1999, the other
most highly compensated executive officers of PageNet.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO PRESENT VALUE
OPTIONS EMPLOYEES ON DATE
NAME GRANTED (1) IN 1999 EXERCISE PRICE EXPIRATION DATE OF GRANT(2)
- ---- ----------- ------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
John P. Frazee, Jr. ......... 311,500 7.54% $6.1250 01/20/09 $1,907,938
Mark A. Knickrehm............ 65,000 6.1250 01/20/09 398,125
100,000 3.3438 06/10/09 334,380
------- ----------
Subtotal........... 165,000 3.99% 732,505
------- ----------
Edward W. Mullinix, Jr. ..... 65,000 6.1250 01/20/09 398,125
100,000 3.3438 06/10/09 334,380
------- ----------
Subtotal........... 165,000 3.99% 732,505
------- ----------
Lynn A. Bace................. 65,000 6.1250 01/20/09 398,125
50,000 3.3438 06/10/09 167,190
------- ---- ------- ----------
Subtotal........... 115,000 2.78% 565,315
------- ----------
William G. Scott............. 25,000 * 6.1250 01/20/09 153,125
</TABLE>
- ---------------
* Less than 1%
(1) All options are exercisable only so long as employment continues or within
limited periods following termination of employment. All options have a term
of 10 years. All options vest in five equal annual installments beginning on
the date of the grant, except that all of such options would vest at the
closing of the merger by virtue of a change in control of the ownership of
PageNet.
(2) The determination of the present value of PageNet common stock on the date
of the grant is based on the Black-Scholes pricing model. Estimated values
under the Black-Scholes model are based on standard assumptions as to
variables in the model such as stock price volatility, projected future
dividend yield and interest rates. In addition, the estimated value is
discounted for potential forfeiture due to vesting schedules. The discount
rate is consistent with PageNet's employment turnover experience over time.
The estimated Black-Scholes values above are based on a range of values for
the key variable. The range reflects different values in effect on the grant
date of the option: volatility -- ranged from .559 to .583; dividend
yield -- 0%; turnover -- 8% per year; risk-free interest rate -- yield to
maturity of 10-year treasury note at grant date (rates ranged from 5.41% to
5.56%). The actual value, if any, that an executive may realize will depend
on the excess of the stock price over the exercise price on the date the
option is exercised. There is no assurance that the value realized by an
executive will be at or near the value estimated using a Black-Scholes
model. Currently, all such stock options have no value because the trading
price of PageNet shares is below the option exercise prices.
192
<PAGE> 202
AGGREGATE OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
The following table sets forth information related to the unexercised
options to purchase PageNet common stock that were granted during the year ended
December 31, 1999, and prior years under PageNet's 1991 stock option plan to the
named officers and held by them at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD IN-THE-MONEY OPTIONS HELD
SHARES AT DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
ACQUIRED ON --------------------------- ----------------------------
NAME EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John P. Frazee, Jr...... 0 0 820,600 235,900 0 0
Mark A. Knickrehm....... 0 0 226,000 239,000 0 0
Edward W. Mullinix,
Jr.................... 0 0 226,000 239,000 0 0
Lynn A. Bace............ 0 0 136,000 229,000 0 0
William G. Scott........ 0 0 105,464 53,000 0 0
</TABLE>
- ---------------
(1) Based on the difference between the exercise price of each option and
$0.8130, the last reported sales price of PageNet common stock on the Nasdaq
National Market on December 31, 1999, the last trading date in PageNet's
1999 fiscal year.
CONTRACTS RELATED TO EMPLOYMENT
PageNet and Mr. Frazee entered into an employment agreement on August 4,
1997. This agreement provides that Mr. Frazee is to be employed until July 31,
1998. The agreement is automatically extended for one-year periods unless either
PageNet or Mr. Frazee notifies the other party of termination not less than 90
days prior to the beginning of any one-year renewal period. Mr. Frazee's base
salary is $675,000 and current target bonus is $350,000 if PageNet achieves the
objectives established by the board of directors. The employment agreement also
provides that at least 40% of the bonus is to be paid in shares of PageNet
common stock. The board of directors gave Mr. Frazee his 1997 and 1998 bonuses
in cash, with the understanding that he would use 40% or more of the bonus to
purchase Page Net common stock in the public market. In 1997, Mr. Frazee
purchased shares in excess of this requirement. Upon signing the employment
agreement, Mr. Frazee was granted options to purchase 600,000 shares of common
stock, all of which have vested. Mr. Frazee also was awarded 11,510 shares of
PageNet common stock under PageNet's 1997 restricted stock plan. In addition,
PageNet provides Mr. Frazee with transportation to and from his residence in
Florida.
CHANGE OF CONTROL SEVERANCE PLAN
On January 20, 1999, the board of directors approved a severance plan which
would provide benefits to substantially all of PageNet's employees in the event
of a "change of control" of PageNet. "Change of control" is defined as any
merger, sale or other transaction which results in 35% or more of PageNet common
stock being held by an outsider, or any change in the composition of a majority
of the board of directors. This definition is consistent with the change of
control provisions that trigger accelerated vesting under PageNet's 1991
employee stock option plan. The severance plan provides for severance amounts
ranging from 50% to 300% of an employee's annual salary and annual target bonus
compensation and payment of a pro-rated portion of the employee's annual target
bonus compensation. In addition, the severance plan provides that the employee
will continue to receive substantially similar medical insurance, disability
income protection, life insurance protection and death benefits, and perquisites
for at least one year following the date of the employee's termination of
employment at no additional cost to the employee above the cost paid by the
employee for such benefits immediately prior to the change of control. The
severance plan provides no special pension benefits. An employee is entitled to
receive benefits under the severance plan if PageNet or its successor in
interest terminates the employee without cause or the employee resigns for good
reason during the 12-month period immediately following a change in control.
Good reasons for an employee's resignation under the severance plan include a
reduction in the employee's compensation, a significant change in the employee's
duties, responsibilities, title or authorities, relocation of the employee's
office to a location more than 50 miles from the location of the employee's
office prior to the change in control, and PageNet's failure to obtain the
agreement from a successor to assume and
193
<PAGE> 203
agree to perform the severance plan. The amount an employee will receive depends
upon the employee's position at PageNet. Payments under the plan are made in one
lump sum. At the time of its consideration of the Arch merger, PageNet's board
of directors approved an increase in the severance percentages applicable to
John P. Frazee, Mark A. Knickrehm, Edward W. Mullinix, Jr., Lynn A. Bace and
Julian B. Castelli from 200% to 300% of their annual salary and annual target
bonus compensation. However, Mr. Knickrehm would not be entitled to severance
benefits under the severance plan if the Arch merger and Vast distribution occur
as planned. See "The Merger -- Interests of Certain Persons in the Merger."
194
<PAGE> 204
PAGENET'S PRINCIPAL STOCKHOLDERS
The following table sets forth information on the beneficial ownership of
PageNet's common stock as of April 25, 2000 by:
- each person who is known by PageNet to beneficially own more than 5% of
its outstanding shares of common stock;
- each current director of PageNet;
- PageNet's chief executive officer and the other named executive officers
of PageNet; and
- all of PageNet's current executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES AND
NATURE OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1) COMMON STOCK(2)
- ---- -------------------- ---------------
<S> <C> <C>
Wellington Management Company, LLP....................... 9,711,400(3) 9.3%
75 State Street, Boston, MA 02109
Richard C. Alberding..................................... 47,307(4) *
Lynn A. Bace............................................. 151,000(5) *
Hermann Buerger.......................................... 50,810(6) *
Jeffrey M. Cunningham.................................... 27,000(7) *
Gary J. Fernandes........................................ 18,000(8) *
John P. Frazee, Jr....................................... 952,760(9) *
Mark A. Knickrehm........................................ 246,000(10) *
John S. Llewellyn, Jr.................................... 27,437(11) *
Robert J. Miller......................................... 18,000(12) *
Edward W. Mullinix, Jr................................... 247,000(13) *
William G. Scott......................................... 113,368(14) *
All executive officers and directors as a group (18
persons)............................................... 2,295,777(15) 2.2%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, each person has sole voting and investment
power over the shares listed. These numbers include options vested and
exercisable as of April 25, 2000 or within 60 days after such date.
(2) The total number of shares of PageNet common stock outstanding as of April
25, 2000 is 104,242,067.
(3) Information has been obtained from the Form 13G filed by Wellington
Management Company, LLP on February 10, 2000. Wellington, in its capacity
as investment advisor, may be deemed to beneficially own the shares of
PageNet common stock which are held of record by clients of Wellington.
Wellington has shared voting power and shared investment discretion with
Wellington Trust Company, NA for 6,427,100 shares and 9,711,400 shares
respectively.
(4) Includes 45,000 shares subject to options that are vested and exercisable
within 60 days.
(5) Includes 146,000 shares subject to options that are vested and exercisable
within 60 days.
(6) Includes 27,000 shares subject to options that are vested and exercisable
within 60 days.
(7) Includes 27,000 shares subject to options that are vested and exercisable
within 60 days.
(8) Includes 18,000 shares subject to options that are vested and exercisable
within 60 days.
(9) Includes 829,600 shares subject to options that are vested and exercisable
within 60 days.
(10) Includes 246,000 shares subject to options that are vested and exercisable
within 60 days.
195
<PAGE> 205
(11) Includes 27,000 shares subject to options that are vested and exercisable
within 60 days.
(12) Includes 18,000 shares subject to options that are vested and exercisable
within 60 days.
(13) Includes 246,000 shares subject to options that are vested and exercisable
within 60 days.
(14) Includes 105,464 shares subject to options that are vested and exercisable
within 60 days.
(15) Includes 2,134,553 shares subject to options that are vested and
exercisable within 60 days.
196
<PAGE> 206
THE COMBINED COMPANY
BUSINESS
The combined company to be formed by the merger of Arch and PageNet will be
one of the leading wireless communications companies in the United States.
PageNet and Arch believe that the combined company will be well positioned
to compete effectively with other paging carriers as well as with cellular, PCS
and other wireless messaging companies. The combination of PageNet's broad range
of wireless products and new advanced wireless network with Arch's extensive
national accounts and strong sales and marketing infrastructure should enable
the combined company to:
- offer advanced messaging services and an expanded set of their products
and services such as Internet-based wireless information, over PageNet's
advanced wireless network;
- create significant economic efficiencies which will enable the combined
company to continue to price its services and products competitively; and
- create a financially stronger company.
The size of the combined company's narrowband PCS network will depend on
the results of a pending Federal Communications Commission proceeding. See
"Arch's Business -- Networks and Licenses -- Narrowband PCS and Licenses" and
"Risk Factors -- Government telecommunications regulation may burden Arch's
operations and undermine Arch's competitive position -- The Federal
Communications Commission may require Arch to relinquish some of its licenses."
STRATEGY
Arch expects the combined company to execute the following strategy:
The combined company will offer expanded products and services. The
combined company plans to immediately offer a broader variety of products and
services to a larger number of customers than either Arch or PageNet currently
offers alone. Furthermore, the combination of PageNet's existing nationwide
narrowband PCS network, together with Arch's customer base, marketing abilities,
and innovative customer service and support platform should facilitate the
development, commercialization and introduction of advanced communications
products and services. Arch's management believes that these advanced
communications products and services are necessary for Arch to compete
effectively in the fast-paced, constantly changing wireless communications
industry.
Arch intends to combine its expertise in direct marketing and retail
distribution with a technologically-advanced network over which PageNet plans to
offer an expanding array of advanced messaging services. PageNet has invested
heavily in infrastructure and software development in order to develop new
services. The combined company will apply Arch's marketing skill and PageNet's
advanced service capabilities to expand the number of customers using these
advanced services. Arch and PageNet believe that the size of their combined
customer base will create greater incentives for equipment manufacturers to
engage in research and development and to deploy new equipment for its
subscribers.
The combination will create significant economic efficiencies. The
combined company will work to identify redundant managerial and administrative
functions that can be eliminated without a material impact on customer service.
In addition, the combined company should be able to reduce its costs by
gradually improving the operating processes of the combined company and by
taking advantage of opportunities to obtain efficiency gains.
The merger will result in a financially stronger company. The combined
company will be financially stronger than Arch or PageNet individually. As of
December 31, 1999, PageNet and Arch had leverage ratios of 9.7 and 5.1 times
earnings before interest, income taxes, depreciation and amortization
respectively based on each company's adjusted earnings before interest, income
taxes, depreciation and amortization for the year ended December 31, 1999. As
part of the merger, as much as $1.6 billion of
197
<PAGE> 207
Arch and PageNet debt will be converted into Arch common stock, assuming 100% of
the Arch discount notes and PageNet senior subordinated notes are exchanged. As
a result, the combined company will have a significantly lower overall leverage
ratio. The combined company projects $1.7 billion in annualized revenue and
annualized earnings before interest, income taxes, depreciation and amortization
of $446.2 million. The combined company's leverage ratio would be reduced to
less than 4.0 times earnings before interest, income taxes, depreciation and
amortization. This leverage ratio is lower than the leverage ratio for the
combined company's competitors, Aquis Communications Group, Inc., Metrocall,
Inc. and WebLink Wireless, Inc., which have leverage ratios of 5.7, 5.0 and 11.9
times adjusted earnings before interest, income taxes, depreciation and
amortization, respectively, and should assist the combined company in making the
capital investments necessary to execute its strategy.
MANAGEMENT
The combined company's board of directors will consist of six designees of
the current Arch board, three designees of the PageNet board and up to three
designees of PageNet's three largest noteholders. If any of such noteholders do
not designate directors for themselves, Arch's current board will designate
additional directors instead, so that there may be up to nine Arch nominees.
None of PageNet's three largest noteholders has informed Arch or PageNet
whether it intends to designate a director. PageNet's board has not yet
designated its three directors to the board of the combined company. Arch's
board has not yet designated its six directors to the board of the combined
company.
Mr. Frazee will become chairman of the board of the combined company, Mr.
Baker will continue to serve as chief executive officer, and Arch's other
executive officers will retain their current positions. Although Arch expects
that a number of PageNet's current officers may not continue as employees of the
combined company, it has not developed any firm plans. If all of the officers
wished to continue but were dismissed, they would receive a total of
approximately $15.9 million in estimated severance benefits. See "PageNet's
Management -- Change of Control Severance Plan."
PRO FORMA INFORMATION, UNAUDITED FINANCIAL PROJECTIONS AND OPERATIONAL COST
SYNERGIES
On a pro forma basis at December 31, 1999, the combined company would have
had approximately 15.5 million units in service, total assets of $2.9 billion
and total long-term debt of $1.8 billion, assuming that all of the outstanding
discount notes are exchanged for common stock. For the year ended December 31,
1999, the combined company would have had pro forma total revenues of $1.7
billion, adjusted pro forma earnings before interest, income taxes, depreciation
and amortization of $473.9 million and net loss of $399.9. This pro forma net
loss excludes the effects of an extraordinary gain relating to the
extinguishment of debt of $6.9 million and the negative $40.8 million cumulative
effect of accounting change relating to Arch's and PageNet's original
application of Statement of Position 98-5 "Reporting on The Costs of Start-Up
Activities." This amount also excludes the impact of expected operational cost
synergies. For the year ended December 31, 1999, the combined company's pro
forma cash flows provided by operating activities, used in investing activities
and provided by financing activities would have been $324.8 million, $420.0
million and $340.6 million, respectively. The adjusted pro forma cash flow
information assumes that the merger and related transactions had been effected
as of January 1, 1999. Leverage for the combined company on a pro forma basis,
as measured by the ratio of total debt to adjusted pro forma earnings before
interest, income taxes, depreciation and amortization for the year ended
December 31, 1999, would have been 3.8 to 1.0. This also excludes the impact of
expected operational cost synergies. Adjusted pro forma earnings before
interest, income taxes, depreciation and amortization is earnings before
interest, income taxes, depreciation and amortization, net of restructuring
charges, bankruptcy related expenses, equity in loss of affiliates, income tax
benefit, interest and non-operating expenses (net) and extraordinary items. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements."
198
<PAGE> 208
Arch and PageNet have developed the unaudited combined company projections
contained in Annex E. The projections consist of projected operating and
financial results for the six months ending December 31, 2000 and the year
ending December 31, 2001. The projections assume that the merger and related
transactions will take place as of July 1, 2000. The projections have been
prepared for filing with the bankruptcy court if PageNet commences a bankruptcy
case and following the methodology customarily used by companies in preparing
projections for filing with a bankruptcy court.
THE COMBINED COMPANY PROJECTIONS WERE NOT PREPARED TO COMPLY WITH THE
GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. NEITHER THE INDEPENDENT ACCOUNTANTS
FOR ARCH NOR THE INDEPENDENT AUDITORS FOR PAGENET HAVE EXAMINED OR COMPILED THE
ACCOMPANYING PROJECTIONS AND ACCORDINGLY DO NOT EXPRESS AN OPINION OR ANY OTHER
FORM OF ASSURANCE WITH RESPECT TO THE PROJECTIONS, ASSUME NO RESPONSIBILITY FOR
THE PROJECTIONS AND DISCLAIM ANY ASSOCIATION WITH THE PROJECTIONS.
ARCH AND PAGENET DO NOT PUBLISH PROJECTIONS OF THEIR RESPECTIVE ANTICIPATED
FINANCIAL POSITION OR RESULTS OF OPERATIONS. HOWEVER, TO THE EXTENT THEY BELIEVE
THAT THE SECURITIES LAWS REQUIRE, ARCH AND PAGENET WILL:
- FURNISH UPDATED COMBINED COMPANY PROJECTIONS,
- INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS WHICH MAY BE REQUIRED
TO BE FILED WITH THE SEC, OR
- OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
THE SECURITIES LAWS REQUIRE FULL AND PROMPT DISCLOSURE OF MATERIAL FACTS,
BOTH FAVORABLE AND UNFAVORABLE, REGARDING ARCH'S AND PAGENET'S FINANCIAL
CONDITION AND MAY EXTEND TO SITUATIONS WHERE MANAGEMENT KNOWS OR HAS REASON TO
KNOW ITS PREVIOUSLY DISCLOSED PROJECTIONS NO LONGER HAVE A REASONABLE BASIS.
MANAGEMENT OF ARCH AND PAGENET BELIEVE THAT THE PROJECTED AMOUNTS ARE THE MOST
PROBABLE SPECIFIC AMOUNTS THAT THEY CAN FORECAST AND THAT THE ESTIMATES AND
ASSUMPTIONS THEY HAVE MADE IN ARRIVING AT THESE AMOUNTS ARE REASONABLE. THE
ESTIMATES AND ASSUMPTIONS MAY NOT BE REALIZED, HOWEVER, AND ARE INHERENTLY
SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF ARCH AND PAGENET. NO
REPRESENTATIONS CAN BE OR ARE MADE AS TO WHETHER ACTUAL RESULTS WILL MEET THE
RESULTS SET FORTH IN THE COMBINED COMPANY PROJECTIONS. SOME ASSUMPTIONS
INEVITABLY WILL NOT MATERIALIZE, AND EVENTS AND CIRCUMSTANCES OCCURRING
SUBSEQUENT TO THE DATE ON WHICH THE PROJECTIONS WERE PREPARED MAY BE DIFFERENT
FROM THOSE ASSUMED OR MAY BE UNANTICIPATED, AND THEREFORE MAY AFFECT FINANCIAL
RESULTS IN A MATERIAL AND POSSIBLY ADVERSE MANNER. THE PROJECTIONS, THEREFORE,
MAY NOT BE RELIED UPON AS A GUARANTEE OR OTHER ASSURANCE OF THE ACTUAL RESULTS
THAT WILL OCCUR. SEE "FORWARD-LOOKING STATEMENTS."
The projections contemplate that Arch should be able to operate its
business, fund its foreseeable capital commitments and service its debt for the
six months ending December 31, 2000 and the year ending December 31, 2001. The
projections contemplate that, for the six months ending December 31, 2000, Arch
will borrow approximately $35.0 million under its available line of credit so
that, together with its projected opening cash balance of $30.7 million and
projected adjusted earnings before interest, income taxes, depreciation and
amortization of $223.1 million, it will have sufficient cash to pay projected
interest of $96.4 million, capital expenditures of $111.0 million, transaction
costs and working capital requirements relating to the merger of $64.0 million
and reduce borrowings by a projected $8.1 million. During 2001, the projections
contemplate that adjusted earnings before interest, income taxes, depreciation
and amortization of $507.6 million will be sufficient to pay projected interest
of $188.8 million, income taxes of $15.0 million, capital expenditures of $232.3
million, working capital requirements of $10.2 million and reduce borrowings by
a projected $64.2 million.
199
<PAGE> 209
DESCRIPTION OF PAGENET'S COMMON STOCK
PageNet's authorized capital stock consists of 250,000,000 shares of common
stock and 25,000,000 shares of preferred stock. Each share has a par value of
$.01 per share. On April 25, 2000, there were 104,242,067 shares of common stock
outstanding held by approximately 923 stockholders of record and no shares of
preferred stock issued and outstanding.
To learn how to obtain copies of PageNet's certificate of incorporation and
bylaws. See "Where You Can Find More Information."
Holders of common stock are entitled to one vote per share. They are
entitled to receive dividends when and if declared by PageNet's board of
directors and to share, on the basis of their shareholdings, in the assets of
PageNet that are available for distribution to its stockholders in the event of
liquidation. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. Holders of common stock do not have cumulative
voting rights.
DESCRIPTION OF ARCH'S EQUITY SECURITIES
Arch's authorized capital stock consists of 150,000,000 shares of common
stock, 10,000,000 shares of Class B common stock and 10,000,000 shares of
preferred stock, consisting of 300,000 shares of Series B preferred stock,
250,000 shares of Series C preferred stock, 1,000,000 shares of Series D
preferred stock, 1,000,000 shares of Series E preferred stock and 7,450,000
additional shares of preferred stock. Each share has a par value of $.01. On May
10, 2000, there were 63,694,324 outstanding shares of common stock held by
approximately 1,631 stockholders of record, 2,712,185 outstanding shares of
Class B common stock held by three stockholders of record, 250,000 outstanding
shares of Series C preferred stock held by nine stockholders of record and
1,000,000 shares of Series D convertible preferred stock held by 10 stockholders
of record.
To learn how to obtain copies of the certificate of incorporation and
bylaws, see "Where You Can Find More Information."
COMMON STOCK
Holders of common stock are entitled to one vote per share. They are
entitled to receive dividends when and if declared by Arch's board of directors
and to share, on the basis of their shareholdings, in the assets of Arch that
are available for distribution to its stockholders in the event of liquidation.
These rights of the common stock are subject to any preferences or participating
or similar rights of any series of preferred stock that is outstanding at the
time. Holders of common stock have no preemptive, subscription, redemption or
conversion rights. Holders of common stock do not have cumulative voting rights.
CLASS B COMMON STOCK
Shares of Arch's Class B common stock are identical in all respects to
shares of Arch's common stock, except that:
- a holder of Class B common stock is not entitled to vote in the election
of directors and is entitled to 1/100th vote per share of common stock on
all other matters voted on by Arch's stockholders;
- shares of Class B common stock will automatically convert into an
identical number of shares of common stock upon the transfer of Class B
common shares to any person or entity, other than a Class B holder. A
Class B holder is:
- any person or entity that received shares of Class B common stock in
the initial distribution of those shares;
- any person or entity that, when taken together with any person or
entity that received shares of Class B common stock in the initial
distribution, constitutes a "person" or "group," as defined in
sections 13(d) and 14(d) of the Securities and Exchange Act of 1934;
or
200
<PAGE> 210
- any affiliate of the preceding persons or entities.
The holder that is transferring its shares of Class B common stock must
certify to Arch:
- the number of shares of Class B common stock being transferred; and
- that, to its knowledge, after due inquiry, the shares of Class B
common stock are not being transferred to a Class B holder.
Class B common stock was originally issued only to four stockholders, who
acted as standby purchasers in connection with Arch's acquisition of
MobileMedia. Shares of Class B common stock were issued only to the extent that
the standby purchasers and their affiliates would otherwise have owned, in the
aggregate, more than 49.0% of the outstanding shares of capital stock of Arch
generally entitled to vote in the election of directors or more than 49.0% of
the voting power of the outstanding voting shares upon consummation of the
MobileMedia acquisition, assuming the conversion of all convertible securities
and assuming the exercise of all warrants held by the standby purchasers and
their affiliates. Class B Common Stock was used so that the issuance of stock to
the standby purchasers in connection with the MobileMedia acquisition would not
trigger the change of control repurchase provisions contained in the indentures
governing Arch's outstanding indebtedness. See "Description of
Indebtedness -- Arch."
PREFERRED STOCK
Arch's board of directors is authorized, without any further action by the
stockholders of Arch, to issue preferred stock from time to time in one or more
series and to fix the voting, dividend, conversion, redemption and liquidation
rights and preferences of any such series and whatever other designations,
preferences and special rights Arch's board of directors may decide upon. Arch
does not have any present plans to issue shares of its preferred stock, other
than the shares of Series C and Series D preferred stock currently outstanding
and the possible issuance of Series E preferred stock as described below.
SERIES C PREFERRED STOCK
The Series C preferred stock has the rights and preferences summarized
below:
Conversion. The Series C preferred stock was convertible into common stock
at an initial conversion rate of 6.06 shares of common stock for each share of
Series C preferred stock, subject to certain adjustments. These adjustments
include the issuance of common stock, or rights or options for common stock, at
a price less than the market price of common stock. The conversion of the Series
C preferred stock automatically adjusts on a quarterly basis to reflect the
accrual of dividends to the extent that dividends are not paid on a current
basis in cash or stock. Until July 1, 2000, the conversion rate will be
7.0176-to-1, so that 1,754,408 shares of common stock are issuable upon the
conversion of all shares of Series C preferred stock in the aggregate. This
aggregate number of common shares increases by approximately 34,000 shares per
quarter.
Dividends. The Series C preferred stock earns dividends at an annual rate
of 8.0% payable when declared quarterly in cash or, at Arch's option, through
the issuance of shares of common stock valued at 95% of the then prevailing
market price. If not paid quarterly, dividends accumulate and become payable
upon redemption or conversion of the Series C preferred stock or upon
liquidation of Arch.
Voting Rights. So long as at least 50% of the Series C preferred stock
remains outstanding, the holders of the Series C preferred stock have the right,
voting as a separate class, to designate one member of the boards of directors
of Arch and a principal subsidiary. The director has the right to be a member of
any committee of either board of directors. On all other matters, the Series C
preferred stock and the common stock vote together as a single class. Each share
of Series C preferred stock is entitled to as many votes as the number of shares
of common stock into which it is convertible (7.0176 prior to July 1, 2000).
Liquidation Preference. Upon liquidation, dissolution or winding up of
Arch, before any distribution or payment is made to holders of common stock,
Arch must pay to the holders of Series C preferred stock $100.00 per share of
Series C preferred stock, subject to specified adjustments, plus any accrued and
201
<PAGE> 211
unpaid dividends on such shares of Series C preferred stock. If the assets of
Arch are insufficient to permit full payment of such liquidation preference to
the holders of Series C preferred stock, then the assets will be distributed pro
rata among the holders of the Series C, Series D and Series E preferred stock.
Redemption. Holders of Series C preferred stock may require Arch to redeem
the Series C preferred stock in the year 2005 for an amount equal to the amount
of the liquidation preference of the Series C preferred stock. Arch may elect to
pay the redemption price in cash or in common stock valued at 95% of its then
prevailing market price. Series C preferred stock is subject to redemption for
cash or common stock at Arch's option in specified circumstances.
SERIES D PREFERRED STOCK
The Series D preferred stock has the rights and preferences summarized
below:
Conversion. Each share of Series D preferred stock is convertible into Arch
common stock at any time, at the option of the holder thereof, into 6.61318
shares of common stock. Upon completion of the merger of Arch and PageNet, each
share of Series D preferred stock will automatically convert into 6.61318 shares
of common stock of Arch.
Dividends. If not earlier converted, Series D preferred stock bears
dividends commencing March 15, 2001 at the rate of 10 7/8% per annum. At Arch's
option, dividends are payable in cash at the rate of $10.875 per share per annum
or through the issuance of one-tenth of one share of Arch's Series E preferred
stock per share per annum. If not paid semi-annually, dividends accumulate and
become payable upon redemption of the Series D preferred stock or upon
liquidation of Arch.
Voting Rights. Except as required by law, the Series D preferred stock and
the common stock vote together as a single class. Each share of Series D
preferred stock is entitled to as many votes as the number of shares of common
stock into which it is convertible (currently 6.61318 shares).
Liquidation Preference. Upon liquidation, dissolution or winding up of
Arch, before any distribution or payment is made to holders of common stock,
Arch must pay to the holders of Series D preferred stock an amount equal to (1)
$90.943977 per share, plus (2) 10.875% per annum on such amount through March
15, 2001, plus (3) any accrued and unpaid dividends on the Series D preferred
stock. If all mandatory dividends on the Series D preferred stock accrue and are
paid upon liquidation, the liquidation preference of the Series D preferred
stock will be $176.125 per share. If the assets of Arch are insufficient to
permit full payment of such liquidation preference to the holders of Series D
preferred stock, then the assets will be distributed pro rata among the holders
of the Series C, Series D and Series E preferred stock.
Redemption. Arch is required to redeem all outstanding shares of Series D
preferred stock on March 15, 2008 at a cash redemption price equal to the amount
of the liquidation preference of the Series D preferred stock.
SERIES E PREFERRED STOCK
The Series E preferred stock has the rights and preferences summarized
below:
Conversion. Series E preferred stock is not convertible into Arch
common stock.
Dividends. Series E preferred stock does not bear dividends.
Voting Rights. Except as required by law, the Series E preferred stock
has no voting rights.
Liquidation Preference. Upon liquidation, dissolution or winding up of
Arch, before any distribution or payment is made to holders of common
stock. Arch must pay to the holders of Series E preferred stock an amount
equal to $108.75 per share. If the assets of Arch are insufficient to
permit full payment of such liquidation preference to the holders of Series
E preferred stock, then the assets will be distributed pro rata among the
holders of the Series C, Series D and Series E preferred stock.
202
<PAGE> 212
Redemption. Arch is required to redeem all outstanding shares of
Series E preferred stock on March 15, 2008 at a cash redemption price equal
to the amount of the liquidation preference of the Series E preferred
stock.
WARRANTS
In connection with the MobileMedia acquisition, Arch issued:
- warrants to acquire up to 1,225,220 shares of common stock to the standby
purchasers and
- warrants to acquire up to 14,890,202 shares of common stock to persons
who were holders of record of common stock and Series C preferred stock
on January 27, 1999.
The warrant exercise price is $9.03 per share. This exercise price was
determined by negotiations between Arch and MobileMedia. These warrants will
expire on September 1, 2001.
In connection with the issuance of common stock for convertible
subordinated debentures in October 1999, Arch issued warrants to purchase
540,487 shares of common stock at $9.03 per share. These warrants also expire on
September 1, 2001.
The warrant exercise price or the number of shares purchasable upon
exercise of the warrants is subject to adjustment from time to time upon the
occurrence of stock dividends, stock splits, reclassifications, issuances of
stock or options at prices below prevailing market prices and other events
described in the warrant agreement. Arch may irrevocably reduce the warrant
exercise price for any period of at least 20 calendar days to any amount that
exceeds the par value of common stock.
FOREIGN OWNERSHIP RESTRICTIONS
Under the Communications Act of 1934, not more than 25% of Arch's capital
stock may be owned or voted by aliens or their representatives, a foreign
government or its representative or a foreign corporation if the Federal
Communications Commission finds that the public interest would be served by
denying such ownership. See "Industry Overview -- Regulation." Accordingly,
Arch's certificate of incorporation provides that Arch may redeem outstanding
shares of its stock from holders if the continued ownership of such stock by
such holders, because of their foreign citizenship or otherwise, would place the
Federal Communications Commission licenses held by Arch in jeopardy. Required
redemptions, if any, will be made at a price per share equal to the lesser of
the fair market value of the shares, as defined in the certificate of
incorporation, or, if such shares were purchased within one year prior to the
redemption, the purchase price of such shares.
ANTI-TAKEOVER PROVISIONS
Provisions of Delaware law and Arch's certificate of incorporation and
by-laws may have the effect of delaying, making more difficult or preventing a
change in control or acquisition of Arch by means of a tender offer, a proxy
contest or otherwise. These provisions, as summarized below, are expected to
discourage coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of Arch to first negotiate with
Arch. Arch believes that the benefits of increased protection of Arch's
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure Arch outweigh the disadvantages
of discouraging such proposals because, among other things, negotiations with
respect to such proposals could result in an improvement of their terms.
Rights Plan
Under Arch's preferred stock rights plan, each outstanding share of common
stock has attached to it one purchase right. Each purchase right entitles its
holder to purchase from Arch a fractional share of Series B preferred stock of
Arch at a cash purchase price of $150.00 per fractional share of preferred
stock, subject to adjustment. The purchase rights automatically attach to and
trade together with each share of common stock.
203
<PAGE> 213
Each fractional share of preferred stock has voting, dividend and
liquidation rights equivalent to one share of Arch's common stock. As a result,
an Arch stockholder who purchases all of the preferred stock fractional shares
that it is entitled to purchase will double its voting power, dividend rights
and liquidation rights.
The purchase rights are not exercisable or transferable separately from the
shares of common stock to which they are attached until ten business days
following the earlier of:
- a public announcement that an acquiring person, or group of affiliated or
associated acquiring persons, has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of
the common stock, or up to 33% in certain specified circumstances
described below, or
- the commencement of a tender offer or exchange offer that would result in
a person or group individually owning 30% or more of then outstanding
shares of common stock.
The purchase rights will not become exercisable, however, if the acquiring
person offers to purchase all outstanding shares of common stock and Arch's
independent directors determine that such offer is fair to Arch's stockholders
and in their best interests.
If the purchase rights become exercisable, each holder of a purchase right,
other than the acquiring person, will have the right to use the $150.00 exercise
price of the purchase right to purchase fractional shares of preferred stock.
All purchase rights that are beneficially owned by an acquiring person will
become null and void in such circumstances. Therefore, the acquiring person will
not increase its voting, dividend or liquidation rights.
If an acquiring person acquires common stock and either:
- Arch is acquired in a merger or other business combination transaction in
which Arch is not the surviving corporation or the common stock is
changed or exchanged, except for a merger that follows an offer
determined to be fair by Arch's independent directors as described above,
or
- 50% or more of Arch's assets or earning power is sold or transferred,
then each holder of a purchase right, other than the acquiring person, will have
the right to use the $150.00 exercise price of the purchase right to purchase
shares of common stock of the acquiring company at one-half of their then
current market price.
The purchase rights are not currently exercisable. In connection with the
MobileMedia acquisition, Arch amended the preferred stock rights plan to permit
each standby purchaser to acquire, without becoming an acquiring person, up to
(1) the number of shares distributed to it or purchased by it in connection with
the MobileMedia acquisition, plus (2) an additional 5% of the outstanding common
stock, but in no event more than a total of 33% of such outstanding stock for
W.R. Huff, 27% for Whippoorwill, 26% for CS First Boston, 15.5% for Northwestern
Mutual or 19.0% for Resurgence. The standby purchasers will not be considered to
be a group for purposes of the preferred stock rights plan solely because of
performance of their contractual commitments as standby purchasers.
Arch has further amended the plan to permit the PageNet merger to take
place without causing the purchase rights to become exercisable.
Classified Board of Directors
Arch's certificate of incorporation and bylaws provide that Arch's board of
directors will be divided into three classes, with the terms of each class
expiring in a different year. The bylaws provide that the number of directors
will be fixed from time to time exclusively by the board of directors, but shall
consist of not more than 15 nor less than three directors. A majority of the
board of directors then in office has the sole authority to fill in any
vacancies on the board of directors. The certificate of incorporation provides
that directors may be removed only by the affirmative vote of holders of at
least 80% of the voting power of all then outstanding shares of stock, voting
together as a single class.
204
<PAGE> 214
Stockholder Actions and Meetings
Arch's certificate of incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and prohibits
stockholder action by written consent in lieu of a meeting. The certificate of
incorporation and by-laws provide that special meetings of stockholders can be
called by the chairman of the board, pursuant to a resolution approved by a
majority of the total number of directors which Arch would have if there were no
vacancies on the board of directors, or by stockholders owning at least 20% of
the stock entitled to vote at the meeting. The business permitted to be
conducted at any special meeting of stockholders is limited to the business
brought before the meeting by the chairman of the board, or at the request of a
majority of the members of the board of directors, or as specified in the
stockholders' call for a meeting.
The by-laws set forth an advance notice procedure with regard to the
nomination of candidates for election as directors who are not nominees of the
board of directors. The by-laws provide that any stockholder entitled to vote in
the election of directors generally may nominate one or more persons for
election as directors only if detailed written notice has been given to the
Secretary of Arch within specified time periods.
Amendment of Certain Provisions of Arch's Certificate of Incorporation and
Bylaws
Arch's certificate of incorporation requires the affirmative vote of the
holders of at least 80% of the voting power of all then outstanding shares of
stock, voting together as a single class, to amend specified provisions of the
certificate of incorporation. These include provisions relating to the removal
of directors, the prohibition on stockholder action by written consent instead
of a meeting, the procedural requirements of stockholder meetings and the
adoption, amendment and repeal of certain articles of the bylaws.
Consideration of Non-Economic Factors in Acquisitions
Arch's certificate of incorporation empowers Arch's board of directors,
when considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
These factors may include: (1) comparison of the proposed consideration to be
received by stockholders in relation to the then current market price of the
capital stock, the estimated current value of Arch in a freely negotiated
transaction, and the estimated future value of Arch as an independent entity;
(2) the impact of such a transaction on the subscribers and employees of Arch
and its effect on the communities in which Arch operates; and (3) the ability of
Arch to fulfill its objectives under applicable statutes and regulations.
Restrictions on Purchases of Stock by Arch
Arch's certificate of incorporation prohibits Arch from repurchasing any
shares of Arch's stock from any person, entity or group that beneficially owns
5% or more of Arch's then outstanding voting stock at a price exceeding the
average closing price for the twenty trading business days prior to the purchase
date, unless a majority of Arch's disinterested stockholders approves the
transaction. A disinterested stockholder is a person who holds less than 5% of
the voting power of Arch. This restriction on purchases by Arch does not apply
to (1) any offer to purchase a class of Arch's stock which is made on the same
terms and conditions to all holders of the class of stock, (2) any purchase of
stock owned by such a 5% stockholder occurring more than two years after such
stockholder's last acquisition of Arch's stock, (3) any purchase of Arch's stock
in accordance with the terms of any stock option or employee benefit plan, or
(4) any purchase at prevailing marketing prices pursuant to a stock repurchase
program.
"Blank Check" Preferred Stock
Arch's board of directors is authorized, without any further action by the
stockholders of Arch, to issue preferred stock from time to time in one or more
series and to fix the voting, dividend, conversion, redemption and liquidation
rights and preferences of any such series and whatever other designations,
preferences and special rights the board of directors may determine. The
issuance of preferred stock, while
205
<PAGE> 215
providing desirable flexibility in connection with possible financings,
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of common stock and be used as a means of
discouraging, delaying or preventing a change of control in Arch.
Delaware Anti-Takeover Statute
Section 203 of the Delaware corporations statute is applicable to publicly
held corporations organized under the laws of Delaware, including Arch. Subject
to various exceptions, Section 203 provides that a corporation may not engage in
any "business combination" with any "interested stockholder" for a three-year
period after such stockholder becomes an interested stockholder unless the
interested stockholder attained that status with the approval of the board of
directors or the business combination is approved in a prescribed manner. A
"business combination" includes mergers, asset sales and other transactions
which result in a financial benefit to the interested stockholder. Subject to
various exceptions, an interested stockholder is a person who, together with
affiliates and associates, owns 15% or more of the corporation's outstanding
voting stock or was the owner of 15% or more of the outstanding voting stock
within the previous three years. Section 203 may make it more difficult for an
interested stockholder to effect various business combinations with a
corporation for a three-year period. The stockholders may elect not to be
governed by Section 203, by adopting an amendment to the corporation's
certificate of incorporation or bylaws which becomes effective twelve months
after adoption. Arch's certificate of incorporation and by-laws do not exclude
Arch from the restrictions imposed by Section 203. It is anticipated that the
provisions of Section 203 may encourage companies interested in acquiring Arch
to negotiate in advance with Arch's board of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for common stock is Equiserve Trust
Company, N.A., 150 Royall Street, Canton, MA 02021.
REGISTRATION RIGHTS
Holders of Class B common stock have demand registration rights which may
be exercised no more than twice. These demand rights entitle the holders of
Class B common stock to require Arch to register all or any portion of their
shares for public resale by the holders. Arch has also agreed to provide the
same stockholders "piggyback" registration rights with respect to other
offerings filed by Arch. These piggyback rights entitle any holder of Class B
common stock to include their shares in a registration statement for shares that
Arch wishes to sell, unless the underwriters for Arch's shares believe that the
number of shares included in the registration statement should be limited for
marketing reasons. In that case, Class B common stockholders would be entitled
to include the same percentage of the shares they own as the percentage that any
other stockholder participating in the offering is entitled to include.
The holders of Series C preferred stock and the former stockholders of
PageCall are also entitled to demand rights and piggyback registration rights.
The demand rights entitle the holders of at least 25% of the outstanding shares
of Series C preferred stock to require Arch to register their shares in a public
resale having an aggregate offering price exceeding $1 million. The piggyback
rights entitle all holders of Series C preferred stock to include their shares
in a registration statement for shares that Arch wishes to sell, unless the
underwriters for Arch's shares believe that the number of shares included in the
registration statement should be limited for marketing reasons. In that case,
Series C preferred stockholders would be entitled to include the same percentage
of the shares they own as the percentage that any other stockholder
participating in the offering is entitled to include.
206
<PAGE> 216
DESCRIPTION OF INDEBTEDNESS
ARCH
Arch and its principal operating subsidiaries each have substantial amounts
of outstanding indebtedness that provide necessary funding and impose various
limitations on Arch's operations.
Secured Credit Facility
A principal operating subsidiary has a secured credit facility that
currently permits it to borrow up to $577.9 million from The Bank of New York,
Royal Bank of Canada, Toronto Dominion (Texas), Inc., Barclays Bank, PLC and
other financial institutions. At December 31, 1999, $438.9 million of borrowings
were outstanding.
The facility consists of a $175.0 million reducing revolving Tranche A
facility, a $100.0 million Tranche B facility and a $302.9 million Tranche C
facility. The Tranche A Facility will be reduced on a quarterly basis commencing
on September 30, 2000 and will mature on June 30, 2005. The Tranche B Facility
converted into a term loan on June 27, 1999 and will be amortized in quarterly
installments commencing September 30, 2000, with an ultimate maturity date of
June 30, 2005. The Tranche C Facility began amortizing in annual installments
commencing December 31, 1999, with an ultimate maturity date of June 30, 2006.
On March 23, 2000, the senior credit facility was amended to add a $746.6
million Tranche B-1 term loan to be used to assume obligations under PageNet's
existing credit facility upon completion of the pending PageNet merger. The
Tranche B-1 term loan will be amortized in quarterly installments commencing
March 31, 2001, with an ultimate maturity date of June 30, 2006.
Arch and substantially all of its operating subsidiaries are either
borrowers or guarantors under the secured credit facility. Direct obligations
and guarantees under the facility are secured by a pledge of the capital stock
of some operating subsidiaries and by security interests in various assets.
Borrowings under the secured credit facility bear interest based on a
reference rate equal to either:
- The Bank of New York's announced alternate base rate plus a margin of
between 0.75% and 5.625%, determined by comparing total debt to
annualized earnings before interest, income taxes, depreciation and
amortization;
- The Bank of New York's announced LIBOR rate, plus a margin of between
2.0% and 6.875%, determined by comparing total debt to annualized
earnings before interest, income taxes, depreciation and amortization.
The weighted average interest rate was 11.6% on March 31, 2000 and has
varied from 10.7% to 11.6% since the facility was comprehensively amended in
June 1999.
The secured credit facility requires payment of fees on the daily average
amount available to be borrowed under the Tranche A facility. These fees vary
depending on specified ratios of total debt to annualized earnings before
interest, income taxes, depreciation and amortization.
The secured credit facility contains restrictions that limit, among other
things:
- additional indebtedness and encumbrances on assets;
- cash dividends and other distributions;
- mergers and sales of assets;
- the repurchase or redemption of capital stock;
- investments;
- acquisitions that exceed certain dollar limitations without the lenders'
prior approval; and
- prepayment of indebtedness other than indebtedness under the secured
credit facility.
207
<PAGE> 217
In addition, the secured credit facility requires Arch and its subsidiaries
to meet financial covenants, including ratios of earnings before interest,
income taxes, depreciation and amortization to fixed charges, earnings before
interest, income taxes, depreciation and amortization to debt service, earnings
before interest, income taxes, depreciation and amortization to interest service
and total indebtedness to earnings before interest, income taxes, depreciation
and amortization.
Subsidiary's Senior Notes
Another principal operating subsidiary of Arch has the following issues of
unsecured senior notes outstanding:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT INTEREST
ACCRETED AT 9/30/99 RATE MATURITY DATE INTEREST PAYMENT DATES
- ------------------- -------- ---------------- ----------------------
<S> <C> <C> <C>
$125.0 million 9 1/2% February 1, 2004 February 1, August 1
$100.0 million 14% November 1, 2004 May 1, November 1
$127.5 million 12 3/4% July 1, 2007 January 1, July 1
$139.8 million 13 3/4% April 15, 2008 April 15, October 1
</TABLE>
Redemption
The subsidiary may choose to redeem any amounts of these senior notes
during the periods indicated in the following table. The redemption prices will
equal the indicated percentages of the principal amount of the notes, together
with accrued and unpaid interest to the redemption date:
<TABLE>
<CAPTION>
9 1/2% SENIOR NOTES
- ------------------------------------------------------
REDEMPTION DATE REDEMPTION PRICE
- --------------- ----------------
<S> <C>
February 1, 1999 to January 31, 2000 104.750%
February 1, 2000 to January 31, 2001 103.167%
February 1, 2001 to January 31, 2002 101.583%
On or after February 1, 2002 100.000%
</TABLE>
<TABLE>
<CAPTION>
14% SENIOR NOTES
- ------------------------------------------------------
REDEMPTION DATE REDEMPTION PRICE
- --------------- ----------------
<S> <C>
November 1, 1999 to October 31, 2000 107.000%
November 1, 2000 to October 31, 2001 104.625%
November 1, 2001 to October 31, 2002 102.375%
On or after November 1, 2002 100.000%
</TABLE>
<TABLE>
<CAPTION>
12 3/4% SENIOR NOTES
- ------------------------------------------------------
REDEMPTION DATE REDEMPTION PRICE
- --------------- ----------------
<S> <C>
July 1, 2003 to June 30, 2004 106.375%
July 1, 2004 to June 30, 2005 104.250%
July 1, 2005 to June 30, 2006 102.125%
On or after July 1, 2006 100.000%
</TABLE>
<TABLE>
<CAPTION>
13 3/4% SENIOR NOTES
- ------------------------------------------------------
REDEMPTION DATE REDEMPTION PRICE
- --------------- ----------------
<S> <C>
April 15, 2004 to April 14, 2005 106.875%
April 15, 2005 to April 14, 2006 104.583%
April 15, 2006 to April 14, 2007 102.291%
On or after April 15, 2007 100.000%
</TABLE>
208
<PAGE> 218
In addition, until July 1, 2001, the subsidiary may elect to use the
proceeds of a qualifying equity offering to redeem up to 35% in principal amount
of the 12 3/4% senior notes until July 1, 2001, or up to 35% in principal amount
of the 13 3/4% senior notes until April 15, 2002, at a redemption price equal to
112.75% of the principal amount of the 12 3/4% senior notes or 113.75% of the
principal amount of the 13 3/4% senior notes, together with accrued interest.
The subsidiary may make such redemption, however, only if 12 3/4% senior notes
with an aggregate principal amount of at least $84.5 million remain outstanding
immediately after giving effect to any such redemption of 12 3/4% senior notes,
and only if 13 3/4% senior notes with an aggregate principal amount of at least
$95.6 million remain outstanding immediately after giving effect to any such
redemption of 13 3/4% senior notes. Arch is not, however, obligated to redeem
any 12 3/4% senior notes or 13 3/4% senior notes with the proceeds of any equity
offering.
Restrictive Covenants
The indentures for the senior notes limit the ability of specified
subsidiaries to pay dividends, incur secured or unsecured indebtedness, incur
liens, dispose of assets, enter into transactions with affiliates, guarantee
parent company obligations, sell or issue stock and engage in any merger,
consolidation or sale of substantially all of their assets.
Changes in Control
Upon the occurrence of a change of control of Arch or a principal operating
subsidiary, each holder of senior notes has the right to require repurchase of
its senior notes for cash. The repurchase prices for the four series of senior
notes vary from 101% to 102% of the principal amount of such notes plus accrued
and unpaid interest to the date of repurchase. A change of control of a
corporation, as defined in the indentures, includes:
- the acquisition by a person or group of beneficial ownership of the
majority of securities having the right to vote in the election of
directors;
- specified types of changes in the board of directors;
- the sale or transfer of all or substantially all of the corporation's
assets; or
- merger or consolidation with another corporation which results in a
person or group becoming the beneficial owner of a majority of the
securities of the surviving corporation having the right to vote in the
election of directors.
Arch does not believe that the merger will result in a change in control,
as defined.
Events of Default
The following constitute events of default under the indentures:
- a default in the timely payment of interest on the senior notes if such
default continues for 30 days;
- a default in the timely payment of principal of, or premium, if any, on
any of the senior notes either at maturity, upon redemption or
repurchase, by declaration or otherwise;
- the borrowers' failure to observe or perform any of their other covenants
or agreements in the senior notes or in the indenture, but generally only
if the failure continues for a period of 30 or 60 days after written
notice of default;
- specified events of bankruptcy, insolvency or reorganization involving
the borrowers;
- a default in timely payment of principal, premium or interest on any
indebtedness for borrowed money aggregating $5.0 million or more in
principal amount;
209
<PAGE> 219
- the occurrence of an event of default as defined in any indenture or
instrument involving at least $5.0 million aggregate principal amount of
indebtedness for borrowed money that gives rise to the acceleration of
such indebtedness;
- the entry of one or more judgments, orders or decrees for the payment of
more than a total of $5.0 million, net of any applicable insurance
coverage, against the borrowers or any of their properties; or
- the holder of any secured indebtedness aggregating at least $5.0 million
in principal amount seeks foreclosure, set-off or other recourse against
assets of the borrowers having an aggregate fair market value of more
than $5.0 million.
Arch's Discount Notes
In March 1996, Arch issued 10 7/8% discount notes representing $467.4
million in aggregate principal amount at maturity. The discount notes are
scheduled to mature on March 15, 2008. The discount notes were issued at a
substantial discount from the principal amount due at maturity. As of March 31,
2000, Arch has outstanding $272.4 principal amount at maturity of discount
notes. Interest does not accrue on the discount notes prior to March 15, 2001.
After that date, interest will accrue at the rate of 10 7/8% per year, payable
semi-annually on March 15 and September 15, commencing September 15, 2001.
Arch may choose to redeem any amount of discount notes on or after March
15, 2001 at the following redemption prices, together with accrued and unpaid
interest to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PRICE
- --------------- ----------------------------
<S> <C>
March 15, 2001 to March 14, 2002 104.078% of principal amount
March 15, 2002 to March 14, 2003 102.719% of principal amount
March 15, 2003 to March 14, 2004 101.359% of principal amount
On or after March 15, 2004 100.000% of principal amount
</TABLE>
The indenture for the discount notes contains restrictive covenants, change
in control provisions and events of default that are generally comparable to
those of the senior notes described above.
Arch's Convertible Debentures
As of March 31, 2000, Arch has outstanding $1.0 million in principal amount
of 6 3/4% convertible subordinated debentures due 2003. Interest is payable
twice a year on June 1 and December 1. The convertible debentures are scheduled
to mature on December 1, 2003. The principal amount of the convertible
debentures is currently convertible into common stock at a conversion price of
$50.25 per share at any time prior to redemption or maturity.
Arch may choose to redeem any amount of the convertible debentures at any
time, at the following redemption prices, together with accrued and unpaid
interest to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PRICE
- --------------- ----------------------------
<S> <C>
December 1, 1997 to November 30, 1998 104.050% of principal amount
December 1, 1998 to November 30, 1999 103.375% of principal amount
December 1, 1999 to November 30, 2000 102.700% of principal amount
December 1, 2000 to November 30, 2001 102.025% of principal amount
December 1, 2001 to November 30, 2002 101.350% of principal amount
December 1, 2002 to November 30, 2003 100.675% of principal amount
On or after December 1, 2003 100.000% of principal amount
</TABLE>
The convertible debentures represent senior unsecured obligations of Arch
and are subordinated to senior indebtedness of Arch, as defined in the
indenture. The indenture does not contain any limitation or restriction on the
incurrence of senior indebtedness or other indebtedness or securities of Arch or
its subsidiaries.
210
<PAGE> 220
Upon the occurrence of a fundamental change, as defined in the indenture,
each holder of convertible debentures has the right to require Arch to
repurchase its convertible debentures for cash, at a repurchase price of 100% of
the principal amount of the convertible debentures, plus accrued interest to the
repurchase date. The following constitute fundamental changes:
- acquisition by a person or a group of beneficial ownership of stock of
Arch entitled to exercise a majority of the total voting power of all
capital stock, unless such beneficial ownership is approved by the board
of directors;
- specified types of changes in Arch's board of directors;
- any merger, share exchange, or sale or transfer of all or substantially
all of the assets of Arch to another person, with specified exceptions;
- the purchase by Arch of beneficial ownership of shares of its common
stock if the purchase would result in a default under any senior debt
agreements to which Arch is a party; or
- distributions of common stock by Arch to its stockholders in specified
circumstances.
The following constitute events of default under the indenture:
- a default in the timely payment of any interest on the convertible
debentures if such default continues for 30 days;
- a default in the timely payment of principal or premium on any
convertible debenture at maturity, upon redemption or otherwise;
- a default in the performance of any other covenant or agreement of Arch
that continues for 30 days after written notice of such default;
- a default under any indebtedness for money borrowed by Arch that results
in more than $5.0 million of indebtedness being accelerated; or
- the occurrence of events of bankruptcy, insolvency or reorganization with
respect to Arch.
PAGENET
Senior Subordinated Notes
Because the exchange offer and the merger is subject to the requirement
that at least 97.5% of the PageNet senior subordinated notes are tendered and
not withdrawn in the exchange offer, the maximum aggregate principal amount of
the senior subordinated notes that may remain outstanding after the merger is
$30,000,000. Alternatively, if the merger is approved in accordance with the
terms of the prepackaged bankruptcy plan under chapter 11 of the Bankruptcy
Code, none of the senior subordinated notes will be outstanding after the
merger. If any senior subordinated notes remain outstanding after the merger,
they will remain obligations of PageNet, which will become a wholly owned
subsidiary of Arch in the merger.
The terms of the senior subordinated notes that are the subject of the
exchange offer made by this prospectus are as follows:
8.875% senior subordinated notes due 2006
The 8.875% notes are limited in aggregate principal amount to $300,000,000
and bear interest at the rate of 8.875% per annum, payable semi-annually on
February 1 and August 1 of each year. The 8.875% notes are subject to
redemption, as a whole or in part, at any time after February 1, 1999, at the
following redemption prices: 104.438% of the face amount in 1999, 102.959% of
the face amount in 2000, 101.479% of the face amount in 2001 and at 100% of the
face amount each year thereafter, together with accrued interest up to the date
of the redemption.
211
<PAGE> 221
10.125% senior subordinated notes due 2007
The 10.125% notes are limited in aggregate principal amount to $400,000,000
and bear interest at the rate of 10.125% per annum, payable semi-annually on
February 1 and August 1 of each year. The 10.125% notes are subject to
redemption, as a whole or in part, at any time after August 1, 2000, at the
following redemption prices: 105.0625% of the face amount in 2000, 103.3750% of
the face amount in 2001, 101.6875% of the face amount in 2002 and at 100% of the
face amount each year thereafter, together with accrued interest up to the date
of the redemption.
10% senior subordinated notes due 2008
The 10% notes are limited in aggregate principal amount to $500,000,000 and
bear interest at the rate of 10% per annum, payable semi-annually on April 15
and October 15 of each year. The 10% notes are subject to redemption, as a whole
or in part, at any time after October 15, 2001, at the following redemption
prices: 105% of the face amount in 2001, 103.333% of the face amount in 2002,
101.667% of the face amount in 2003 and at 100% of the face amount each year
thereafter, together with accrued interest up to the date of the redemption.
212
<PAGE> 222
COMPARISON OF RIGHTS OF
PAGENET STOCKHOLDERS AND ARCH STOCKHOLDERS
The rights of PageNet stockholders are currently governed by Delaware
corporate law and PageNet's certificate of incorporation and bylaws. Upon
completion of the merger, PageNet's stockholders will become stockholders of
Arch and their rights as Arch stockholders will be governed by Delaware
corporate law and Arch's certificate of incorporation and bylaws. There are a
number of differences between the rights of PageNet stockholders and Arch
stockholders. The following is a brief summary of the material differences
between the rights of Arch stockholders and the rights of PageNet stockholders.
AUTHORIZED CAPITAL
PageNet
PageNet is authorized to issue 275,000,000 shares of all classes of stock,
250,000,000 of which are shares of common stock, par value $.01 per share, and
25,000,000 of which are shares of preferred stock, par value $.01 per share. As
of April 25, 2000, there were 104,242,067 shares of common stock issued and
outstanding and no shares of preferred stock issued and outstanding.
Arch
Arch is authorized to issue 170,000,000 shares of all classes of stock,
150,000,000 of which are shares of common stock, par value $.01 per share,
10,000,000 of which are shares of Class B common stock, par value $.01 per
share, and 10,000,000 of which are shares of preferred stock, par value $.01 per
share. Arch's board of directors is authorized, subject to Delaware corporate
law and without further approval of its stockholders, to issue shares of
preferred stock from time to time in one or more series and to fix the
designations, powers, preferences and other rights and qualifications,
limitations and restrictions on any series of preferred stock. As of May 10,
2000, there were 63,694,324 shares of common stock issued and outstanding
including 2,856,721 shares to be issued upon receipt of required documentation
from the recipients, 2,712,185 shares of Class B common stock issued and
outstanding, no shares of Series B preferred stock issued and outstanding,
250,000 shares of Series C convertible preferred stock issued and outstanding
and 1,000,000 shares of Series D convertible preferred stock issued and
outstanding.
STOCKHOLDERS RIGHTS AGREEMENT
PageNet
Under PageNet's stock purchase rights plan, each outstanding share of
PageNet common stock has attached to it one common share purchase right. Each
purchase right entitles its holder to purchase from PageNet one share of PageNet
common stock at a cash purchase price of $150.00 per share. The purchase rights
automatically attach to and trade together with each share of PageNet common
stock.
The purchase rights are not exercisable or transferable separately from the
shares of PageNet common stock to which they are attached until ten business
days following the earlier of:
- a public announcement that an acquiring person, or group of affiliated or
associated acquiring persons, has acquired, or obtained the right to
acquire, beneficial ownership of 20%;
- the commencement or announcement of a tender offer or exchange offer that
would result in a person or group individually owning 20% or more of the
then outstanding shares of PageNet common stock; or
- the declaration of the board of directors that a person which has become
the beneficial owner of more than 10% of PageNet's then outstanding
shares of common stock is an adverse person. A person may be deemed an
adverse person if
-- the board determines, after a reasonable inquiry, that such person's
ownership is likely to cause PageNet to either repurchase such shares
or place pressure on PageNet to enter into a
213
<PAGE> 223
transaction that not serve the long term best interests of PageNet but
would provide such person with a short term financial gain or
-- such ownership is likely to have a material adverse impact on the
business or prospects of PageNet.
PageNet's board of directors may redeem the rights at a price of $.01 per
right, in whole or in part, at any time prior to ten business days following:
- the first public announcement that a person has become an acquiring
person;
- the declaration by the board of directors that a person is an adverse
person; or
- the expiration of the rights on September 24, 2004.
Thereafter, the rights may be redeemed in connection with acquisitions not
involving any acquiring person or adverse person or following a disposition of
shares by the acquiring person or adverse person.
If a purchase right becomes exercisable, each holder of a purchase right,
other than an acquiring person, will have the right to purchase at an exercise
price of $150.00, shares of PageNet common stock at a price equal to one-half of
their current market price. All purchase rights that are beneficially owned by
an acquiring person will become null and void in such circumstances.
If an acquiring person acquires common stock and:
- PageNet is acquired in a merger or other business combination transaction
in which PageNet is not the surviving corporation or the common stock is
changed or exchanged; or
- 50% or more of PageNet's assets or earning power is sold or transferred;
each holder of a purchase right, other than the acquiring person, will have the
right to use the $150.00 exercise price of the purchase right to purchase shares
of common stock of the acquiring company at one-half of their then current
market price.
Arch
Under Arch's preferred stock rights plan, each outstanding share of common
stock has attached to it one purchase right. Each purchase right entitles its
holder to purchase from Arch a unit consisting of one one-thousandth of a share
of Series B preferred stock at a cash purchase price of $150.00 per preferred
stock unit, subject to adjustment. The purchase rights automatically attach to
and trade together with each share of common stock.
The purchase rights are not exercisable or transferable separately from the
shares of common stock to which they are attached until ten business days
following the earlier of:
- a public announcement that an acquiring person, or group of affiliated or
associated acquiring persons, has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of
the common stock, or up to 33% in certain specified circumstances
described below, or
- the commencement of a tender offer or exchange offer that would result in
a person or group individually owning 30% or more of then outstanding
shares of common stock.
The purchase rights will not become exercisable, however, if the acquiring
person offers to purchase all outstanding shares of common stock and Arch's
independent directors determine that such offer is fair to Arch's stockholders
and in their best interests.
If the purchase rights become exercisable, each holder of a purchase right,
other than the acquiring person, will have the right to use the $150.00 exercise
price of the purchase right to purchase shares of common stock at one-half of
their then current market price. All purchase rights that are beneficially owned
by an acquiring person will become null and void in such circumstances.
214
<PAGE> 224
If an acquiring person acquires common stock and either:
- Arch is acquired in a merger or other business combination transaction in
which Arch is not the surviving corporation or the common stock is
changed or exchanged, except for a merger that follows an offer
determined to be fair by Arch's independent directors as described above,
or
- 50% or more of Arch's assets or earning power is sold or transferred,
then each holder of a purchase right, other than the acquiring person, will have
the right to use the $150.00 exercise price of the purchase right to purchase
shares of common stock of the acquiring company at one-half of their then
current market price.
BOARDS OF DIRECTORS
PageNet
PageNet's certificate of incorporation divides its board of directors into
three classes of directors that are as nearly equal in number as possible with
three-year terms. As a result, approximately one-third of PageNet's board of
directors is elected each year. A quorum of directors consists of a majority of
PageNet's directors then in office.
Arch
Arch's certificate of incorporation divides its board of directors, not
including any directors that may be elected by the preferred stockholders, into
three classes of directors that are as nearly equal in number as possible with
three-year terms. As a result, approximately one-third of PageNet's directors,
not including the directors elected by preferred stockholders, if any, are
elected each year. A quorum of directors consists of a majority of Arch's board
of directors.
NUMBER, FILLING OF VACANCIES AND REMOVAL OF DIRECTORS
PageNet
Currently, PageNet has eight members on its board of directors. Directors
can be removed, with or without cause, at any annual or special meeting of
stockholders, the notice for which must state that the removal of a director is
among the purposes of the meeting, by the vote of stockholders holding at least
80% of the voting power of PageNet's outstanding stock entitled to vote
generally in the election of directors, voting together as a single class.
Arch
Currently, Arch's board of directors has nine members. Directors can be
removed, with or without cause, at any annual or special meeting of
stockholders, the notice for which must state that the removal of a director is
among the purposes of the meeting, by the vote of stockholders holding at least
80% of the voting power of Arch's outstanding stock entitled to vote generally
in the election of directors, voting together as a single class.
Directors elected to Arch's board of directors by the series B preferred
stockholders can be removed, with or without cause, only by the series B
preferred stockholders entitled to vote in the election of those directors.
Vacancies created by the resignation, death or removal of a director elected by
the series B preferred stockholders will be filled at a special meeting called
for that purpose by the series B preferred stockholders.
The holders of Series C preferred stock have the right, voting as a
separate class, to elect one member of Arch's board of directors, and such
director has the right to be a member of any committee of the board.
215
<PAGE> 225
SPECIAL MEETINGS OF STOCKHOLDERS
PageNet
PageNet's certificate of incorporation provides that only the chairman of
the board or the president may call a special meeting of stockholders, within
ten days after receipt of a written request of a majority of PageNet's board of
directors. The business permitted to be conducted at any special stockholders'
meeting is limited to business brought before the meeting by the chairman of the
board, the president, or at the request of a majority of the board of directors.
Arch
Arch's certificate of incorporation provides that only the chairman of the
board, a majority of the total number of directors which Arch would have if
there were no vacancies or holders of not less than 20% of the shares of Arch's
outstanding stock entitled to vote generally in the election of directors,
voting together as a single class, may call a special meeting of stockholders.
The business permitted to be conducted at any special stockholders' meeting is
limited to business brought before the meeting by the chairman of the board, at
the request of a majority of the board of directors or as specified in a written
request by the holders of 20% of the shares of Arch's outstanding stock entitled
to vote generally in the election of directors, voting together as a single
class.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS OTHER THAN ELECTION OF
DIRECTORS AT AN
ANNUAL MEETING
PageNet
PageNet's bylaws provide that a stockholder may propose that business be
brought before an annual stockholders' meeting if written notice of such
proposal is delivered to and received by PageNet's senior vice president,
general counsel and assistant secretary at PageNet's principal executive office
not more than 120 days nor less than 80 days prior to the anniversary date of
the preceding year's annual meeting. If the date of the meeting has changed more
than 30 days from the preceding year, then the stockholder's notice must be
received not later than the 15th day following the date on which notice of the
meeting was mailed or was publicly announced, whichever occurred first.
Arch
Arch's bylaws provide that a stockholder may propose that business be
brought before an annual stockholders' meeting if written notice of such
proposal is delivered to and received by Arch's secretary at Arch's principal
executive office not less than 80 days prior to the annual meeting. If notice of
the date of the annual meeting or public disclosure of the date of the annual
meeting is given less than 90 days prior to the date of the annual meeting, then
the stockholder's notice must be received not later than the 10th day following
the date on which notice of the meeting was mailed or was publicly announced.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS OF DIRECTORS
PageNet
PageNet's bylaws provide that a stockholder may nominate a person for
election to the board of directors at an annual or special stockholders' meeting
if written notice is delivered to and received by PageNet's senior vice
president, general counsel and assistant secretary at PageNet's principal
executive office not more than 120 days nor less than 80 days prior to the
anniversary date of the preceding year's annual meeting or the date of the
special meeting. If the date of the annual meeting has changed more than 30 days
from the preceding year or the date of the special meeting was not publicly
announced more than 90 days prior to the meeting, then the stockholder's notice
must be received not later than the 15th day following the date on which notice
of the annual or special meeting was mailed or was publicly announced, whichever
occurred first.
216
<PAGE> 226
Arch
Arch's bylaws provide that a stockholder may nominate a person for election
to the board of directors at an annual or special stockholders' meeting if
written notice is delivered to and received by Arch's secretary at Arch's
principal executive office not less than 80 days prior to the annual or special
meeting. If notice of the date of the annual or special meeting or public
disclosure of the date of the meeting is given less than 90 days prior to the
date of the annual or special meeting, then the stockholder's nomination must be
received not later than the 10th day following the date on which the
announcement of the meeting date was communicated to stockholders.
LIQUIDATION
PageNet
PageNet's certificate of incorporation provides that any vote authorizing
liquidation of PageNet or proceedings for its dissolution may provide, subject
to the rights of creditors and the rights expressly provided for particular
classes or series of stock, for the pro rata distribution of PageNet's assets to
its stockholders, wholly or in part in kind, whether in cash or other property.
The vote may also authorize PageNet's board of directors to determine the
valuation of PageNet's assets for the purpose of liquidation and may divide, or
authorize the board of directors to divide, PageNet's assets, or any part of
them, among its stockholders in a manner that each stockholder will receive a
proportionate amount in value of PageNet's cash or property upon liquidation or
dissolution, even though each stockholder may not receive a strictly
proportionate share of each asset.
Arch
Arch's certificate of incorporation contains no liquidation provision.
AMENDMENTS TO BYLAWS
PageNet
The provisions in PageNet's certificate of incorporation relating to the
amendment of PageNet's bylaws are similar to those in Arch's certificate of
incorporation, except that, PageNet's certificate of incorporation does not
require an 80% vote of PageNet's outstanding shares of capital stock to amend,
repeal or adopt provisions inconsistent with the bylaws related to when and
where stockholders' meetings may be held, the business permitted to be conducted
at annual meetings of stockholders or the voting procedures at meetings of
stockholders and the use of inspectors of election.
Arch
Arch's certificate of incorporation provides that its board of directors is
authorized to adopt, amend or repeal Arch's bylaws. Bylaws adopted by Arch's
board of directors may be amended or repealed by the board of directors or by a
majority stockholder vote, except that Arch's certificate of incorporation
requires the vote of at least 80% of Arch's outstanding shares of capital stock
entitled to vote generally in the election of directors, voting together as a
single class, to amend, repeal or adopt any provisions inconsistent with the
bylaws related to:
- when and where stockholders' meetings may be held and the business
permitted to be conducted at annual meetings of stockholders;
- the business permitted to be conducted at special meetings of
stockholders and who may call those special meetings;
- the notice and quorum requirements for stockholder meetings;
- the requirements for stockholders to bring proposals before an annual
meeting of stockholders;
- the voting procedures at meetings of stockholders and the use of
inspectors of election;
217
<PAGE> 227
- the requirements for stockholders to nominate persons for election as
directors;
- the size of the board of directors;
- the election and classification of directors;
- the removal of directors and the filling of vacancies on the board of
directors; and
- the amendment of Arch's bylaws.
REDEMPTION
PageNet
Shares of PageNet's common stock are not subject to redemption by PageNet.
Shares of any series of PageNet's preferred stock will be subject to redemption
by PageNet as set forth in the resolutions adopted by PageNet's board of
directors that authorize the issuance of that series of preferred stock.
Arch
Outstanding shares of Arch's stock are always subject to redemption by
Arch, by action of Arch's board of directors, if, in the judgment of the board
of directors, the action should be taken to prevent the loss of, or to secure
the reinstatement of, any license or franchise from any governmental agency that
is held by Arch or any of its subsidiaries to conduct any portion of their
business and which license or franchise is conditioned upon some or all of
Arch's stockholders possessing prescribed qualifications. The terms and
conditions of any such redemption will be as follows:
- the redemption price will equal the lesser of (i) the average closing
price for the shares of stock for the 45 days preceding the notice of
redemption, or (ii) the purchase price of shares of stock, if the shares
were purchased within one year of the redemption date by a person whose
stockholdings, either individually or taken together with the
stockholdings of any other person, may result in the loss of, or the
failure to secure the reinstatement of, any license or franchise from any
governmental agency;
- the redemption price may be paid in cash, in debt or equity securities of
Arch or any of its subsidiaries or in any combination of cash and
securities;
- if Arch is to redeem less than all the shares of stock held by a person
whose stockholdings, either individually or taken together with the
stockholdings of any other person, may result in the loss of, or the
failure to secure the reinstatement of, any license or franchise from any
governmental agency, the selection of the shares to be redeemed will be
determined by Arch's board of directors;
- at least 30 days' written notice of the redemption date must be given to
the holders of the shares of stock to be redeemed, provided that the date
of the written notice may be the redemption date if the cash and/or
securities used effect the redemption are placed in trust for the benefit
of the holders of the shares of stock to be redeemed and are subject to
immediate withdrawal upon surrender of the stock certificates;
- from and after the redemption date, any and all rights of the holders of
the shares of stock to be redeemed will terminate and the holders will
only be entitled to receive the cash and/or securities payable upon
redemption; and
- any other terms and conditions as Arch's board of directors may
determine.
LEGAL MATTERS
The validity of the common stock of PageNet and the Class B common stock of
Vast offered by PageNet in the exchange offer will be passed upon for PageNet by
Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603.
218
<PAGE> 228
EXPERTS
The consolidated financial statements of PageNet at December 31, 1998 and
1999, and for each of the three years in the period ended December 31, 1999,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report, which contains an explanatory paragraph describing conditions that
raise substantial doubt about PageNet's ability to continue as a going concern
as described in Note 2 to PageNet's consolidated financial statements, which is
included in this prospectus. Such consolidated financial statements are included
in reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The financial statements of Arch included in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports which are included in this prospectus in reliance upon their
authority as experts in accounting and auditing in giving those reports.
The consolidated financial statements of MobileMedia at December 31, 1998
and 1997, and for each of the three years in the period ended December 31, 1998,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report, which contains an explanatory paragraph describing conditions that
raise substantial doubt about MobileMedia's ability to continue as a going
concern as described in Note 1 to MobileMedia's consolidated financial
statements, which is included in this prospectus. Such consolidated financial
statements are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
PageNet and Arch file reports, proxy statements and other information with
the SEC as required by the Exchange Act.
MobileMedia Communications, Inc. and MobileMedia Corporation were also
subject to the informational requirements of the Securities Exchange Act of 1934
but filed only limited reports after the commencement of their bankruptcy
proceedings in January 1997. Financial statements included in MobileMedia
Communications, Inc. and MobileMedia Corporation's periodic reports from
February 1997 through June 1998 were not prepared in accordance with generally
accepted accounting principles due to those companies' inability at the time of
such filings to determine the amount of an impairment loss related to long-lived
assets pursuant to Financial Accounting Standard No. 121. Those financial
statements are unaudited and have been revised periodically based on subsequent
determinations of changes in facts and circumstances impacting previously filed
unaudited financial statements. The audited financial statements of MobileMedia
contained in this prospectus reflect adjustments from the unaudited statements,
including an impairment adjustment of $792.5 million recorded as of December 31,
1996.
You can find, copy and inspect information filed by PageNet, by Arch, and,
to the extent available, by MobileMedia Communications, Inc. and MobileMedia
Corporation with the Securities and Exchange Commission at the public reference
facilities maintained by the Securities and Exchange Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Securities and
Exchange Commission's regional offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You can obtain copies of information filed by PageNet with the SEC at
prescribed rates by writing to the Securities and Exchange Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. You can call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. You can review PageNet's, Arch's, MobileMedia
Communications, Inc. and MobileMedia Corporation's electronically filed reports,
proxy and information statements on the Securities and Exchange Commission's
world wide web site at http://www.sec.gov. PageNet's common stock trades on the
Nasdaq SmallCap Market under the symbol "PAGEE" and Arch's common stock trades
on the Nasdaq National Market under the symbol "APGR,". Therefore, you can
inspect reports, proxy statements and other information concerning PageNet and
Arch at the offices of the National Association of Securities Dealers, Inc.,
Market Listing Section, 1735 K Street, N.W., Washington, D.C. 20006. PageNet
maintains
219
<PAGE> 229
a world wide web site at http://www.pagenet.com. Arch maintains a world wide web
site at http://www.arch.com. Neither PageNet's nor Arch's web site is a part of
this prospectus.
PageNet has filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act of 1933 to register
the common stock offered in the exchange offer. This prospectus does not contain
all the information you can find in the registration statement or the exhibits
and schedules to the registration statement. For further information about
PageNet, Arch, MobileMedia Communications, Inc., MobileMedia Corporation and
PageNet's and Arch's common stock, please refer to the registration statement,
including its exhibits and schedules. You may inspect and copy the registration
statement, including exhibits and schedules, as described above.
YOU MAY REQUEST A COPY OF PAGENET'S, ARCH'S AND MOBILEMEDIA'S FILINGS WITH
THE SECURITIES AND EXCHANGE COMMISSION, AT NO COST, BY WRITING OR TELEPHONING
PAGENET AT THE FOLLOWING ADDRESS:
PAGING NETWORK, INC.
14911 QUORUM DRIVE
DALLAS, TEXAS 75240
ATTENTION: INVESTOR RELATIONS
TELEPHONE (972) 801-8000
220
<PAGE> 230
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PAGING NETWORK, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for Each of the Three
Years in the Period Ended December 31, 1999............... F-4
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1999............... F-5
Consolidated Statements of Shareowners' Deficit for each of
the Three Years in the Period Ended December 31, 1999..... F-6
Notes to Consolidated Financial Statements.................. F-7
ARCH COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-22
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-23
Consolidated Statements of Operations for Each of the Three
Years in the Period Ended December 31, 1999............... F-24
Consolidated Statements of Stockholders' Equity (Deficit)
for Each of the Three Years in the Period Ended December
31, 1999.................................................. F-25
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1999............... F-26
Notes to Consolidated Financial Statements.................. F-27
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-43
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999 (unaudited)............................ F-44
Consolidated Statements of Operations for Each of the Three
Years in the Period Ended December 31, 1998 and for the
Three Months Ended March 31, 1998 and 1999 (unaudited).... F-45
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for Each of the Three Years in the Period Ended
December 31, 1998 and for the Three Months Ended March 31,
1999 (unaudited).......................................... F-46
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1998 and for the
Three Months Ended March 31, 1998 and 1999 (unaudited).... F-47
Notes to Consolidated Financial Statements.................. F-48
</TABLE>
F-1
<PAGE> 231
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareowners
Paging Network, Inc.
We have audited the accompanying consolidated balance sheets of Paging
Network, Inc. (the Company) as of December 31, 1999 and 1998, and the related
consolidated statements of operations, cash flows and shareowners' deficit for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Paging Network,
Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2, the
Company is in default on $1.9 billion of debt as a result of the non-payment of
interest on the Company's public notes and the violation of various financial
covenants in the Company's revolving credit agreement. The Company is also
precluded from any additional borrowings under the terms of its debt agreements,
and may be required to reduce the level of its operations and/or commence a
proceeding under Chapter 11 of the Bankruptcy Code to restructure its
obligations. These events and circumstances raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The accompanying financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of these
uncertainties.
/S/ ERNST & YOUNG LLP
Dallas, Texas
May 3, 2000
F-2
<PAGE> 232
PAGING NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 3,077 $ 32,144
Accounts receivable (less allowance for doubtful
accounts of $11,119 and $17,399 in 1998 and 1999,
respectively)......................................... 84,440 84,476
Inventories............................................ 6,379 8,687
Prepaid expenses and other assets...................... 15,065 5,623
---------- ----------
Total current assets.............................. 108,961 130,930
Property, equipment, and leasehold improvements, at cost.... 1,452,870 1,451,761
Less accumulated depreciation.......................... (547,599) (684,648)
---------- ----------
Net property, equipment, and leasehold
improvements.................................... 905,271 767,113
Other non-current assets, at cost........................... 629,372 609,014
Less accumulated amortization.......................... (62,360) (84,497)
---------- ----------
Net other non-current assets...................... 567,012 524,517
---------- ----------
$1,581,244 $1,422,560
========== ==========
LIABILITIES AND SHAREOWNERS' DEFICIT
Current liabilities:
Long-term debt in default.............................. $ -- $1,945,000
Accounts payable....................................... 96,478 80,889
Accrued expenses....................................... 49,692 50,146
Accrued interest....................................... 43,209 42,532
Accrued restructuring costs, current portion........... 8,256 --
Customer deposits...................................... 22,735 15,927
Deferred revenue....................................... 15,874 19,778
---------- ----------
Total current liabilities......................... 236,244 2,154,272
---------- ----------
Long-term obligations, non-current portion.................. 1,815,137 58,127
Accrued restructuring costs, non-current portion............ 18,765 --
Minority interest........................................... 1,517 --
Commitments and contingencies............................... -- --
Shareowners' deficit:
Common Stock -- $.01 par, authorized 250,000,000
shares; issued and outstanding 103,640,554 shares at
December 31, 1998 and 103,960,240 shares at December
31, 1999.............................................. 1,036 1,040
Paid-in capital........................................ 132,950 134,161
Accumulated other comprehensive income................. 2,378 745
Accumulated deficit.................................... (626,783) (925,785)
---------- ----------
Total shareowners' deficit........................ (490,419) (789,839)
---------- ----------
$1,581,244 $1,422,560
========== ==========
</TABLE>
F-3
<PAGE> 233
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Services, rent and maintenance revenues.................... $ 818,461 $ 945,524 $ 897,348
Product sales.............................................. 142,515 100,503 92,375
--------- ---------- ----------
Total revenues................................... 960,976 1,046,027 989,723
Cost of products sold...................................... (121,487) (77,672) (57,901)
--------- ---------- ----------
839,489 968,355 931,822
Operating expenses:
Services, rent and maintenance........................ 173,058 210,480 267,043
Selling............................................... 102,995 104,350 97,413
General and administrative............................ 253,886 320,586 361,386
Depreciation and amortization......................... 289,442 281,259 327,101
Provision for asset impairment........................ 12,600 -- 17,798
Restructuring charge.................................. -- 74,000 (23,531)
--------- ---------- ----------
Total operating expenses......................... 831,981 990,675 1,047,210
--------- ---------- ----------
Operating income (loss).................................... 7,508 (22,320) (115,388)
Other income (expense):
Interest expense...................................... (151,380) (143,762) (150,921)
Interest income....................................... 3,689 2,070 3,902
Other non-operating income (expense).................. (1,220) 2,003 851
--------- ---------- ----------
Total other expense.............................. (148,911) (139,689) (146,168)
--------- ---------- ----------
Loss before extraordinary item and cumulative effect of a
change in accounting principle........................... (141,403) (162,009) (261,556)
Extraordinary loss......................................... (15,544) -- --
Cumulative effect of a change in accounting principle...... -- -- (37,446)
--------- ---------- ----------
Net loss................................................... $(156,947) $ (162,009) $ (299,002)
========= ========== ==========
Net loss per share (basic and diluted):
Loss before extraordinary item and cumulative effect of a
change in accounting principle........................... $ (1.38) $ (1.57) $ (2.52)
Extraordinary loss......................................... (0.15) -- --
Cumulative effect of a change in accounting principle...... -- -- (0.36)
--------- ---------- ----------
Net loss per share......................................... $ (1.53) $ (1.57) $ (2.88)
========= ========== ==========
</TABLE>
F-4
<PAGE> 234
PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $(156,947) $(162,009) $(299,002)
Adjustments to reconcile net loss to cash provided by
operating activities:
Provision for asset impairment....................... 12,600 -- 17,798
Cumulative effect of a change in accounting
principle......................................... -- -- 37,446
Restructuring charge................................. -- 74,000 (23,531)
Extraordinary loss................................... 15,544 -- --
Depreciation......................................... 258,798 252,234 307,536
Amortization......................................... 30,644 29,025 19,565
Provision for doubtful accounts...................... 18,343 20,516 28,189
Amortization of debt issuance costs.................. 8,418 4,430 4,574
Other non-operating (income) expense................. 1,220 (2,003) (851)
Changes in operating assets and liabilities:
Accounts receivable.................................. (21,542) (35,081) (29,438)
Inventories.......................................... (1,302) 18,349 (2,506)
Prepaid expenses and other assets.................... (6,016) 9,133 9,270
Accounts payable..................................... (18,397) 22,768 14,963
Accrued expenses and accrued interest................ 4,286 16,203 247
Accrued restructuring costs.......................... -- (1,979) (3,490)
Customer deposits and deferred revenue............... 4,854 2,515 (2,904)
--------- --------- ---------
Net cash provided by operating activities................... 150,503 248,101 77,866
--------- --------- ---------
Investing activities:
Capital expenditures................................... (328,365) (268,183) (234,926)
Payments for spectrum licenses......................... (92,856) (13,065) (3,768)
Restricted cash invested in money market instruments... (6,422) -- (1,024)
Business acquisitions and joint venture investments.... (7,253) (7,322) --
Deposits for purchase of subscriber devices............ (13,493) -- --
Other, net............................................. (11,540) 2,984 2,399
--------- --------- ---------
Net cash used in investing activities....................... (459,929) (285,586) (237,319)
--------- --------- ---------
Financing activities:
Borrowings of long-term obligations.................... 558,317 305,587 325,280
Repayments of long-term obligations.................... (39,000) (275,555) (137,966)
Proceeds from exercise of stock options................ 87 7,606 1,206
Redemption of $200 million senior subordinated notes... (211,750) -- --
Other, net............................................. 919 -- --
--------- --------- ---------
Net cash provided by financing activities................... 308,573 37,638 188,520
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (853) 153 29,067
Cash and cash equivalents at beginning of year.............. 3,777 2,924 3,077
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 2,924 $ 3,077 $ 32,144
========= ========= =========
</TABLE>
F-5
<PAGE> 235
CONSOLIDATED STATEMENTS OF SHAREOWNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN COMPREHENSIVE ACCUMULATED SHAREOWNERS'
STOCK CAPITAL INCOME DEFICIT DEFICIT
------ -------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............... $1,026 $124,522 $ 104 $(307,827) $(182,175)
Net Loss............................ -- -- -- (156,947) (156,947)
Foreign currency translation
adjustments....................... -- -- 804 -- 804
---------
Total comprehensive loss....... (156,143)
Issuance of 38,838 shares of
Common Stock pursuant to stock
option and compensation
plans.......................... 1 386 -- -- 387
------ -------- ------- --------- ---------
Balance, December 31, 1997............... 1,027 124,908 908 (464,774) (337,931)
Net Loss............................ -- -- -- (162,009) (162,009)
Foreign currency translation
adjustments....................... -- -- 1,470 -- 1,470
---------
Total comprehensive loss....... (160,539)
Issuance of 980,639 shares of
Common Stock pursuant to stock
option and compensation
plans.......................... 9 8,042 -- -- 8,051
------ -------- ------- --------- ---------
Balance, December 31, 1998............... 1,036 132,950 2,378 (626,783) (490,419)
Net Loss............................ -- -- -- (299,002) (299,002)
Foreign currency translation
adjustments....................... -- -- (1,633) -- (1,633)
---------
Total comprehensive loss....... (300,635)
Issuance of 319,686 shares of
Common Stock pursuant to stock
option and compensation
plans.......................... 4 1,211 -- -- 1,215
------ -------- ------- --------- ---------
Balance, December 31, 1999............... $1,040 $134,161 $ 745 $(925,785) $(789,839)
====== ======== ======= ========= =========
</TABLE>
F-6
<PAGE> 236
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND MERGER AGREEMENT
Paging Network, Inc. (the Company) is a provider of wireless communications
services throughout the United States and the U.S. Virgin Islands, Puerto Rico,
and Canada. The Company provides service in all 50 states and the District of
Columbia, including service in the 100 most populated markets in the United
States. The Company also owns a minority interest in a wireless communications
company in Brazil.
On November 8, 1999, the Company announced that it had signed a definitive
agreement (the Merger Agreement) to merge (the Merger) with Arch Communications
Group, Inc. (Arch). Under the terms of the Merger Agreement, each share of the
Company's common stock will be exchanged for 0.1247 share of Arch common stock.
Under the terms of the Merger Agreement, the Company's 8.875% senior
subordinated notes due 2006, its 10% senior subordinated notes due 2008, and its
10.125% senior subordinated notes due 2007 (collectively, the Notes), along with
all accrued interest thereon, will be exchanged in a registered exchange offer
under which the holders of each $1,000 of outstanding principal of Notes will
receive, upon consummation of the Merger, approximately 64 shares of common
stock of Arch.
As part of the Merger, the Company intends to distribute up to 80.5% of its
interest in Vast Solutions, Inc. (Vast), a wholly-owned subsidiary of the
Company, to holders of the Notes and the Company's common stock. Holders of the
Notes will receive up to a 68.9% interest in Vast, while holders of the
Company's common stock will receive up to an 11.6% interest. The remaining
interest will be held by the combined company following the Merger.
The Merger Agreement requires 97.5% acceptance by the holders of the Notes
and affirmative votes of a majority of the Company's and Arch's stockholders to
complete the Merger. Consent of the lenders under the Company's revolving credit
facility (the Credit Agreement) is also required. The Merger Agreement also
provides for the Company to file a "pre-packaged" Chapter 11 reorganization plan
if the level of acceptances from the holders of the Notes is below 97.5%, but
greater than 66 2/3% in amount and at least a majority in number required under
the Bankruptcy Code for the noteholder class to accept the "pre-packaged"
Chapter 11 reorganization plan. If the Merger Agreement is terminated after one
party pursues an alternative offer, a plan of reorganization of the Company
other than the one contemplated in the Merger Agreement is filed by the Company
and/or confirmed by a bankruptcy court, or under other specified circumstances,
either the Company or Arch may be required to pay a termination fee of $40
million.
Consummation of the Merger is subject to customary regulatory review,
certain third-party consents, including the Company's lenders, and the approvals
noted above. The Company has received approval from the Department of Justice
and the Federal Communications Commission to proceed with the Merger, and
anticipates completing the Merger during the third quarter of 2000.
2. LIQUIDITY AND GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company incurred losses of $157 million, $162 million,
and $299 million during the years ended December 31, 1997, 1998, and 1999,
respectively. The Company's deteriorating financial results and liquidity have
caused it to be in default of the covenants of all of its domestic debt
agreements. On February 2, 2000, the Company failed to make the semi-annual
interest payments on its 8.875% senior subordinated notes due 2006 (8.875%
Notes) and its 10.125% senior subordinated notes due 2007 (10.125% Notes). As of
March 2, 2000, the non-payment of interest constituted a default under the
indentures of the 8.875% Notes and the 10.125% Notes. On April 17, 2000, the
Company failed to make the semi-annual interest payment on its 10% senior
subordinated notes due 2008 (10% Notes). As a result of these defaults, the
holders of the Notes could demand at any time that
F-7
<PAGE> 237
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company immediately pay $1.2 billion of outstanding Notes in full. Should
this happen, the Company would be forced to immediately file for protection
under Chapter 11 of the United States Bankruptcy Code (Chapter 11).
The Company is also in default of several of the financial and other
covenants of the Credit Agreement. As a result of these defaults, the lenders
under the Credit Agreement could demand at any time that the Company immediately
pay the $745 million outstanding under the Credit Agreement in full. Should this
happen, the Company would immediately file for protection under Chapter 11.
The Company is prohibited from additional borrowings and has classified all
of its outstanding indebtedness under the Credit Agreement and the Notes as a
current liability as of December 31, 1999. As of May 1, 2000, the Company has
approximately $55 million in cash. The Company believes that this cash, plus the
cash expected to be generated from operations, is sufficient to meet its
obligations, except for the cash interest payments due under the Notes, into the
third quarter of 2000. However, if the Company's financial results continue to
deteriorate, it may not have sufficient cash to meet such obligations through
the third quarter of 2000. As discussed below, the Company is considering
alternatives to ensure that it has sufficient liquidity through the completion
of the Merger. However, there can be no assurance that the Company's efforts to
ensure that it has adequate liquidity will be timely or successful or that the
Merger will be completed. As a result, the Company may have to reduce the level
of its operations and/or file for protection under Chapter 11 to complete the
Merger and/or restructure its obligations. The Company is negotiating a
debtor-in-possession loan facility with its lenders to be made available in the
event it commences a Chapter 11 case. Filing for bankruptcy would have a
material impact on the Company's results of operations and financial position.
In addition, if the Merger is not completed, the Company will likely incur
significant charges for asset impairments and restructuring its obligations. The
accompanying financial statements do not include any adjustments relating to the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that might be necessary should the
Company file for protection under Chapter 11 and/or be unable to continue as a
going concern.
The Company's deteriorating financial results and lack of additional
liquidity indicate that the Company may not be able to continue as a going
concern for a reasonable period of time. The Company's ability to continue as a
going concern is dependent upon several factors, including, but not limited to,
the continued non-demand for immediate payment of outstanding indebtedness by
the holders of the Notes and the lenders under the Credit Agreement and the
Company's ability to (i) generate sufficient cash flows to meet its obligations,
other than the semi-annual interest payments due under the Notes, on a timely
basis, (ii) obtain additional or restructured financing, including potential
debtor-in-possession borrowings if the Company is required to file for
protection under Chapter 11, (iii) continue to obtain uninterrupted supplies and
services from its vendors, and (iv) reduce capital expenditures and operating
expenses. The Company is proceeding with these initiatives as well as also
proceeding with its plan to complete the Merger described above.
3. SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of all of its wholly and majority-owned subsidiaries. All intercompany
transactions have been eliminated. Certain amounts from prior years have been
reclassified to conform with the current year presentation.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Inventories -- Inventories consist of subscriber devices which are held
specifically for resale. Inventories are stated at the lower of cost or market,
with cost determined on a first-in, first-out basis.
F-8
<PAGE> 238
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment, and leasehold improvements -- Property, equipment, and
leasehold improvements are stated at cost, less accumulated depreciation.
Expenditures for maintenance are charged to expense as incurred. Upon retirement
of units of equipment, the costs of units retired and the related accumulated
depreciation amounts are removed from the accounts. Depreciation is computed
using the straight-line method based on the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment..................................... 3 to 10 years(1)
Subscriber devices.......................................... 2 years(1)(2)
Furniture and fixtures...................................... 7 years
Leasehold improvements...................................... 5 years(3)
Building and building improvements.......................... 20 years
</TABLE>
- ---------------
(1) Effective April 1, 1999, the Company changed the depreciable lives of its
subscriber devices from 3 years to 2 years and the depreciable life of
certain of its network equipment from 7 years to 10 years (see Note 5).
(2) Effective January 1, 1997, the Company changed the depreciable life of its
subscriber devices from 4 years to 3 years, with estimated residual value
ranging up to $20 (see Note 5).
(3) Or term of lease if shorter.
The Company reserves for subscriber devices, which it estimates to be
non-recoverable.
Other non-current assets -- Other non-current assets are stated at cost,
less accumulated amortization. Amortization is computed using the straight-line
method based upon the following estimated useful lives:
<TABLE>
<S> <C>
Licenses and frequencies............................... 40 years
Goodwill............................................... 20 years
Other intangible assets................................ 18 months to 3 years
Other non-current assets............................... 10 years to 12 years
</TABLE>
Deferred revenues and customer deposits -- Deferred revenues represent
billing to customers in advance for services not yet performed and are
recognized as revenue in the month the service is provided. Deposits are
received from some customers at the time a service agreement is signed and are
recognized as a liability of the Company until such time as the deposits are
applied, generally against the customer's final bill.
Revenue recognition -- Services, rent and maintenance revenues are
recognized in the month the related services are performed. Product sales are
recognized upon delivery of product to the customer.
Employee stock options -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee stock option
plans. Under APB 25, because the exercise price of the Company's employee stock
options has historically equaled the market price of the underlying stock on the
date of grant, no compensation expense has been recognized.
Advertising costs -- The Company expenses the costs of advertising as
incurred. Advertising expense for the years ended December 31, 1997, 1998, and
1999, was $22 million, $19 million, and $17 million, respectively.
Comprehensive income (loss) -- Other comprehensive income as of December
31, 1997, 1998, and 1999, consists solely of foreign currency translation
adjustments.
Capitalization of internally developed software -- The Company adopted the
provisions of Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed For or Obtained for Internal Use" (SOP 98-1), effective
January 1, 1999. SOP 98-1 requires the capitalization of certain costs of
developing or acquiring computer software for internal use. The adoption of SOP
98-1 did not have a
F-9
<PAGE> 239
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
material impact on the Company's results of operations or financial position as
the Company's previous policy for accounting for the costs of developing or
acquiring computer software for internal use was generally consistent with the
provisions of SOP 98-1.
4. RESTRUCTURING CHARGE
In February 1998, the Company's Board of Directors approved the
restructuring of the Company's domestic operations (the Restructuring). The
Company's Restructuring plan called for the elimination of redundant
administrative operations through the consolidation of key support functions
located in local and regional offices throughout the country into central
processing facilities. The Restructuring plan specified local and regional
office closures, the disposition of certain furniture, fixtures and equipment
and the termination of approximately 1,950 employees by job function and
location. Having adopted a formal plan of restructuring, the Company recorded a
$74 million charge, or $0.72 per share (basic and diluted), during the quarter
ended March 31, 1998. The components of the charge included (in thousands):
<TABLE>
<S> <C>
Write-down of property and equipment........................ $38,900
Lease obligations and terminations.......................... 18,900
Severance and related benefits.............................. 12,700
Other....................................................... 3,500
-------
Total restructuring charge........................ $74,000
=======
</TABLE>
The writedown of property and equipment related to a non-cash charge to
reduce the carrying amount of certain machinery and equipment, furniture and
fixtures, and leasehold improvements that the Company would not continue to
utilize following the Restructuring to their estimated net realizable value as
of the date such assets were projected to be disposed of or abandoned, allowing
for the recognition of normal depreciation expense on such assets through their
projected disposal date. The net realizable value of these assets was determined
based on management estimates, which considered such factors as the nature and
age of the assets to be disposed of, the timing of the assets' disposal, and the
method and potential costs of the disposal.
The provision for lease obligations and terminations related primarily to
future lease commitments on local and regional office facilities that would be
closed as part of the Restructuring. The charge represented future lease
obligations, net of projected sublease income, on such leases past the dates the
offices would be closed by the Company, or, for certain leases, the cost of
terminating the leases prior to their scheduled expiration. Projected sublease
income was based on management estimates, which are subject to change. Cash
payments on the leases and lease terminations were expected to occur over the
remaining lease terms, the majority of which were to expire prior to 2003.
During the fourth quarter of 1998, the Company identified additional
furniture, fixtures, and equipment that would not be utilized following the
Restructuring, resulting in an additional non-cash charge of $3 million. This
charge was offset by reductions in the provisions for lease obligations and
terminations and severance costs as a result of refinements to the Company's
schedule for local and regional office closures. Also as a result of the
refinements to the office closing schedule, the Company adjusted, effective
October 1, 1998, the depreciable lives of certain of the assets written down in
the first quarter of 1998, resulting in a decrease in depreciation expense of
approximately $3 million for the year ended December 31, 1998.
F-10
<PAGE> 240
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's restructuring activity from initial charge through December
31, 1998, was as follows (in thousands):
<TABLE>
<CAPTION>
UTILIZATION OF RESERVE
INITIAL ADJUSTMENTS ---------------------- REMAINING
CHARGE TO CHARGE CASH NON-CASH RESERVE
------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Fixed assets impairments............... $38,900 $ 2,600 $ -- $41,500 $ --
Lease obligation costs................. 18,900 (1,300) 683 -- 16,917
Severance costs........................ 12,700 (1,300) 1,296 -- 10,104
Other.................................. 3,500 -- -- 3,500 --
------- ------- ------ ------- -------
Total........................ $74,000 $ -- $1,979 $45,000 $27,021
======= ======= ====== ======= =======
</TABLE>
While progress in establishing the centralized processing facilities was
made during 1998 and early 1999, the Company's efforts to convert its offices to
its new billing and customer service software platforms fell behind the
Company's original schedule of being completed during the second quarter of
1999. Billing software and system implementation problems surfaced during the
first office conversions, and as a result, the Company had to postpone the
conversion of many of its other offices. These postponements resulted in delays
in office closures which deferred the payments of amounts accrued for lease
obligations and terminations and severance and related benefits. Additional
implementation problems surfaced during 1999 and caused further delays.
In November 1999 and in conjunction with the announcement of the Merger, as
discussed in Note 1, the Company decided to suspend further conversions after
January 2000 pending the decisions as to which operating platforms will be used
by the combined company. As a result of the decision to suspend the
Restructuring indefinitely, the Company recorded a reversal of the unused
portion of the original restructuring charge of $24 million, or $0.23 per share
(basic and diluted), during the quarter ended December 31, 1999.
The Company's restructuring activity from January 1, 1999 through December
31, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
UTILIZATION OF RESERVE
BEGINNING ---------------------- REVERSAL REMAINING
RESERVE CASH NON-CASH OF CHARGE RESERVE
--------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Lease obligation costs................ $16,917 $ 755 $-- $(16,162) $--
Severance costs....................... 10,104 2,735 -- (7,369) --
------- ------ -- -------- --
Total....................... $27,021 $3,490 $-- $(23,531) $--
======= ====== == ======== ==
</TABLE>
As a result of the Restructuring, the Company eliminated approximately 325
positions and involuntarily terminated approximately 1,150 employees during 1998
and 1999.
5. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
The cost of property, equipment, and leasehold improvements consisted of
the following:
<TABLE>
<CAPTION>
1998 1999
(IN THOUSANDS) DECEMBER 31, ---------- ----------
<S> <C> <C>
Machinery and equipment............................. $ 871,870 $ 956,122
Subscriber devices.................................. 497,238 407,188
Furniture and fixtures.............................. 59,996 61,801
Leasehold improvements.............................. 20,609 23,489
Land, buildings, and building improvements.......... 3,157 3,161
---------- ----------
Total cost................................ $1,452,870 $1,451,761
========== ==========
</TABLE>
The Company does not manufacture any of the subscriber devices or related
transmitting and computerized terminal equipment used in the Company's
operations. The Company purchases its
F-11
<PAGE> 241
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subscriber devices primarily from Motorola. The Company anticipates that
subscriber devices will continue to be available for purchase from Motorola and
other sources, consistent with normal manufacturing and delivery lead times.
During the first quarter of 1999, the Company made the decision to narrow
its focus to its North American operations and, as a result, made the decision
to sell or otherwise dispose of its operations in Spain. During third quarter of
1999, all operations of the Company's majority-owned Spanish subsidiaries were
ceased. The Company's interest in its Spanish subsidiaries was sold in the first
quarter of 2000 for minimal proceeds. As a result of the Company's decision to
sell or otherwise dispose of its Spanish subsidiaries, the Company recorded a
provision of $18 million during the year ended December 31, 1999, for the
impairment of the assets of the Company's majority-owned subsidiaries, the
effect of which was to write-off the Company's net investment in its Spanish
subsidiaries. The amount of the provision was based on the Company's estimate of
the value of its net investment in the Spanish subsidiaries, which did not
materially differ from the proceeds received upon the sale of the subsidiaries
in the first quarter of 2000. No cash costs have been incurred or are expected
as a result of the provision for the impairment of the assets of the Company's
Spanish subsidiaries, and no additional charges are expected to be required.
Effective April 1, 1999, the Company changed the depreciable lives for its
subscriber devices and certain network equipment. The Company changed the
depreciable lives of its subscriber devices from three years to two years and
the depreciable life of certain of its network equipment from seven years to ten
years. The changes resulted from a review by the Company of the historical usage
periods of its subscriber devices and its network equipment and the Company's
expectations regarding future usage periods for subscriber devices considering
current and projected technological advances. The Company has determined that
the appropriate useful life of its subscriber devices is two years as a result
of technological advances, customer desire for new pager technology, and the
Company's decreasing ability to redeploy older pager models. As a result of
these changes, the net loss increased by $78 million, or $0.75 per share (basic
and diluted), during the year ended December 31, 1999.
Effective January 1, 1997, the Company shortened the depreciable lives of
its subscriber devices from four to three years, and revised the related
residual values. This change increased net loss for the year ended December 31,
1997 by $17 million and net loss per share by $0.16 (basic and diluted).
During the year ended December 31, 1997, the Company recorded a provision
of $13 million to write down certain subscriber devices to their net realizable
value.
6. OTHER NON-CURRENT ASSETS
The cost of other non-current assets consisted of the following:
<TABLE>
<CAPTION>
1998 1999
(IN THOUSANDS) DECEMBER 31, -------- --------
<S> <C> <C>
Licenses and frequencies................................ $473,211 $477,659
Goodwill................................................ 50,495 37,922
Restricted cash invested in money market instruments, at
fair value (Note 7)................................... 33,461 34,485
Other intangible assets................................. 13,920 7,647
Other non-current assets................................ 58,285 51,301
-------- --------
Total cost.................................... $629,372 $609,014
======== ========
</TABLE>
F-12
<PAGE> 242
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Licenses and frequencies consist of amounts paid in conjunction with the
purchase of three nationwide narrowband personal communications services (PCS)
frequencies at a Federal Communications Commission (FCC) auction held in 1994,
amounts paid in conjunction with the purchase of blocks of two-way 900 MHz
specialized mobile radio (SMR) major trading area based licenses, amounts paid
to purchase exclusive rights to certain of the SMR frequencies from incumbent
operators, and amounts paid to secure other licenses.
The Company adopted the provisions of Statement of Position 98-5 "Reporting
on the Costs of Start-Up Activities" (SOP 98-5), effective January 1, 1999. SOP
98-5 requires the expensing of all start-up costs as incurred, as well as the
writing off of the remaining unamortized balance of capitalized start-up costs
at the date of adoption of SOP 98-5. The impact of the Company's adoption of SOP
98-5 was a charge of $37 million representing the cumulative effect of a change
in accounting principle to write-off all unamortized start-up costs as of
January 1, 1999, and an increase in net loss of $21 million, or $0.20 per share
(basic and diluted), for the year ended December 31, 1999.
7. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
1998 1999
------------------------- -------------------------
(CARRYING (ESTIMATED (CARRYING (ESTIMATED
(IN THOUSANDS) DECEMBER 31, VALUE) FAIR VALUE) VALUE) FAIR VALUE)
<S> <C> <C> <C> <C>
Borrowings under Credit Agreement................. $ 565,000 $ -- $ 745,000 $ --
10% Senior Subordinated Notes due October 15,
2008............................................ 500,000 477,473 500,000 145,000
10.125% Senior Subordinated Notes due August 1,
2007............................................ 400,000 382,964 400,000 116,000
8.875% Senior Subordinated Notes due February 1,
2006............................................ 300,000 292,484 300,000 87,000
Other............................................. 50,137 -- 58,127 --
---------- ----------
1,815,137 2,003,127
Obligations in default and classified as current
(Note 2)........................................ -- 1,945,000
---------- ----------
$1,815,137 $ 58,127
========== ==========
</TABLE>
As of December 31, 1999, PageNet had $ 745 million of borrowings
outstanding under its Credit Agreement. The Company's maximum borrowings under
the Credit Agreement are permanently reduced beginning on June 30, 2001, by the
following amounts: 2001 -- $150 million; 2002 -- $200 million; 2003 -- $250
million; and 2004 -- $147 million. The Company's Credit Agreement expires on
December 31, 2004. As discussed in Note 2, the Company is in default of the
covenants of its domestic debt agreements and is precluded from any additional
borrowings under the Credit Agreement.
Under the Credit Agreement, the Company may designate all or a portion of
outstanding borrowings to be either a Base Rate Loan or a loan based on the
London Interbank Offered Rate (LIBOR). As of December 31, 1999, the Company had
designated all $745 million of borrowings as LIBOR loans, which bear interest at
a rate equal to LIBOR plus a spread of 2.00%. The interest rates for the $745
million of LIBOR loans as of December 31, 1999 ranged from 7.94% to 8.17%. As a
result of the defaults described
F-13
<PAGE> 243
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in Note 2, the Company's lenders have the right to collect default interest up
to 12.00% for the Company's outstanding balances under its Credit Agreement.
The Credit Agreement prohibits the Company from paying cash dividends or
other cash distributions to shareowners. The Credit Agreement also prohibits the
Company from paying more than a total of $2 million in connection with the
purchase of Common Stock owned by employees whose employment with the Company is
terminated. The Credit Agreement contains other covenants that, among other
things, limit the ability of the Company and its subsidiaries to incur
indebtedness, engage in transactions with affiliates, dispose of assets, and
engage in mergers, consolidations, and other acquisitions without the prior
written consent of its lenders. Amounts owing under the Credit Agreement are
secured by a security interest in substantially all of the Company's assets, the
assets of the Company's subsidiaries, and the capital stock of the subsidiaries
of the Company (other than the international subsidiaries and Vast).
The two credit agreements of the Company's Canadian subsidiaries provide
for total borrowings of approximately $75 million. As of December 31, 1999,
approximately $56 million of borrowings were outstanding under the credit
facilities. Such borrowings were collateralized by $34 million of restricted
cash included in other non-current assets. Additional borrowings are available
under these facilities, provided such borrowings are either collaterized or
certain financial conditions are met. Maximum borrowings that may be outstanding
under the credit facilities are permanently reduced beginning on March 31, 2002,
by the following amounts: 2002 -- $1 million; 2003 -- $6 million; and
2004 -- $68 million. Both credit agreements expire on December 31, 2004.
The 8.875% Notes, the 10.125% Notes, and the 10% Notes are redeemable on or
after February 1, 1999; August 1, 2000; and October 15, 2001; respectively, at
the option of the Company, in whole or in part from time to time, at certain
prices declining annually to 100 percent of the principal amount on or after
February 1, 2002; August 1, 2003; and October 15, 2004; respectively, plus
accrued interest. The 8.875% Notes, the 10.125% Notes, and the 10% Notes are
subordinated in right of payment to all senior debt, and contain various
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur indebtedness, pay dividends, engage in transactions with
affiliates, sell assets, and engage in mergers, consolidations, and other
acquisitions without the prior written consent of its lenders. The fair values
of the 8.875% Notes, the 10.125% Notes, and the 10% Notes were based on quoted
market prices and discounted cash flow analyses. The fair values of the amounts
outstanding under the Credit Agreement and other indebtedness cannot be
reasonably estimated due to the debt defaults and covenant violations of the
Company.
On May 14, 1997, PageNet redeemed all $200 million of its outstanding
11.75% Senior Subordinated Notes (11.75% Notes), utilizing funds borrowed under
the Company's Credit Agreement. The Company recorded an extraordinary loss of
$16 million in the second quarter of 1997 on the early retirement of the 11.75%
Notes. The extraordinary loss was comprised of the redemption premium of $12
million and the write-off of unamortized issuance costs of $4 million.
8. INCOME TAXES
For the years ended December 31, 1997, 1998, and 1999, the Company had no
provision or benefit for income taxes because of the Company's inability to
benefit from its net operating losses. The valuation allowance for deferred tax
assets increased by $56 million, $58 million, and $109 million during the years
F-14
<PAGE> 244
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1997, 1998, and 1999, respectively. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998 1999
(IN THOUSANDS) DECEMBER 31, --------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 197,983 $ 294,580
Deferred revenue................................ 5,982 7,411
Provision for asset impairment.................. -- 6,941
Bad debt reserve................................ 3,768 6,670
Other tax credit carryforwards.................. 679 664
Other........................................... 28,482 18,405
--------- ---------
Total deferred tax assets.................. 236,894 334,671
Valuation allowance............................. (201,496) (310,909)
--------- ---------
Net deferred tax assets.................... 35,398 23,762
Deferred tax liabilities:
Depreciation.................................... (23,450) (3,977)
Amortization.................................... (11,948) (19,785)
--------- ---------
Total deferred tax liabilities............. (35,398) (23,762)
--------- ---------
$ -- $ --
========= =========
</TABLE>
As of December 31, 1999, the Company has net operating loss carryforwards
of approximately $755 million that expire in years 2001 through 2019. Of such
amounts, $5 million expire in 2001 and $3 million expire in 2002. The Merger is
expected to result in the elimination of substantially all of the tax benefit of
the net operating loss carryforwards and certain other tax attributes of the
Company. Loss before income taxes attributable to the Company's foreign
operations was $14 million, $12 million, and $11 million for the years ended
December 31, 1997, 1998, and 1999.
9. STOCK OPTIONS
The 1982 Incentive Stock Option Plan, as amended (1982 Plan), for officers
and key employees of the Company provides for the granting of stock options
intended to qualify as Incentive Stock Options (ISOs) to purchase Common Stock
at not less than 100% of the fair market value on the date the option is
granted, as determined by the Board of Directors. No further options may be
granted under the 1982 Plan. As of December 31, 1999, options for 228,487 shares
were exercisable under the 1982 Plan. All options outstanding and exercisable
under the 1982 Plan are fully vested.
Options granted were exercisable immediately, or in installments as the
Board of Directors determined at the time it granted such options, and have a
duration of ten years from the date of grant. Any stock issued is subject to
repurchase at the option of the Company, which occurs at the exercise price for
the unvested portion of the shares issued and at fair market value, as defined
or allowed in the Stock Option Agreement, for the vested portion. Such options
vest ratably over a five-year period from the date they first become
exercisable. However, in the event of a change in ownership control of the
Company, all options vest immediately.
The 1991 Stock Option Plan (1991 Plan) for officers and key employees of
the Company provides for the granting of ISOs and non-statutory options to
purchase Common Stock at not less than 100% of the fair market value on the date
the options are granted. The 1991 Plan is administered by the Compensation and
Management Development Committee of the Board of Directors (the Committee).
Approximately 3 million shares remained available for grant under the 1991 Plan
as of December 31, 1999. A total of 4,034,671 shares were vested and exercisable
under the 1991 Plan as of December 31, 1999. Options
F-15
<PAGE> 245
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granted under the 1991 Plan are non-transferable except by the laws of descent
and distribution and are exercisable upon vesting, which occurs in installments,
as the Board of Directors or the Committee may determine at the time it grants
such options.
On May 21, 1998, the Company's shareowners approved an amendment to its
1991 Plan to broaden the group of employees eligible to receive stock options
under such plan to include all employees of the Company and its subsidiaries. On
May 22, 1998, PageNet granted approximately 2 million options under the 1991
Plan to approximately 2,700 employees at an exercise price of $13.94 per share,
which represented the market price of the Company's Common Stock at the date of
grant. Since that time, grants of stock options to eligible new employees have
been made the first day of the next quarter after the quarter in which they were
hired.
The Amended and Restated 1992 Directors Compensation Plan (Directors'
Plan), for non-employee Directors of the Company, provides for the granting of
non-statutory options to purchase Common Stock at not less than 100% of the fair
market value on the date the options are granted. The Directors' Plan is
administered by the Committee. The total number of shares of Common Stock with
respect to which options may be granted under the Directors' Plan may not exceed
750,000. Approximately 300,000 shares remain available for grant under the
Directors' Plan as of December 31, 1999. A total of 225,000 shares were vested
and exercisable as of December 31, 1999. Options granted under the Directors'
Plan are non-transferable except by the laws of descent and distribution and are
exercisable upon vesting, which occurs in installments, as the Board of
Directors or the Committee may determine at the time it grants such options.
With respect to the 1991 Plan and the Directors' Plan, notwithstanding the
above, ten business days before a merger or a change in the ownership control of
the Company or a sale of substantially all the assets of the Company, all
options issued vest immediately and become exercisable in full; upon a merger or
a change in ownership control of the Company or the sale of substantially all
the assets of the Company, all options issued under the 1991 Plan and Directors'
Plan which have not been exercised terminate. The Merger Agreement provides that
all the Company's stock options will be converted into options for shares of
Arch at a formula which would reduce the number of options outstanding by
8,944,792 and increase the exercise price range by $6.18 to $120.24.
On June 12, 1997, the Company offered an election to its employees with
options granted during 1995 and 1996 under the 1991 Plan to cancel such options
and accept a lesser number of new options at a lower exercise price, with the
vesting dates being restarted with the new grant dates. As a result of the
election by certain of its employees, PageNet canceled approximately 3 million
of options with exercise prices ranging from $13.69 to $26.50 and granted
approximately 1 million of options to the same optionees with an exercise price
of $8.25 per share.
Information concerning options as of December 31, 1997, 1998, and 1999 is
as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding at January 1.................... 5,968,605 5,687,335 8,579,568
Granted................................ 3,435,873 5,066,000 4,214,987
Canceled............................... (3,705,609) (1,241,982) (2,505,716)
Exercised.............................. (11,534) (931,785) (69,724)
------------ ------------ ------------
Outstanding at December 31.................. 5,687,335 8,579,568 10,219,115
============ ============ ============
Exercisable at December 31.................. 2,450,795 3,253,511 4,588,158
============ ============ ============
Option price range-options outstanding...... $2.67-$25.50 $2.67-$25.50 $0.88-$17.13
Option price range-options exercised........ $2.73-$ 9.25 $2.67-$14.38 $2.67-$ 5.13
</TABLE>
F-16
<PAGE> 246
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Weighted-average exercise prices are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Outstanding at January 1.................................... $15.90 $ 9.47 $10.98
Granted................................................ 9.54 12.59 4.54
Canceled............................................... 19.89 12.79 10.17
Exercised.............................................. 7.49 8.16 3.12
Outstanding at December 31.................................. 9.47 10.98 8.56
Exercisable at December 31.................................. 9.12 9.85 9.31
</TABLE>
Certain information is being presented based on a range of exercise prices
as of December 31, 1999, as follows:
<TABLE>
<CAPTION>
$0.88-$6.00 $6.03-$8.13 $8.25-$12.63 $12.94-$17.13
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Number of shares outstanding.......... 2,567,374 2,308,960 2,338,101 3,004,680
Weighted-average exercise price....... $ 3.40 $ 6.43 $ 9.83 $ 13.62
Weighted-average remaining contractual
life................................ 8.55 8.01 7.23 8.01
Number of shares exercisable.......... 792,465 800,140 1,632,993 1,362,560
Weighted-average exercise price of
shares exercisable.................. $ 3.63 $ 6.89 $ 9.63 $ 13.66
</TABLE>
The Company adopted the pro forma disclosure provisions of the Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123) in 1996. As required by SFAS 123, pro forma information
regarding net loss and net loss per share has been determined as if the Company
had accounted for employee stock options and stock-based awards granted
subsequent to December 31, 1994 under the fair value method provided for under
SFAS 123. The weighted-average fair value of stock options granted during 1997,
1998, and 1999 was $5.98, $7.21, and $1.22, respectively. The fair value for the
stock options granted to officers and key employees of the Company after January
1, 1995 was estimated at the date of the grant using the Black-Scholes option
pricing model with the following assumptions: risk-free interest ranging from
5.46% to 6.89% for 1997, ranging from 4.09% to 5.72% for 1998, and ranging from
4.54% to 6.13% for 1999; a dividend yield of 0%; volatility factors of the
expected market price of the Company's Common Stock ranging from 54.4% to 57.6%
for 1997, ranging from 56.8% to 60.0% for 1998, and 75.0% for 1999; and a
weighted average expected life of each option ranging from 5.5 years to 6.7
years for 1997 and 1998, and ranging from 2.0 years to 6.0 years for 1999.
For purposes of the pro forma disclosures, the estimated fair market value
of the options and stock-based awards is amortized to expense over the vesting
period. The Company's pro forma information is as follows (in thousands, except
for net loss per common share information):
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C> <C>
Net loss As reported $(156,947) $(162,009) $(299,002)
Pro forma $(172,884) $(179,834) $(301,586)
Net loss per common share As reported $ (1.53) $ (1.57) $ (2.88)
(basic and diluted) Pro forma $ (1.68) $ (1.74) $ (2.90)
</TABLE>
Because SFAS 123 is applicable only to options and stock-based awards
granted subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 2001.
F-17
<PAGE> 247
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
The Company has operating leases for office and transmitting sites with
lease terms ranging from a month to approximately ten years. There are no
significant renewal or purchase options. Total rent expense for 1997, 1998, and
1999 was approximately $70 million, $81 million, and $101 million, respectively.
The following is a schedule by year of future minimum rental payments
required under operating leases that have remaining noncancelable lease terms in
excess of one year as of December 31, 1999.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: (IN THOUSANDS)
---------------------------------------
<S> <C>
2000.............................................. $27,997
2001.............................................. 19,788
2002.............................................. 14,855
2003.............................................. 10,229
2004.............................................. 7,080
Later years....................................... 8,163
-------
Total minimum payments required......... $88,112
=======
</TABLE>
11. CONTINGENCIES
The Company is involved in various lawsuits arising in the normal course of
business. In management's opinion, the ultimate outcome of these lawsuits will
not have a material adverse effect on PageNet's business, financial position, or
results of operations.
12. COMMON STOCK AND NET LOSS PER SHARE
Net loss per share amounts are computed based on the weighted average
number of common shares outstanding. The number of shares used to compute per
share amounts for the years ended December 31, 1997, 1998, and 1999, was 103
million, 103 million, and 104 million, respectively. The average number of
options to purchase shares of the Company's Common Stock during the years ended
December 31, 1997, 1998, and 1999, were 6 million, 8 million, and 10 million,
respectively, at exercise prices ranging from $0.88 per share to $25.50 per
share. These stock options were not included in the computation of diluted
earnings per share because the effect of assuming their exercise would have been
antidilutive.
The Company has 275 million authorized shares, of which 250 million are
Common Stock and 25 million are preferred stock. As of December 31, 1999,
approximately 15 million shares of Common Stock were reserved for the issuance
of shares under the Company's stock option and other plans. As of December 31,
1999, there were no preferred shares issued or outstanding.
On May 23, 1996, the Company's shareowners approved an employee stock
purchase plan of up to 2 million shares of the Company's Common Stock. Under the
employee stock purchase plan, an employee may elect to purchase shares of the
Company's Common Stock at the end of a predetermined period at a price equal to
85% of the fair market value of the Company's Common Stock at the beginning or
end of such period, whichever is lower. The Company implemented two-year
employee stock purchase plans on January 1, 1997 and 1998, and a one-year plan
on January 1, 1999. The Company discontinued the employee stock purchase plan
effective December 31, 1999.
13. STATEMENT OF CASH FLOWS INFORMATION
Cash and cash equivalents include highly liquid debt instruments with an
original maturity of three months or less. As of December 31, 1999, cash
equivalents also include investments in money market instruments, which are
carried at fair market value. Cash payments made for interest for the years
ended
F-18
<PAGE> 248
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997, 1998, and 1999 were approximately $144 million, $136 million,
and $147 million, respectively, net of $16 million, $22 million, and $24
million, respectively, of interest capitalized during the years ended December
31, 1997, 1998 and 1999. During the year ended December 31, 1998, PageNet
utilized $13 million of deposits made in 1998 for the purchase of subscriber
devices. There were no significant federal or state income taxes paid or
refunded for the years ended December 31, 1997, 1998, and 1999.
14. EMPLOYEE BENEFIT PLANS
The Company has adopted a plan to provide retirement benefits under the
provisions of Section 401(k) of the Internal Revenue Code (the Code) for all
employees who have completed a specified term of service. Effective January 1,
1996, Company contributions equal 50% of employee contributions up to a maximum
of 6% of the employee's compensation. Employees may elect to contribute up to
15% of their compensation on a pre-tax basis, not to exceed the maximum amount
allowed as determined by the Code. The Company's contributions aggregated
approximately $2 million in 1997, $3 million in 1998, and $2 million in 1999.
15. STOCK PURCHASE RIGHTS
In September 1994, the Board of Directors of the Company adopted a Stock
Purchase Rights Plan and declared a distribution of one common share purchase
right for each outstanding share of the Company's Common Stock. As of September
28, 1994, certificates representing shares of the Company's Common Stock also
represent ownership of one common share purchase right. In January 1999, the
Board of Directors of the Company amended the Rights Plan to eliminate certain
provisions held to be unenforceable under Delaware law.
Generally, the rights will become exercisable only if a person or group (i)
acquires 20% or more of the Company's Common Stock or (ii) announces a tender
offer that would result in ownership of 20% or more of the Company's Common
Stock or (iii) is declared to be an "Adverse Person" by the Board of Directors.
Adverse Person includes any person or group who owns at least 10% of the
Company's Common Stock and attempts an action that would adversely impact the
Company. The Company's Board of Directors can waive the application of the stock
purchase rights under certain circumstances. In connection with the approval of
the Merger Agreement, the Company's Board of Directors waived such application
as it would have related to the Merger.
Once a person or group has acquired 20% or more of the outstanding Common
Stock of the Company, each right may entitle its holder (other than the 20%
person or group) to purchase, at an exercise price of $150, shares of Common
Stock of the Company (or of any company that acquires the Company) at a price
equal to 50% of their current market price. Under certain circumstances, the
Board of Directors may exchange the rights for Common Stock (or equivalent
securities) on a one-for-one basis.
Until declaration of an Adverse Person, or ten (10) days after public
announcement that any person or group has acquired 20% or more of the Common
Stock of the Company, the rights are redeemable at the option of the Board of
Directors. Thereafter, they may be redeemed by the Board of Directors in
connection with certain acquisitions not involving any acquiring person or
Adverse Person or in certain circumstances following a disposition of shares by
the acquiring person or Adverse Person. The redemption price is $0.01 per right.
The rights will expire on September 27, 2004, unless redeemed prior to that
date.
16. SEGMENT INFORMATION
The Company has determined that it has two reportable segments, traditional
paging operations and advanced messaging operations. The Company's basis for the
segments relates to the types of products and
F-19
<PAGE> 249
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services each segment provides. The traditional paging segment consists of the
traditional display and alphanumeric services, which are basic one-way services,
and 1 1/2-way paging services. The advanced messaging operating segment consists
of the Company's new 2-way wireless messaging services, VoiceNow service, and
the operations of Vast, which includes wireless integration products, consumer
content, and wireless software development and sales.
The following table presents certain information related to the Company's
business segments as of December 31, 1997, 1998, and 1999 or for the years ended
December 31, 1997, 1998, and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
(IN THOUSANDS) ---------- ---------- ----------
<S> <C> <C> <C>
Total Revenues:
Traditional Paging(1)........................... $ 960,290 $1,041,603 $ 973,658
Advanced Messaging.............................. 686 4,424 16,065
---------- ---------- ----------
$ 960,976 $1,046,027 $ 989,723
========== ========== ==========
Depreciation and amortization:
Traditional Paging(1)........................... $ 276,590 $ 266,319 $ 310,347
Advanced Messaging.............................. 12,852 14,940 16,754
---------- ---------- ----------
$ 289,442 $ 281,259 $ 327,101
========== ========== ==========
Operating income (loss):
Traditional Paging(1)........................... $ 31,399(2) $ 17,406(3) $ (41,190)(4)
Advanced Messaging.............................. (23,891) (39,726) (74,198)
---------- ---------- ----------
$ 7,508 $ (22,320) $ (115,388)
========== ========== ==========
Adjusted EBITDA(5):
Traditional Paging(1)........................... $ 320,589 $ 357,725 $ 263,424
Advanced Messaging.............................. (11,039) (24,786) (57,444)
---------- ---------- ----------
$ 309,550 $ 332,939 $ 205,980
========== ========== ==========
Capital expenditures:
Traditional Paging(1)........................... $ 224,459 $ 193,234 $ 121,779
Advanced Messaging.............................. 103,906 74,949 113,147
---------- ---------- ----------
$ 328,365 $ 268,183 $ 234,926
========== ========== ==========
Net interest expense(6):
Traditional Paging(1)........................... $ 90,458 $ 74,729 $ 65,107
Advanced Messaging.............................. 57,233 66,963 81,912
---------- ---------- ----------
$ 147,691 $ 141,692 $ 147,019
========== ========== ==========
Total assets:
Traditional Paging(1)........................... $1,047,246 $ 945,621 $ 746,515
Advanced Messaging.............................. 549,987 635,623 676,045
---------- ---------- ----------
$1,597,233 $1,581,244 $1,422,560
========== ========== ==========
</TABLE>
- ---------------
(1) The international operations of the Company currently consist entirely of
traditional paging services and accordingly are included in PageNet's
traditional paging business segment.
(2) Operating income for the traditional paging business segment for 1997
includes a $13 million provision to write down certain subscriber devices to
their net realizable value. See Note 5.
F-20
<PAGE> 250
PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) Operating income for the traditional paging business segment for 1998
includes a restructuring charge of $74 million. See Note 4.
(4) Operating loss for the traditional paging business segment for 1999 includes
a partial reversal of the restructuring charge of $24 million and a
provision for asset impairment of $18 million. See Notes 4 and 5,
respectively.
(5) Adjusted EBITDA, as determined by the Company, does not reflect other
non-operating (income) expense, provision for asset impairment,
restructuring charge, extraordinary items, and cumulative effect of a change
in accounting principle.
(6) Net interest expense is interest expense less interest income.
Adjusted EBITDA is not defined in generally accepted accounting principles
and should not be considered in isolation or as a substitute for a measure of
performance in accordance with generally accepted accounting principles.
17. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial information for the two years ended December 31, 1999
is summarized below.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998
Services, rent, and maintenance
revenues................................ $ 229,861 $ 235,172 $ 239,689 $ 240,802
Product sales............................. 25,889 29,329 25,382 19,903
--------- --------- --------- ---------
Total revenues....................... 255,750 264,501 265,071 260,705
Cost of products sold..................... (21,103) (23,161) (18,276) (15,132)
--------- --------- --------- ---------
234,647 241,340 246,795 245,573
Operating income (loss)...................... (56,605)(1) 19,803 17,998 (3,516)
Net loss.................................. (92,372)(1) (15,619) (16,428) (37,590)
Net loss per share (basic and diluted).... (0.90)(1) (0.15) (0.16) (0.36)
1999
Services, rent, and maintenance
revenues................................ $ 241,868 $ 231,635 $ 223,063 $ 200,782
Product sales............................. 21,692 22,930 24,347 23,406
--------- --------- --------- ---------
Total revenues....................... 263,560 254,565 247,410 224,188
Cost of products sold..................... (16,177) (10,462) (16,374) (14,888)
--------- --------- --------- ---------
247,383 244,103 231,036 209,300
Operating income (loss)................... (16,505)(2) (58,248) (13,499) (27,136)(3)
Loss before cumulative effect of a change
in accounting principle................. (51,758)(2) (95,311) (49,488) (64,999)(3)
Cumulative effect of a change in
accounting principle.................... (37,446) -- -- --
Net loss.................................. (89,204)(2) (95,311) (49,488) (64,999)(3)
Net loss per share (basic and diluted):...
Loss before cumulative effect of a change
in accounting principle................. (0.50)(2) (0.92) (0.48) (0.64)(3)
Cumulative effect of a change in
accounting principle.................... (0.36) -- -- --
Net loss per share........................ (0.86)(2) (0.92) (0.48) (0.64)(3)
</TABLE>
- ---------------
(1) Operating loss for the first quarter of 1998 includes a restructuring charge
of $74 million. See Note 4.
(2) Operating loss for the first quarter of 1999 includes a provision for asset
impairment of $18 million. See Notes 5 and 6.
(3) Operating loss for the fourth quarter of 1999 includes a partial reversal of
the restructuring charge of $24 million. See Note 4.
F-21
<PAGE> 251
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arch Communications Group, Inc.:
We have audited the accompanying consolidated balance sheets of Arch
Communications Group, Inc. (a Delaware corporation) (the "Company") and
subsidiaries as of December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Arch Communications Group, Inc. and subsidiaries as of December 31, 1998 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 16, 2000 (except with respect to the matters discussed
in Note 3 as to which the date is March 16, 2000)
F-22
<PAGE> 252
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,633 $ 3,161
Accounts receivable (less reserves of $6,583 and
$16,473 in 1998 and 1999, respectively)............... 30,753 61,167
Inventories............................................ 10,319 9,101
Prepaid expenses and other............................. 8,007 11,874
---------- ----------
Total current assets.............................. 50,712 85,303
---------- ----------
Property and equipment, at cost:
Land, buildings and improvements....................... 10,480 20,503
Messaging and computer equipment....................... 400,312 667,820
Furniture, fixtures and vehicles....................... 17,381 26,321
---------- ----------
428,173 714,644
Less accumulated depreciation and amortization......... 209,128 314,445
---------- ----------
Property and equipment, net............................ 219,045 400,199
---------- ----------
Intangible and other assets (less accumulated amortization
of $372,122 and $515,195 in 1998 and 1999,
respectively)............................................. 634,528 867,543
---------- ----------
$ 904,285 $1,353,045
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt................... $ 1,250 $ 8,060
Accounts payable....................................... 25,683 30,016
Accrued restructuring charges.......................... 11,909 17,111
Accrued expenses....................................... 11,689 43,629
Accrued interest....................................... 20,997 30,294
Customer deposits...................................... 4,528 7,526
Deferred revenue....................................... 10,958 28,175
---------- ----------
Total current liabilities......................... 87,014 164,811
---------- ----------
Long-term debt, less current maturities..................... 1,001,224 1,322,508
---------- ----------
Other long-term liabilities................................. 29,510 83,285
---------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock--$.01 par value, authorized 10,000,000
shares; issued 250,000 shares (aggregate liquidation
preference of $26,030 and $28,176 in 1998 and 1999,
respectively)......................................... 3 3
Common stock--$.01 par value, authorized 65,000,000
shares, issued and outstanding: 7,071,861 and
47,263,500 shares in 1998 and 1999, respectively...... 71 472
Class B common stock--$.01 par value, authorized
10,000,000 shares; issued and outstanding: no shares
in 1998 and 3,968,164 shares in 1999.................. -- 40
Additional paid-in capital............................. 378,218 661,413
Accumulated deficit.................................... (591,755) (879,487)
---------- ----------
Total stockholders' equity (deficit).............. (213,463) (217,559)
---------- ----------
$ 904,285 $1,353,045
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 253
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Service, rental and maintenance revenues................. $ 351,944 $ 371,154 $ 591,389
Product sales............................................ 44,897 42,481 50,435
--------- --------- -----------
Total revenues................................. 396,841 413,635 641,824
Cost of products sold.................................... (29,158) (29,953) (34,954)
--------- --------- -----------
367,683 383,682 606,870
--------- --------- -----------
Operating expenses:
Service, rental and maintenance..................... 79,836 80,782 132,400
Selling............................................. 51,474 49,132 84,249
General and administrative.......................... 106,041 112,181 180,726
Depreciation and amortization....................... 232,347 221,316 309,434
Restructuring charge................................ -- 14,700 (2,200)
--------- --------- -----------
Total operating expenses....................... 469,698 478,111 704,609
--------- --------- -----------
Operating income (loss).................................. (102,015) (94,429) (97,739)
Interest expense......................................... (96,482) (104,019) (144,924)
Interest income.......................................... 904 1,766 1,896
Other expense............................................ (1,581) (1,960) (45,221)
Equity in loss of affiliate.............................. (3,872) (5,689) (3,200)
--------- --------- -----------
Income (loss) before income tax benefit, extraordinary
items and accounting change............................ (203,046) (204,331) (289,188)
Benefit from income taxes................................ 21,172 -- --
--------- --------- -----------
Income (loss) before extraordinary items and
accounting change...................................... (181,874) (204,331) (289,188)
Extraordinary gain (loss) from early extinguishment of
debt................................................... -- (1,720) 6,963
Cumulative effect of accounting change................... -- -- (3,361)
--------- --------- -----------
Net income (loss)........................................ (181,874) (206,051) (285,586)
Accretion of redeemable preferred stock.................. (32) -- --
Preferred stock dividend................................. -- (1,030) (2,146)
--------- --------- -----------
Net income (loss) applicable to common stockholders...... $(181,906) $(207,081) $ (287,732)
========= ========= ===========
Basic/diluted income (loss) per common share before
extraordinary item and accounting change............... $ (26.31) $ (29.34) $ (9.21)
Extraordinary gain (loss) from early extinguishment of
debt per basic/diluted common share.................... -- (0.25) 0.22
Cumulative effect of accounting change per basic/diluted
common share........................................... -- -- (0.11)
--------- --------- -----------
Basic/diluted net income (loss) per common share......... $ (26.31) $ (29.59) $ (9.10)
========= ========= ===========
Basic/diluted weighted average number of common shares
outstanding............................................ 6,915,413 6,997,730 31,603,410
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 254
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
CLASS B ADDITIONAL STOCKHOLDERS'
PREFERRED COMMON COMMON PAID-IN ACCUMULATED EQUITY
STOCK STOCK STOCK CAPITAL DEFICIT (DEFICIT)
--------- ------ ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996............ $ -- $ 70 $ -- $350,581 $(202,800) $ 147,851
Issuance of 50,447 shares of
common stock under Arch's
employee stock purchase plan... -- -- -- 800 -- 800
Accretion of redeemable preferred
stock.......................... -- -- -- (32) -- (32)
Net loss......................... -- -- -- -- (181,874) (181,874)
---- ---- ---- -------- --------- ---------
Balance, December 31, 1997............ -- 70 -- 351,349 (384,674) (33,255)
Exercise of options to purchase
31,344 shares of common
stock.......................... -- -- -- 294 -- 294
Issuance of 250,000 shares of
preferred stock................ 3 -- -- 24,997 -- 25,000
Issuance of 85,996 shares of
common stock under Arch's
employee stock purchase plan... -- 1 -- 548 -- 549
Preferred stock dividend......... -- -- -- 1,030 (1,030) --
Net loss......................... -- -- -- -- (206,051) (206,051)
---- ---- ---- -------- --------- ---------
Balance, December 31, 1998............ 3 71 -- 378,218 (591,755) (213,463)
Issuance of 30,847,004 shares of
common stock and 5,360,261 of
Class B common stock in rights
offering....................... -- 308 54 216,881 -- 217,243
Issuance of 4,781,656 shares of
common stock to acquire
company........................ -- 48 -- 20,035 -- 20,083
Shares to be issued in connection
with the Benbow settlement..... -- -- -- 22,836 -- 22,836
Issuance of 3,136,665 shares of
common stock in exchange for
debt........................... -- 31 -- 21,106 -- 21,137
Issuance of 34,217 shares of
common stock under Arch's
employee stock purchase plan... -- -- -- 191 -- 191
Conversion of Class B common
stock into common stock........ -- 14 (14) -- -- --
Preferred stock dividend......... -- -- -- 2,146 (2,146) --
Net loss......................... -- -- -- -- (285,586) (285,586)
---- ---- ---- -------- --------- ---------
Balance, December 31, 1999............ $ 3 $472 $ 40 $661,413 $(879,487) $(217,559)
==== ==== ==== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 255
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $(181,874) $(206,051) $(285,586)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization........................ 232,347 221,316 309,434
Deferred income tax benefit.......................... (21,172) -- --
Extraordinary loss (gain) from early extinguishment
of debt............................................ -- 1,720 (6,963)
Cumulative effect of accounting change............... -- -- 3,361
Equity in loss of affiliate.......................... 3,872 5,689 3,200
Accretion of discount on senior notes................ 33,259 37,115 41,566
Other non-cash interest expense...................... -- -- 2,904
Gain on Tower Site Sale.............................. -- (1,859) (1,871)
Write-off of N-PCS investments....................... -- -- 37,498
Accounts receivable loss provision................... 7,181 8,545 15,265
Changes in assets and liabilities, net of effect from
acquisition of company:
Accounts receivable............................. (11,984) (9,151) (18,369)
Inventories..................................... (2,394) 2,314 1,728
Prepaid expenses and other...................... (386) (3,090) 7,000
Accounts payable and accrued expenses........... 3,683 24,649 (2,986)
Customer deposits and deferred revenue.......... 1,058 549 (7,554)
Other long-term liabilities..................... -- 1,634 909
--------- --------- ---------
Net cash provided by operating activities................. 63,590 83,380 99,536
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment, net............. (87,868) (79,249) (95,208)
Additions to intangible and other assets............. (14,901) (33,935) (18,443)
Net proceeds from tower site sale.................... -- 30,316 3,046
Acquisition of company, net of cash acquired......... -- -- (516,561)
--------- --------- ---------
Net cash used for investing activities.................... (102,769) (82,868) (627,166)
--------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt........................... 91,000 460,964 473,783
Repayment of long-term debt.......................... (49,046) (489,014) (162,059)
Repayment of redeemable preferred stock.............. (3,744) -- --
Net proceeds from sale of preferred stock............ -- 25,000 --
Net proceeds from sale of common stock............... 800 843 217,434
--------- --------- ---------
Net cash provided by (used in) financing activities....... 39,010 (2,207) 529,158
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents...... (169) (1,695) 1,528
Cash and cash equivalents, beginning of period............ 3,497 3,328 1,633
--------- --------- ---------
Cash and cash equivalents, end of period.................. $ 3,328 $ 1,633 $ 3,161
========= ========= =========
Supplemental disclosure:
Interest paid........................................ $ 62,231 $ 57,151 $ 91,151
========= ========= =========
Issuance of common stock for debt.................... $ -- $ -- $ 21,137
========= ========= =========
Issuance of common stock for acquisition of
company............................................ $ -- $ -- $ 20,083
========= ========= =========
Liabilities assumed in acquisition of company........ $ -- $ -- $ 134,429
========= ========= =========
Preferred stock dividend............................. $ -- $ 1,030 $ 2,146
========= ========= =========
Accretion of redeemable preferred stock.............. $ 32 $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE> 256
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization--Arch Communications Group, Inc. ("Arch" or the "Company") is
a leading provider of wireless messaging services.
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Revenue Recognition--Arch recognizes revenue under rental and service
agreements with customers as the related services are performed. Maintenance
revenues and related costs are recognized ratably over the respective terms of
the agreements. Sales of equipment are recognized upon delivery. Commissions are
recognized as an expense when incurred. The Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements", on December 3, 1999. This SAB provides additional
guidance on the accounting for revenue recognition, including both broad
conceptual discussions as well as certain industry-specific guidance. The
guidance is effective for the second quarter of fiscal 2000. Arch does not
expect SAB 101 to have a material impact on its results of operations upon
adoption.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the 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.
Cash Equivalents--Cash equivalents include short-term, interest-bearing
instruments purchased with remaining maturities of three months or less. The
carrying amount approximates fair value due to the relatively short period to
maturity of these instruments.
Inventories--Inventories consist of new messaging devices which are held
primarily for resale. Inventories are stated at the lower of cost or market,
with cost determined on a first-in, first-out basis.
Property and Equipment--Leased messaging devices sold or otherwise retired
are removed from the accounts at their net book value using the first-in,
first-out method. Property and equipment is stated at cost and is depreciated
using the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------- -----------
<S> <C>
Buildings and improvements................................. 20 Years
Leasehold improvements..................................... Lease Term
Messaging devices.......................................... 3 Years
Messaging and computer equipment........................... 5-8 Years
Furniture and fixtures..................................... 5-8 Years
Vehicles................................................... 3 Years
</TABLE>
Depreciation and amortization expense related to property and equipment
totaled $108.0 million, $101.1 million and $144.9 million for the years ended
December 31, 1997, 1998 and 1999, respectively.
F-27
<PAGE> 257
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible and Other Assets--Intangible and other assets, net of
accumulated amortization, are composed of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Purchased Federal Communications Commission
licenses.......................................... $256,519 $354,246
Goodwill............................................ 271,808 249,010
Purchased subscriber lists.......................... 56,825 239,114
Deferred financing costs............................ 22,072 19,915
N-PCS investments................................... 17,847 --
Other............................................... 9,457 5,258
-------- --------
$634,528 $867,543
======== ========
</TABLE>
Amortization expense related to intangible and other assets totaled $124.3
million, $120.2 million and $164.6 million for the years ended December 31,
1997, 1998 and 1999, respectively.
Subscriber lists, Federal Communications Commission licenses and goodwill
are amortized over their estimated useful lives, ranging from five to ten years
using the straight-line method. Non-competition agreements are amortized over
the terms of the agreements using the straight-line method. Other assets consist
of contract rights, organizational and Federal Communications Commission
application and development costs which are amortized using the straight-line
method over their estimated useful lives, not exceeding ten years.
In April 1998, the Accounting Standards Executive Committee of the
Financial Accounting Standards Board issued Statement of Position (SOP) 98-5
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred.
Development and start up costs include nonrecurring, direct costs incurred in
the development and expansion of messaging systems. Arch adopted SOP 98-5
effective January 1, 1999. Initial application of SOP 98-5 resulted in a $3.4
million charge, which was reported as the cumulative effect of a change in
accounting principle. This charge represents the unamortized portion of start-up
and organization costs, which had been deferred in prior years.
Deferred financing costs incurred in connection with Arch's credit
agreements (see Note 3) are being amortized over periods not to exceed the terms
of the related agreements. As credit agreements are amended and restated,
unamortized deferred financing costs are written off as an extraordinary charge.
During 1998, a charge of $1.7 million was recognized in connection with the
closing of a new credit facility.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To
Be Disposed Of" Arch evaluates the recoverability of its carrying value of the
Company's long-lived assets and certain intangible assets based on estimated
undiscounted cash flows to be generated from each of such assets compared to the
original estimates used in measuring the assets. To the extent impairment is
identified, Arch reduces the carrying value of such impaired assets. To date,
Arch has not had any such impairments except as described below.
N-PCS Investments--In connection with Arch's May 1996 acquisition of
Westlink Holdings, Inc., Arch acquired Westlink's 49.9% share of the capital
stock of Benbow PCS Ventures, Inc. Benbow holds exclusive rights to a 50kHz
outbound/12.5kHz inbound narrowband personal communications services license in
each of the five regions of the United States. Arch was formerly obligated to
advance Benbow sufficient funds to service debt obligations incurred by Benbow
in connection with its acquisition of its narrowband PCS licenses and to finance
construction of a narrowband PCS system unless funds were available to Benbow
from other sources. This obligation was subject to the approval of Arch's
designee on Benbow's board of directors. Arch's investment in Benbow was
accounted for under the equity method
F-28
<PAGE> 258
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
whereby Arch's share of Benbow's losses, since the acquisition date of Westlink,
are recognized in Arch's accompanying consolidated statements of operations
under the caption equity in loss of affiliate.
In June 1999, Arch, Benbow and Benbow's controlling stockholder, agreed
that:
- the shareholders agreement, the management agreement and the employment
agreement governing the establishment and operation of Benbow will be
terminated;
- Benbow will not make any further Federal Communications Commission
payments and will not pursue construction of a narrowband PCS system;
- Arch will not be obligated to fund Federal Communications Commission
payments or construction of a narrowband PCS system by Benbow;
- the parties will seek Federal Communications Commission approval of the
forgiveness of Benbow's remaining payment obligations and the transfer of
the controlling stockholder's equity interest in Benbow to Arch;
- the closing of the transaction will occur on the earlier of January 23,
2001 or receipt of Federal Communications Commission approval;
- Arch will pay the controlling stockholder, in installments, an aggregate
amount of $3.5 million (if the transaction closes before January 23,
2001) or $3.8 million (if the transaction closes on January 23, 2001).
As a result of these arrangements, Benbow will not have any meaningful
business operations and is unlikely to retain its narrowband personal
communications services licenses. Therefore, Arch has written off substantially
all of its investment in Benbow in the amount of $8.2 million. Arch has also
accrued the payment to the controlling stockholder of $3.8 million and legal and
other expenses of approximately $1.0 million which is included in accrued
expenses. In addition, Arch guaranteed Benbow's obligations in conjunction with
Benbow's June 1998 purchase of the stock of PageCall. Since it is unlikely that
Benbow will be able to meet these obligations and Arch is currently required to
settle the obligation in its stock, Arch has recorded the issuance of $22.8
million of its common stock in additional paid-in capital and as a charge to
operations, to satisfy the obligation in April 2000.
On November 8, 1994, CONXUS Communications, Inc. was successful in
acquiring the rights to an interactive messaging license in five designated
regions in the United States in the Federal Communications Commission narrowband
wireless spectrum auction. On May 18, 1999, CONXUS filed for Chapter 11
protection in the U.S. Bankruptcy Court in Delaware, which case was converted to
a case under Chapter 7 on August 17, 1999. In June 1999, Arch wrote-off its $6.5
million investment in CONXUS. On November 3, 1999, in order to document its
disposition of any interest it has, if any, in CONXUS, Arch offered to transfer
to CONXUS its shares in CONXUS for no consideration. Which was accepted by the
Chapter 7 trustee on December 9, 1999.
All of the above charges, totaling $42.3 million, are included in other
expense in 1999 in the accompanying statement of operations.
Fair Value of Financial Instruments--Arch's financial instruments, as
defined under SFAS No. 107 "Disclosures about Fair Value of Financial
Instruments", include its cash, its debt financing and interest rate protection
agreements. The fair value of cash is equal to the carrying value at December
31, 1998 and 1999.
As discussed in Note 3, Arch's debt financing primarily consists of (1)
senior bank debt, (2) fixed rate senior notes and (3) convertible subordinated
debentures. Arch considers the fair value of senior bank debt to be equal to the
carrying value since the related facilities bear a current market rate of
interest.
F-29
<PAGE> 259
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Arch's fixed rate senior notes are traded publicly. The following table depicts
the fair value of the fixed rate senior notes and the convertible subordinated
debentures based on the current market quote as of December 31, 1998 and 1999
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
--------------------- ---------------------
CARRYING CARRYING
-------- --------
DESCRIPTION VALUE FAIR VALUE VALUE FAIR VALUE
- ----------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C>
10 7/8% Senior Discount Notes
due 2008..................... $369,506 $221,704 $393,917 $173,323
9 1/2% Senior Notes due 2004... 125,000 112,500 125,000 95,000
14% Senior Notes due 2004...... 100,000 103,000 100,000 83,000
12 3/4% Senior Notes due
2007......................... 127,604 127,604 127,887 101,030
13 3/4% Senior Notes due
2008......................... -- -- 140,365 113,685
6 3/4% Convertible Subordinated
Debentures due 2003.......... 13,364 6,682 4,459 1,812
</TABLE>
Arch had off-balance-sheet interest rate protection agreements consisting
of interest rate swaps and interest rate caps with notional amounts of $265.0
million and $40.0 million, respectively, at December 31, 1998 and $107.0 million
and $10.0 million, respectively, at December 31, 1999. The cost to terminate the
outstanding interest rate swaps and interest rate caps at December 31, 1998 and
1999 would have been $6.4 million and $4.5 million, respectively. See Note 3.
Basic/Diluted Net Income (Loss) Per Common Share--On June 28, 1999, Arch
effected a one for three reverse stock split. All share and per share data for
all periods presented have been adjusted to give effect to this reverse split.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share". The Company adopted this standard in 1997. The
adoption of this standard did not have an effect on the Company's financial
position, results of operations or income (loss) per share. Basic net income
(loss) per common share is based on the weighted average number of common shares
outstanding. Shares of stock issuable pursuant to stock options and upon
conversion of the subordinated debentures (see Note 3) or the Series C Preferred
Stock (see Note 4) have not been considered, as their effect would be
anti-dilutive and thus diluted net income (loss) per common share is the same as
basic net income (loss) per common share.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized in earnings. Arch intends to adopt this standard effective January 1,
2001. Arch has not yet quantified the impact of adopting SFAS No. 133 on its
financial statements; however, adopting SFAS No. 133 could increase volatility
in earnings and other comprehensive income.
Reclassifications--Certain amounts of prior periods were reclassified to
conform with the 1999 presentation.
2. ACQUISITIONS
On June 3, 1999 Arch completed its acquisition of MobileMedia
Communications, Inc. for $671.1 million, consisting of cash paid of $516.6
million, including direct transaction costs, 4,781,656 shares of Arch common
stock valued at $20.1 million and the assumption of liabilities of $134.4
million. The cash payments were financed through the issuance of approximately
36.2 million shares of Arch common stock (including approximately 5.4 million
shares of Arch Class B common
F-30
<PAGE> 260
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares) in a rights offering for $6.00 per share, the issuance of $147.0 million
principal amount of 13 3/4% senior notes due 2008 (see Note 3) and additional
borrowings under the Company's credit facility.
Arch issued to four unsecured creditors, who had agreed to act as standby
purchasers and to purchase shares not purchased by other unsecured creditors in
the rights offering, warrants to acquire 1,225,219 shares of its common stock on
or before September 1, 2001 for $9.03 per share. The fair value of these
warrants was determined to be immaterial.
The purchase price was allocated based on the fair values of assets
acquired and liabilities assumed. The acquisition has been accounted for as a
purchase, and the results of MobileMedia's operations have been included in the
consolidated financial statements from the date of the acquisition. Goodwill
resulting from the acquisition is being amortized over a ten-year period using
the straight-line method.
The liabilities assumed, referred to above, include an unfavorable lease
accrual related to MobileMedia's rentals on communications towers which were in
excess of market rental rates. This accrual amounted to approximately $52.9
million and is included in other long-term liabilities. This accrual will be
amortized over the remaining lease term of 13 3/4 years. Concurrent with the
consummation of the acquisition, Arch commenced the development of a plan to
integrate the operations of MobileMedia. The liabilities assumed, referred to
above, also includes a $14.5 million restructuring accrual to cover the costs to
eliminate redundant headcount and facilities in connection with the overall
integration of operations (see Note 9).
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition had occurred at the beginning of the period
presented, after giving effect to certain adjustments, including depreciation
and amortization of acquired assets and interest expense on acquisition debt.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisition
been completed at the beginning of the period presented, or of results that may
occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
(UNAUDITED AND IN THOUSANDS EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues...................................... $ 854,862 $ 817,686
Income (loss) before extraordinary item....... (193,151) (316,590)
Net income (loss)............................. (194,871) (309,627)
Basic/diluted net income (loss) per common
share....................................... (4.09) (6.39)
</TABLE>
Pending Acquisition--In November 1999, Arch signed a definitive agreement
with Paging Network, Inc. (PageNet) pursuant to which PageNet will merge with a
wholly-owned subsidiary of Arch. Each outstanding share of PageNet common stock
will be converted into 0.1247 share of Arch common stock in the merger.
Under the merger agreement, PageNet is required to make an exchange offer
of PageNet common stock to holders of its outstanding 8.875% senior subordinated
notes due 2006, its 10.125% senior subordinated notes due 2007 and its 10%
senior subordinated notes due 2008 (collectively, the "PageNet Notes"), having
an aggregate outstanding principal amount of $1.2 billion. Under the PageNet
exchange offer, an aggregate of 616,830,757 shares of PageNet common stock,
together with 68.9% of the equity interest in PageNet's subsidiary, Vast
Solutions, would be exchanged for all of the PageNet Notes, in the aggregate. In
connection with the Merger, PageNet would distribute to its stockholders (other
than holders who received shares in the PageNet exchange offer), 11.6% of the
equity interests in Vast Solutions. After the merger, PageNet would retain a
19.5% equity interest in Vast Solutions.
Under the merger agreement Arch is required to make an exchange offer of up
to 29,651,984 shares of its common stock (in the aggregate) for all of its
10 7/8% senior discount notes due 2008.
F-31
<PAGE> 261
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Arch expects the merger, which has been approved by the boards of directors
of Arch and PageNet, but is subject to regulatory review, shareholder approval,
other third-party consents and the completion of the exchange offers and
preferred stock conversion, to be completed in the second or third quarter of
2000. Each of the PageNet exchange offer and the Arch exchange offer is
conditioned upon acceptance by the holders of 97.5% of the PageNet Notes and the
Arch senior discount notes, respectively, subject to reduction under specified
circumstances.
The merger agreement provides that under certain circumstances a fee may be
payable by Arch or PageNet upon termination of the agreement. These
circumstances include withdrawal of the recommendation or approval of the merger
agreement or the merger by the Arch or PageNet board of directors, the failure
of shareholders or noteholders to approve the transaction or exchange followed
by the making of an alternative proposal and Arch or PageNet entering into an
agreement with a third party within 12 months of such termination, and PageNet's
failure to file a prepackaged bankruptcy plan in certain circumstances. The
termination fee payable by Arch or PageNet under the merger agreement is $40.0
million.
The merger agreement provides that either party may terminate the
agreement, without paying the above fee, if the merger is not consummated by
June 30, 2000. This termination date is subject to extension for 90 days for
regulatory approval and is subject to extension to as late as December 31, 2000
under certain circumstances where PageNet files for protection under the U.S.
Bankruptcy Code.
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Senior Bank Debt..................................... $ 267,000 $ 438,940
10 7/8% Senior Discount Notes due 2008............... 369,506 393,917
9 1/2% Senior Notes due 2004......................... 125,000 125,000
14% Senior Notes due 2004............................ 100,000 100,000
12 3/4% Senior Notes due 2007........................ 127,604 127,887
13 3/4% Senior Notes due 2008........................ -- 140,365
Convertible Subordinated Debentures.................. 13,364 4,459
---------- ----------
1,002,474 1,330,568
Less -- Current maturities........................... 1,250 8,060
---------- ----------
Long-term debt....................................... $1,001,224 $1,322,508
========== ==========
</TABLE>
Senior Bank Debt--The Company, through its operating subsidiary, Arch
Paging, Inc. (API) has a senior credit facility in the current amount of $577.9
million consisting of (i) a $175.0 million reducing revolving tranche A
facility, (ii) a $100.0 million tranche B term loan and (iii) a $302.9 million
tranche C term loan.
The tranche A facility will be reduced on a quarterly basis commencing on
September 30, 2000 and will mature on June 30, 2005. The tranche B term loan
will be amortized in quarterly installments commencing September 30, 2000, with
an ultimate maturity date of June 30, 2005. The tranche C term loan began
amortizing in annual installments on December 31, 1999, with an ultimate
maturity date of June 30, 2006.
API's obligations under the senior credit facility are secured by its
pledge of its interests in certain of its operating subsidiaries. The senior
credit facility is guaranteed by Arch and certain of Arch's operating
F-32
<PAGE> 262
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsidiaries. Arch's guarantee is secured by a pledge of Arch's stock and notes
in its wholly-owned subsidiary Arch Communications Inc. (ACI), and the
guarantees of the operating subsidiaries are secured by a security interest in
certain assets of those operating subsidiaries.
Borrowings under the senior credit facility bear interest based on a
reference rate equal to either the agent bank's alternate base rate or LIBOR, in
each case plus a margin based on specified ratios of debt to annualized earnings
before interest, taxes, depreciation and amortization (EBITDA).
The senior credit facility requires payment of fees on the daily average
amount available to be borrowed under the tranche A facility. These fees vary
depending on specified ratios of total debt to annualized EBITDA.
The senior credit facility requires that at least 50% of total ACI debt,
including outstanding borrowings under the senior credit facility, be subject to
a fixed interest rate or interest rate protection agreements. Entering into
interest rate protection agreements involves both the credit risk of dealing
with counterparties and their ability to meet the terms of the contracts and
interest rate risk. In the event of nonperformance by the counterparty to these
interest rate protection agreements, Arch would be subject to the prevailing
interest rates specified in the senior credit facility.
Under the interest rate swap agreements, the Company will pay the
difference between LIBOR and the fixed swap rate if the swap rate exceeds LIBOR,
and the Company will receive the difference between LIBOR and the fixed swap
rate if LIBOR exceeds the swap rate. Settlement occurs on the quarterly reset
dates specified by the terms of the contracts. No interest rate swaps on the
senior credit facility were outstanding at December 31, 1999. At December 31,
1998, the Company had a net payable of $47,000, on the interest rate swaps.
The interest rate cap agreements will pay the Company the difference
between LIBOR and the cap level if LIBOR exceeds the cap levels at any of the
quarterly reset dates. If LIBOR remains below the cap level, no payment is made
to the Company. The total notional amount of the interest rate cap agreements
was $10.0 million with a cap level of 8% at December 31, 1999. The transaction
fees for these instruments are being amortized over the terms of the agreements.
The senior credit facility contains restrictions that limit, among other
things, Arch's operating subsidiaries' ability to:
- declare dividends or redeem or repurchase capital stock;
- prepay, redeem or purchase debt;
- incur liens and engage in sale/leaseback transactions;
- make loans and investments;
- incur indebtedness and contingent obligations;
- amend or otherwise alter debt instruments and other material agreements;
- engage in mergers, consolidations, acquisitions and asset sales;
- alter its lines of business or accounting methods.
In addition, the senior credit facility requires Arch and its subsidiaries
to meet certain financial covenants, including ratios of EBITDA to fixed
charges, EBITDA to debt service, EBITDA to interest service and total
indebtedness to EBITDA. As of December 31, 1999, Arch and its operating
subsidiaries were in compliance with the covenants of the senior credit
facility.
F-33
<PAGE> 263
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, $438.9 million was outstanding and $139.0 million
was available under the senior credit facility. At December 31, 1999, such
advances bore interest at an average annual rate of 11.62%.
Senior Notes--Interest on Arch's 10 7/8% senior discount notes due 2008
does not accrue prior to March 15, 2001. Commencing September 15, 2001, interest
on the senior discount notes is payable semi-annually at an annual rate of
10 7/8%. The maturity value of the senior discount notes outstanding at December
31, 1999 was $448.4 million.
On June 3, 1999, ACI, a wholly-owned subsidiary of Arch, received the
proceeds of an offering of $147.0 million principal amount at maturity of
13 3/4% senior notes due 2008. The 13 3/4% notes were sold at an initial price
to investors of 95.091% for proceeds of $139.8 million less offering expenses of
$5.2 million. The 13 3/4% notes mature on April 15, 2008 and bear interest at a
rate of 13 3/4% per annum, payable semi-annually in arrears on April 15 and
October 15 of each year, commencing October 15, 1999.
Interest on the 13 3/4% notes, ACI's 12 3/4% senior notes due 2007, ACI's
14% senior notes due 2004 and ACI's 9 1/2% senior notes due 2004 (collectively,
the "Senior Notes") is payable semiannually. The senior discount notes and
Senior Notes contain certain restrictive and financial covenants, which, among
other things, limit the ability of Arch or ACI to:
- incur additional indebtedness;
- pay dividends;
- grant liens on its assets;
- sell assets;
- enter into transactions with related parties;
- merge, consolidate or transfer substantially all of its assets;
- redeem capital stock or subordinated debt;
- make certain investments.
Arch has entered into interest rate swap agreements in connection with the
ACI 14% Notes. Under the interest rate swap agreements, Arch has effectively
reduced the interest rate on the ACI 14% Notes from 14% to the fixed swap rate
of 9.45%. In the event of nonperformance by the counterparty to these interest
rate protection agreements, Arch would be subject to the 14% interest rate
specified on the notes. As of December 31, 1999, Arch had received $6.8 million
in excess of the amounts paid under the swap agreements, which is included in
other long-term liabilities in the accompanying balance sheet.
Convertible Subordinated Debentures--The Arch convertible debentures are
convertible at their principal amount into shares of Arch common stock at any
time prior to redemption or maturity at an initial conversion price of $50.25
per share, subject to adjustment. The Arch convertible debentures are
redeemable, at the option of Arch, in whole or in part, at certain prices
declining annually to 100% of the principal amount at maturity plus accrued
interest. The Arch convertible debentures also are subject to redemption at the
option of the holders, at a price of 100% of the principal amount plus accrued
interest, upon the occurrence of certain events. The Arch convertible debentures
bear interest at a rate of 6 3/4% per annum, payable semiannually on June 1 and
December 1. The Arch convertible debentures are unsecured and are subordinated
to all existing indebtedness of Arch.
Debt Exchanged for Equity--In October 1999, Arch completed transactions
with four bondholders in which Arch issued an aggregate of 3,136,665 shares of
Arch common stock and warrants to purchase 540,487 shares of Arch common stock
for $9.03 per share in exchange for $25.2 million accreted value of
F-34
<PAGE> 264
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
debt securities. Under two of the exchange agreements, Arch issued 809,545
shares of Arch common stock and warrants to purchase 540,487 shares of Arch
common stock for $9.03 per share in exchange for $8.9 million principal amount
of Arch convertible debentures. Arch recorded $2.9 million of non-cash interest
expense in conjunction with these transactions. Under the remaining exchange
agreements, Arch issued 2,327,120 shares of Arch common stock in exchange for
$16.3 million accreted value ($19.0 million maturity value) of its senior
discount notes. Arch recorded an extraordinary gain of $7.0 million on the early
extinguishment of debt as a result of these transactions.
In February and March 2000, Arch completed transactions in which Arch
issued an aggregate of 11,926,036 shares of Arch common stock in exchange for
approximately $160.9 million accreted value of debt securities. Under one of the
exchange agreements, Arch issued 285,715 shares of Arch common stock in exchange
for $3.5 million principal amount of Arch convertible debentures. Under the
other exchange agreements, Arch issued 11,640,321 shares of Arch common stock in
exchange for $157.4 million accreted value ($176.0 million maturity value) of
its senior discount notes.
Maturities of Debt--Scheduled long-term debt maturities at December 31,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $ 8,060
2001........................................................ 15,560
2002........................................................ 20,560
2003........................................................ 30,019
2004........................................................ 274,060
Thereafter.................................................. 982,309
----------
$1,330,568
==========
</TABLE>
4. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable Preferred Stock--In connection with the its merger with USA
Mobile Communications Holdings, Inc., Arch assumed the obligations associated
with 22,530 outstanding shares of Series A Redeemable Preferred Stock issued by
USA Mobile. The preferred stock was recorded at its accreted redemption value,
based on 10% annual accretion through the redemption date. On January 30, 1997,
all outstanding preferred stock was redeemed for $3.7 million in cash.
Redeemable Series C Cumulative Convertible Preferred Stock--On June 29,
1998, two partnerships managed by Sandler Capital Management Company, Inc., an
investment management firm, together with certain other private investors, made
an equity investment in Arch of $25.0 million in the form of Series C
Convertible Preferred Stock of Arch. The Series C Preferred Stock: (i) is
convertible into Arch common stock at a conversion price of $16.38 per share,
subject to certain adjustments; (ii) bears dividends at an annual rate of 8.0%,
(A) payable quarterly in cash or, at Arch's option, through the issuance of
shares of Arch common stock valued at 95% of the then prevailing market price or
(B) if not paid quarterly, accumulating and payable upon redemption or
conversion of the Series C Preferred Stock or liquidation of Arch; (iii) permits
the holders after seven years to require Arch, at Arch's option, to redeem the
Series C Preferred Stock for cash or convert such shares into Arch common stock
valued at 95% of the then prevailing market price of Arch common stock; (iv) is
subject to redemption for cash or conversion into Arch common stock at Arch's
option in certain circumstances; (v) in the event of a "Change of Control" as
defined in the indenture governing the senior discount notes, requires Arch, at
its option, to redeem the Series C Preferred Stock for cash or convert such
shares into Arch common stock valued at 95% of the then prevailing market price
of Arch common stock, with such cash redemption or conversion being at a price
equal to 105% of the sum of the original purchase price plus accumulated
dividends; (vi) limits
F-35
<PAGE> 265
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain mergers or asset sales by Arch; (vii) so long as at least 50% of the
Series C Preferred Stock remains outstanding, limits the incurrence of
indebtedness and "restricted payments" in the same manner as contained in the
senior discount notes indenture; and (viii) has certain voting and preemptive
rights. Upon an event of redemption or conversion, Arch currently intends to
convert such Series C Preferred Stock into shares of Arch common stock.
Class B Common Stock--Shares of Arch Class B common stock are identical in
all respects to shares of Arch common stock, except that a holder of Class B
common stock is not entitled to vote in the election of directors and is
entitled to 1/100th vote per share on all other matters voted on by Arch
stockholders. Shares of class B common stock will automatically convert into an
identical number of shares of common stock upon transfer of Class B common
shares to any person or entity, other than any person or entity that received
shares of Class B common stock in the initial distribution of those shares or
any affiliate of such person or entity.
Warrants--In connection with the acquisition of MobileMedia, Arch issued
approximately 48.3 million warrants to purchase Arch common stock. Each warrant
represents the right to purchase one-third of one share of Arch common stock at
an exercise price of $3.01 ($9.03 per share). The warrants expire on September
1, 2001.
Stock Options--Arch has stock option plans which provide for the grant of
incentive and nonqualified stock options to key employees, directors and
consultants to purchase Arch common stock. Incentive stock options are granted
at exercise prices not less than the fair market value on the date of grant.
Options generally vest over a five-year period from the date of grant. However,
in certain circumstances, options may be immediately exercisable in full.
Options generally have a duration of 10 years. The plans provide for the
granting of options to purchase a total of 2,304,135 shares of common stock.
On December 16, 1997, the Compensation Committee of the board of directors
of Arch authorized the Company to offer an election to its employees who had
outstanding options at a price greater than $15.19 to cancel such options and
accept new options at a lower price. In January 1998, as a result of this
election by certain of its employees, the Company canceled 361,072 options with
exercise prices ranging from $17.82 to $61.88 and granted the same number of new
options with an exercise price of $15.19 per share, the fair market value of the
stock on December 16, 1997.
The following table summarizes the activity under Arch's stock option plans
for the periods presented:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Options Outstanding at December 31, 1996............. 349,065 $34.11
Granted......................................... 166,785 20.03
Exercised....................................... -- --
Terminated...................................... (62,207) 31.97
--------- ------
Options Outstanding at December 31, 1997............. 453,643 29.22
Granted......................................... 656,096 14.27
Exercised....................................... (31,344) 9.38
Terminated...................................... (429,627) 28.54
Options Outstanding at December 31, 1998............. 648,768 15.51
Granted......................................... 1,295,666 7.80
Exercised....................................... -- --
Terminated...................................... (109,672) 13.89
Options Outstanding at December 31, 1999............. 1,834,762 10.16
========= ======
Options Exercisable at December 31, 1999............. 255,264 $17.00
========= ======
</TABLE>
F-36
<PAGE> 266
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the options outstanding and options
exercisable by price range at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 4.31 - $ 6.31 26,400 9.58 $ 5.70 7,900 $ 5.46
7.83 - 7.83 1,263,266 9.42 7.83 2,000 7.83
10.69 - 15.19 500,954 8.09 14.33 210,996 14.49
18.75 - 23.63 32,974 5.99 20.76 23,516 21.03
37.50 - 82.68 11,168 5.52 66.56 10,852 66.99
- --------------- --------- ---- ------ ------- ------
$ 4.31 - $82.68 1,834,762 8.98 $10.16 255,264 $17.00
=============== ========= ==== ====== ======= ======
</TABLE>
Employee Stock Purchase Plans--The Company's employee stock purchase plans
allow eligible employees the right to purchase common stock, through payroll
deductions not exceeding 10% of their compensation, at the lower of 85% of the
market price at the beginning or the end of each six-month offering period.
During 1997, 1998 and 1999, 50,447, 85,996 and 34,217 shares were issued at an
average price per share of $15.87, $6.39 and $5.60, respectively. At December
31, 1999, 465,783 shares are available for future issuance.
Accounting for Stock-Based Compensation--Arch accounts for its stock option
and stock purchase plans under APB Opinion No. 25 "Accounting for Stock Issued
to Employees." Since all options have been issued at a grant price equal to fair
market value, no compensation cost has been recognized in the statements of
operations. Had compensation cost for these plans been determined consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation", Arch's net income
(loss) and income (loss) per share would have been increased to the following
pro forma amounts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss): As reported.................. $(181,874) $(206,051) $(285,586)
Pro forma.................... (183,470) (208,065) (288,070)
Basic net income (loss)
per common share: As reported.................. (26.31) (29.59) (9.10)
Pro forma.................... (26.55) (29.88) (9.18)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to the
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. In computing these pro forma amounts, Arch
has assumed risk-free interest rates of 4.5%-6%, an expected life of 5 years, an
expected dividend yield of zero and an expected volatility of 50%-87%.
The weighted average fair values (computed consistent with SFAS No. 123) of
options granted under all plans in 1997, 1998 and 1999 were $10.11, $8.34 and
$5.56, respectively. The weighted average fair value of shares sold under the
employee stock purchase plans in 1997, 1998 and 1999 was $8.49, $5.64 and $3.13,
respectively.
Deferred Compensation Plan for Nonemployee Directors--Under the deferred
compensation plan for nonemployee directors, outside directors may elect to
defer, for a specified period of time, receipt of some or all of the annual and
meeting fees which would otherwise be payable for service as a director. A
portion of the deferred compensation may be converted into phantom stock units,
at the election of the director.
F-37
<PAGE> 267
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The number of phantom stock units granted equals the amount of compensation to
be deferred as phantom stock divided by the fair value of Arch common stock on
the date the compensation would have otherwise been paid. At the end of the
deferral period, the phantom stock units will be converted to cash based on the
fair market value of Arch common stock on the date of distribution. Deferred
compensation is expensed when earned. Changes in the value of the phantom stock
units are recorded as income/expense based on the fair market value of Arch
common stock.
Stockholders Rights Plan--In October 1995, Arch's board of directors
adopted a stockholders rights plan and declared a dividend of one preferred
stock purchase right for each outstanding share of common stock to stockholders
of record at the close of business on October 25, 1995. Each Right entitles the
registered holder to purchase from Arch one one-thousandth of a share of Series
B Junior Participating Preferred Stock, at a cash purchase price of $150,
subject to adjustment. Pursuant to the Plan, the Rights automatically attach to
and trade together with each share of common stock. The Rights will not be
exercisable or transferable separately from the shares of common stock to which
they are attached until the occurrence of certain events. The Rights will expire
on October 25, 2005, unless earlier redeemed or exchanged by Arch in accordance
with the Plan.
5. INCOME TAXES
Arch accounts for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes." Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities, given the provisions of enacted laws.
The components of the net deferred tax asset (liability) recognized in the
accompanying consolidated balance sheets at December 31, 1998 and 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Deferred tax assets............................... $ 179,484 $ 312,527
Deferred tax liabilities.......................... (67,652) (41,617)
--------- ---------
111,832 270,910
Valuation allowance............................... (111,832) (270,910)
--------- ---------
$ -- $ --
========= =========
</TABLE>
The approximate effect of each type of temporary difference and
carryforward at December 31, 1998 and 1999 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Net operating losses.................................. $ 128,213 $ 174,588
Intangibles and other assets.......................... (62,084) 36,029
Depreciation of property and equipment................ 39,941 42,703
Accruals and reserves................................. 5,762 17,590
--------- ---------
111,832 270,910
Valuation allowance................................... (111,832) (270,910)
--------- ---------
$ -- $ --
========= =========
</TABLE>
The effective income tax rate differs from the statutory federal tax rate
primarily due to the nondeductibility of goodwill amortization and the inability
to recognize the benefit of current net operating loss (NOL) carryforwards. The
NOL carryforwards expire at various dates through 2014. The Internal Revenue
Code contains provisions that may limit the NOL carryforwards available to be
used in any given year if certain events occur, including significant changes in
ownership, as defined.
F-38
<PAGE> 268
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has established a valuation reserve against its net deferred
tax asset until it becomes more likely than not that this asset will be realized
in the foreseeable future. Of the valuation allowance at December 31, 1999,
approximately $60.3 million will be recorded to goodwill when realized.
6. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company and its subsidiaries are
defendants in a variety of judicial proceedings. In the opinion of management,
there is no proceeding pending, or to the knowledge of management threatened,
which, in the event of an adverse decision, would result in a material adverse
change in the financial condition or results of operations of the Company.
Arch has operating leases for office and transmitting sites with lease
terms ranging from one month to approximately fifty years. In most cases, Arch
expects that, in the normal course of business, leases will be renewed or
replaced by other leases.
Future minimum lease payments under noncancellable operating leases at
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $ 51,091
2001........................................................ 42,611
2002........................................................ 35,957
2003........................................................ 29,457
2004........................................................ 22,969
Thereafter.................................................. 143,426
--------
Total............................................. $325,511
========
</TABLE>
Total rent expense under operating leases for the years ended December 31,
1997, 1998 and 1999 approximated $19.8 million, $19.6 million and $48.3 million,
respectively.
7. EMPLOYEE BENEFIT PLANS
Retirement Savings Plans--Arch has retirement savings plans, qualifying
under Section 401(k) of the Internal Revenue Code covering eligible employees,
as defined. Under the plans, a participant may elect to defer receipt of a
stated percentage of the compensation which would otherwise be payable to the
participant for any plan year (the deferred amount) provided, however, that the
deferred amount shall not exceed the maximum amount permitted under Section
401(k) of the Internal Revenue Code. The plans provide for employer matching
contributions. Matching contributions for the years ended December 31, 1997,
1998 and 1999 approximated $302,000, $278,000 and $960,000, respectively.
8. LONG-TERM LIABILITIES
During 1998 and 1999, Arch sold communications towers, real estate, site
management contracts and/or leasehold interests involving 133 sites in 22 states
and leased space on the towers on which it currently operates communications
equipment to service its own messaging network. Net proceeds from the sales were
approximately $33.4 million, Arch used the net proceeds to repay indebtedness
under its credit facility.
Arch entered into options to repurchase each site and until this continuing
involvement ends the gain on the sale of the tower sites is deferred and
included in other long-term liabilities. At December 31, 1999, approximately
$24.9 million of the gain is deferred and approximately $1.9 million of this
gain has been recognized in the statement of operations and is included in
operating income for each of the years ended December 31, 1998 and 1999,
respectively.
F-39
<PAGE> 269
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Also included in other long-term liabilities is an unfavorable lease
accrual related to MobileMedia's rentals on communications towers which were in
excess of market rental rates (see Note 2). At December 31, 1999, the remaining
balance of this accrual was approximately $51.5 million. This accrual is being
amortized over the term of the leases with approximately 13 3/4 years remaining
at December 31, 1999.
9. RESTRUCTURING RESERVES
Divisional reorganization--In June 1998, Arch's board of directors approved
a reorganization of Arch's operations. As part of the divisional reorganization,
Arch is in the process of consolidating certain regional administrative support
functions, such as customer service, collections, inventory and billing, to
reduce redundancy and take advantage of various operating efficiencies. In
connection with the divisional reorganization, Arch:
- anticipates a net reduction of approximately 10% of its workforce;
- is closing certain office locations and redeploying other assets; and
- recorded a restructuring charge of $14.7 million in 1998.
In conjunction with the completion of the MobileMedia merger in June 1999,
the timing and implementation of the divisional reorganization announced in June
1998 was reviewed by Arch management. The plan was reviewed within the context
of the combined company integration plan which was approved by the Company in
the third quarter of 1999. After this review it was determined that significant
changes needed to be made to the divisional reorganization plan. In the quarter
ended September 30, 1999, the Company identified certain of its facilities and
network leases that will not be utilized following the integration of the
Company and MobileMedia, resulting in an additional charge of $2.6 million. This
charge was offset by reductions to previously provided severance and other costs
of $4.8 million.
The provision for lease obligations and terminations relates primarily to
future lease commitments on local, regional and divisional office facilities
that will be closed as part of this reorganization. The charge represents future
lease obligations, on such leases past the dates the offices will be closed by
the Company, or for certain leases, the cost of terminating the leases prior to
their scheduled expiration. Cash payments on the leases and lease terminations
will occur over the remaining lease terms, the majority of which expire prior to
2001.
Through the elimination of certain local and regional administrative
operations and the consolidation of certain support functions, the Company will
eliminate approximately 280 net positions. As a result of eliminating these
positions approximately 900 employees will be effected. The majority of the
positions which have been or will be eliminated are related to customer service,
collections, inventory and billing functions in local and regional offices which
will be closed. As of December 31, 1998 and 1999, 217 employees and 414
employees, respectively, had been terminated due to the divisional
reorganization. The remaining severance and benefits costs will be paid during
2000.
The Company's restructuring activity as of December 31, 1999 is as follows
(in thousands):
<TABLE>
<CAPTION>
RESERVE
INITIALLY RESERVE AMOUNTS REMAINING
ESTABLISHED ADJUSTMENT PAID RESERVE
----------- ---------- ------- ---------
<S> <C> <C> <C> <C>
Severance costs..................... $ 9,700 $(3,547) $5,123 $1,030
Lease obligation costs.............. 3,500 2,570 872 5,198
Other costs......................... 1,500 (1,223) 277 --
------- ------- ------ ------
Total............................... $14,700 $(2,200) $6,272 $6,228
======= ======= ====== ======
</TABLE>
F-40
<PAGE> 270
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MobileMedia Acquisition Reserve--On June 3, 1999, Arch completed its
acquisition of MobileMedia and commenced the development of plans to integrate
the operations of MobileMedia. During the third quarter of 1999, Arch's board of
directors approved plans covering the elimination of redundant headcount and
facilities in connection with the overall integration of operations. It is
expected that the integration activity relating to the MobileMedia merger, will
be completed by December 31, 2000.
In connection with the MobileMedia acquisition, Arch anticipates a net
reduction of approximately 10% of MobileMedia's workforce and the closing of
certain facilities and tower sites. This resulted in the establishment a $14.5
million acquisition reserve which is included as part of the purchase price of
MobileMedia. The initial acquisition reserve consisted of approximately (i) $6.1
million for employee severance, (ii) $7.9 million for lease obligations and
terminations and (iii) $0.5 million of other costs.
The provision for lease obligations and terminations relates primarily to
future lease commitments on local, regional and divisional office facilities
that will be closed as part of this reorganization. The charge represents future
lease obligations, on such leases past the dates the offices will be closed by
the Company, or for certain leases, the cost of terminating the leases prior to
their scheduled expiration. Cash payments on the leases and lease terminations
will occur over the remaining lease terms, the majority of which expire prior to
2003.
Through the elimination of redundant management, administrative, customer
service, collections and inventory functions, the Company will eliminate
approximately 500 positions. As of December 31, 1999, 174 former MobileMedia
employees had been terminated.
The MobileMedia acquisition reserve activity as of December 31, 1999 was as
follows (in thousands):
<TABLE>
<CAPTION>
RESERVE
INITIALLY AMOUNTS REMAINING
ESTABLISHED PAID RESERVE
----------- ------- ---------
<S> <C> <C> <C>
Severance costs............................... $ 6,058 $3,380 $ 2,678
Lease obligation costs........................ 7,950 122 7,828
Other costs................................... 500 123 377
------- ------ -------
Total......................................... $14,508 $3,625 $10,883
======= ====== =======
</TABLE>
10. SEGMENT REPORTING
The Company operates in one industry: providing wireless messaging
services. On December 31, 1999, the Company operated approximately 375 retail
stores in the United States.
F-41
<PAGE> 271
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial information for the years ended December 31, 1998 and
1999 is summarized below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Revenues.............................. $102,039 $103,546 $104,052 $103,998
Operating income (loss)............... (19,418) (33,956) (20,783) (20,272)
Income (loss) before extraordinary
item................................ (45,839) (60,877) (47,994) (49,621)
Extraordinary charge.................. -- (1,720) -- --
Net income (loss)..................... (45,839) (62,597) (47,994) (49,621)
Basic/diluted net income (loss) per
common share:
Income (loss) before
extraordinary
item........................... (6.59) (8.71) (6.91) (7.14)
Extraordinary charge............. -- (0.25) -- --
Net income (loss)................ (6.59) (8.96) (6.91) (7.14)
YEAR ENDED DECEMBER 31, 1999:
Revenues.............................. 100,888 133,493 206,189 201,254
Operating income (loss)............... (16,086) (34,546) (27,075) (20,032)
Income (loss) before extraordinary
item and accounting change.......... (45,763) (110,728) (67,739) (64,958)
Extraordinary gain.................... -- -- -- 6,963
Cumulative effect of accounting
change.............................. (3,361) -- -- --
Net income (loss)..................... (49,124) (110,728) (67,739) (57,995)
Basic/diluted net income (loss) per
common share:
Income (loss) before
extraordinary item and
accounting change.............. (6.54) (5.65) (1.42) (1.29)
Extraordinary gain............... -- -- -- 0.14
Cumulative effect of accounting
change......................... (0.48) -- -- --
Net income (loss)................ (7.02) (5.65) (1.42) (1.15)
</TABLE>
F-42
<PAGE> 272
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MobileMedia Communications, Inc.
We have audited the accompanying consolidated balance sheets of MobileMedia
Communications, Inc. and Subsidiaries ("MobileMedia") as of December 31, 1997
and 1998, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
MobileMedia Communications, Inc. and Subsidiaries at December 31, 1997 and 1998
and the consolidated results of their operations and cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
MobileMedia will continue as a going concern. As more fully described in Note 1,
on January 30, 1997, MobileMedia Corporation and substantially all of its
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the Bankruptcy Court). Additionally, as more fully
described in Note 11, on April 8, 1997, the Federal Communications Commission
("FCC") issued a Public Notice commencing an administrative hearing into the
qualification of MobileMedia to remain a licensee. These events, and
circumstances relating to the Chapter 11 filing with the Bankruptcy Court,
including MobileMedia's highly leveraged financial structure, non-compliance
with certain covenants of loan agreements with banks and note indentures, net
working capital deficiency and recurring losses from operations, raise
substantial doubt about MobileMedia's ability to continue as a going concern.
Although MobileMedia is currently operating the business as a debtor-in-
possession under the jurisdiction of the Bankruptcy Court, the continuation of
the business as a going concern is contingent upon, among other things, the
ability to (a) gain approval of the creditors and confirmation by the Bankruptcy
Court of a plan of reorganization, (b) maintain compliance with all covenants
under the debtor-in-possession financing agreement, (c) achieve satisfactory
levels of future operating profit and (d) retain FCC qualification as a
licensee. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of these uncertainties.
/S/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 12, 1999, except for the eighth paragraph of Note 1 and
the second paragraph of Note 6, as to which the date is March 26, 1999
and the ninth paragraph of Note 1, as to which the date is April 12, 1999
F-43
<PAGE> 273
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................... $ 10,920 $ 1,218 $ --
Accounts receivable (less allowance for uncollectible
accounts of $26,500, $15,000 and $14,893 in 1997,
1998 and 1999, respectively)......................... 55,432 38,942 37,270
Inventories............................................. 868 2,192 1,609
Prepaid expense......................................... 5,108 5,523 5,261
Other current assets.................................... 2,783 4,855 4,900
----------- ----------- -----------
Total current assets............................... 75,111 52,730 49,040
----------- ----------- -----------
Investment in net assets of equity affiliate................ 1,788 1,400 --
Property and equipment, net................................. 257,937 219,642 225,566
Intangible assets, net...................................... 295,358 266,109 258,793
Other assets................................................ 24,940 21,573 20,610
----------- ----------- -----------
Total assets....................................... $ 655,134 $ 561,454 $ 554,009
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities not subject to compromise
Debtor-In-Possession (DIP) credit facility.............. $ 10,000 $ -- $ 5,000
Accrued restructuring costs............................. 4,897 5,163 7,197
Accrued wages, benefits and payroll..................... 11,894 12,033 9,944
Book cash overdraft..................................... -- -- 1,255
Accounts payable--post petition......................... 2,362 1,703 7,334
Accrued interest........................................ 4,777 3,692 3,566
Accrued expenses and other current liabilities.......... 35,959 35,735 30,061
Current income taxes payable............................ -- 2,871 1,200
Advance billing and customer deposits................... 34,252 28,554 28,892
Deferred gain on tower sale............................. -- 68,444 67,278
----------- ----------- -----------
Total liabilities not subject to compromise........ 104,141 158,195 161,727
----------- ----------- -----------
Liabilities subject to compromise
Accrued wages, benefits and payroll taxes............... 562 647 476
Accrued interest........................................ 18,450 17,579 17,578
Accounts payable--pre petition.......................... 19,646 15,410 15,351
Accrued expenses and other current liabilities.......... 20,663 15,285 12,231
Debt.................................................... 1,075,681 905,681 905,681
Other liabilities....................................... 2,915 -- --
----------- ----------- -----------
Total liabilities subject to compromise............ 1,137,917 954,602 951,317
----------- ----------- -----------
Deferred tax liabilities................................ 2,655 2,655 2,655
Stockholders' deficit
Common stock (1 share, no par value, issued and
outstanding at December 31, 1997 and 1998 and March
31, 1999)............................................ -- -- --
Additional paid-in-capital.................................. 676,025 676,025 676,025
Accumulated deficit--pre petition........................... (1,154,420) (1,154,420) (1,154,420)
Accumulated deficit--post petition.......................... (111,184) (75,603) (83,295)
----------- ----------- -----------
Total stockholders' deficit........................ (589,579) (553,998) (561,690)
----------- ----------- -----------
Total liabilities and stockholders' deficit........ $ 655,134 $ 561,454 $ 554,009
=========== =========== ===========
</TABLE>
See accompanying notes.
F-44
<PAGE> 274
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -------------------
1996 1997 1998 1998 1999
----------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Services, rents and maintenance..... $ 568,892 $ 491,174 $423,059 $108,542 $100,631
Product sales....................... 71,818 36,218 26,622 6,621 5,193
----------- --------- -------- -------- --------
Total revenues................. 640,710 527,392 449,681 115,163 105,824
Cost of products sold.................... (72,595) (35,843) (22,162) (5,513) (3,516)
----------- --------- -------- -------- --------
568,115 491,549 427,519 109,650 102,308
Operating expenses
Services, rents and maintenance..... 144,050 139,333 111,589 28,899 27,077
Selling............................. 96,817 69,544 61,106 15,703 14,136
General and administrative.......... 218,607 179,599 133,003 34,908 31,481
Reduction of liabilities subject to
compromise........................ -- -- (10,461) -- (3,050)
Impairment of long-lived assets..... 792,478 -- -- -- --
Restructuring costs................. 4,256 19,811 18,624 4,558 5,067
Depreciation........................ 136,434 110,376 86,624 24,193 20,501
Amortization........................ 212,264 29,862 29,835 7,478 7,468
Amortization of deferred gain on
tower sale........................ -- -- (1,556) -- (1,167)
----------- --------- -------- -------- --------
Total operating expenses....... 1,604,906 548,525 428,764 115,739 101,513
----------- --------- -------- -------- --------
Operating Income (loss).................. (1,036,791) (56,976) (1,245) (6,089) 795
Other income (expense)
Interest expense, net............... (92,663) (67,611) (53,043) (14,626) (10,018)
Gain (loss) on sale/disposal of
assets............................ 68 3 94,165 1 (323)
Other............................... -- -- (338) -- 2,063
----------- --------- -------- -------- --------
Total other expense............ (92,595) (67,608) 40,784 (14,625) (8,278)
----------- --------- -------- -------- --------
Income (loss) before income taxes
(benefit).............................. (1,129,386) (124,584) 39,539 (20,714) (7,483)
Income taxes (benefit)................... (69,442) -- 3,958 -- 209
----------- --------- -------- -------- --------
Net income (loss)........................ $(1,059,944) $(124,584) $ 35,581 $(20,714) $ (7,692)
=========== ========= ======== ======== ========
</TABLE>
See accompanying notes.
F-45
<PAGE> 275
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED ACCUMULATED
PAID IN DEFICIT DEFICIT
CAPITAL PRE-PETITION POST-PETITION TOTAL
---------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995................... $659,829 $ (81,076) $ 0 $ 578,753
Capital contribution from MobileMedia.......... 12,800 -- -- 12,800
Net loss....................................... -- (1,059,944) -- (1,059,944)
-------- ----------- --------- -----------
Balance at December 31, 1996................... 672,629 (1,141,020) 0 (468,391)
Capital contribution from MobileMedia.......... 3,396 -- -- 3,396
Net loss....................................... -- (13,400) (111,184) (124,584)
-------- ----------- --------- -----------
Balance at December 31, 1997................... 676,025 (1,154,420) (111,184) (589,579)
Net income..................................... -- -- 35,581 35,581
-------- ----------- --------- -----------
Balance at December 31, 1998................... 676,025 (1,154,420) (75,603) (553,998)
Net loss (unaudited)........................... -- -- (7,692) (7,692)
-------- ----------- --------- -----------
Balance at March 31, 1999 (unaudited).......... $676,025 $(1,154,420) $ (83,295) $ (561,690)
======== =========== ========= ===========
</TABLE>
See accompanying notes.
F-46
<PAGE> 276
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -------------------
1996 1997 1998 1998 1999
----------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)........................ $(1,059,944) $(124,584) $ 35,581 $(20,714) $ (7,692)
Adjustments to reconcile net loss to net cash
provided by (used in) Operating activities:
Depreciation and amortization............ 348,698 140,238 116,459 31,672 27,969
Amortization of deferred gain on tower
sale.................................. -- -- (1,556) -- (1,167)
Income tax benefit....................... (69,442) -- -- -- --
Accretion of note payable discount....... 16,792 1,485 -- -- --
Provision for uncollectible accounts..... 56,556 65,181 14,841 4,981 2,131
Reduction of liabilities subject to
compromise............................ -- -- (10,461) -- (3,050)
Recognized gain on sale of tower
assets................................ -- -- (94,165) -- --
Impairment of long-lived assets.......... 792,478 -- -- -- --
Undistributed earnings of affiliate,
net................................... 160 69 (87) 22 --
Change in operating assets and liabilities:
Accounts receivable...................... (55,965) (53,904) 1,649 2,813 (459)
Inventories.............................. 2,433 12,514 (1,324) 407 583
Prepaid expenses and other assets........ 12,145 (686) 590 (1,052) 1,028
Accounts payable, accrued expenses and
other liabilities..................... 13,283 (25,393) (7,065) 1,413 (1,791)
----------- --------- --------- -------- --------
Net cash provided by (used in) operating
activities............................ 57,194 14,920 54,462 19,542 17,552
----------- --------- --------- -------- --------
Investing activities:
Construction and capital expenditures,
including net changes in pager
assets................................ (161,861) (40,556) (53,867) (4,854) (26,806)
Net proceeds from the sale of tower
assets................................ -- -- 169,703 -- --
Net proceeds from the sale of investment
in Abacus............................. -- -- -- -- 1,400
Net loss on the disposal of fixed
assets................................ -- -- -- -- 381
Acquisition of businesses................ (866,460) -- -- -- --
----------- --------- --------- -------- --------
Net cash provided by (used in) investing
activities................................. (1,028,321) (40,556) 115,836 (4,854) (25,025)
----------- --------- --------- -------- --------
Financing activities:
Book cash overdraft...................... -- -- -- -- 1,255
Capital contribution by MobileMedia
Corporation........................... 12,800 3,396 -- -- --
Payment of debt issue costs.............. (6,939) -- -- -- --
Borrowing from revolving credit
facilities............................ 580,250 -- -- -- --
Repayments on revolving credit
facilities............................ -- -- (170,000) -- --
Borrowing from DIP credit facilities..... -- 47,000 -- -- 5,000
Repayments on DIP credit facilities...... -- (37,000) (10,000) (10,000) --
----------- --------- --------- -------- --------
Net cash provided by (used in) financing
activities................................. 586,111 13,396 (180,000) (10,000) 6,255
----------- --------- --------- -------- --------
Net (decrease) increase in cash, cash
equivalents designated and cash designated
for the MobileComm acquisition............. (385,016) (12,240) (9,702) 4,688 (1,218)
Cash and cash equivalents at beginning of
period..................................... 408,176 23,160 10,920 10,920 1,218
----------- --------- --------- -------- --------
Cash and cash equivalents at end of period... $ 23,160 $ 10,920 $ 1,218 $ 15,608 $ 0
=========== ========= ========= ======== ========
</TABLE>
See accompanying notes.
F-47
<PAGE> 277
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. CHAPTER 11 REORGANIZATION AND BASIS OF PRESENTATION
On January 30, 1997 (the "Petition date"), MobileMedia Corporation
("Parent"), its wholly owned subsidiary MobileMedia Communications, Inc., and
all seventeen of MobileMedia Communications, Inc.'s subsidiaries ("MobileMedia")
(collectively with Parent, the "Debtors"), filed for protection under Chapter 11
of Title 11 of the United States Code (the "Bankruptcy Code"). The Debtors are
operating as debtors-in-possession and are subject to the jurisdiction of the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is authorized
to reorganize its business for the benefit of its creditors and stockholders. In
addition to permitting rehabilitation of the debtor, another goal of Chapter 11
is to promote equality of treatment of creditors and equity security holders of
equal rank with respect to the restructuring of debt. In furtherance of these
two goals, upon the filing of a petition for reorganization under Chapter 11,
section 362(a) of the Bankruptcy Code generally provides for an automatic stay
of substantially all acts and proceedings against the debtor and its property,
including all attempts to collect claims or enforce liens that arose prior to
the commencement of the debtor's case under Chapter 11.
The Bankruptcy Court has exercised supervisory powers over the operations
of the Debtors with respect to the employment of attorneys, investment bankers
and other professionals, and transactions out of the Debtors' ordinary course of
business or otherwise requiring bankruptcy court approval under the Bankruptcy
Code. The Debtors have been paying undisputed obligations that have arisen
subsequent to the Petition date on a timely basis.
Since the Petition date, the Bankruptcy Court has entered orders, among
other things, allowing the Debtors (i) to pay certain customer refunds and
deposits in the ordinary course of business, (ii) to pay wages, salaries and
benefits owing to employees, and (iii) to pay specified pre-petition taxes owing
to various governmental entities. On February 6, 1997, the Bankruptcy Court
entered an order authorizing the Debtors to pay approximately $46,000 in
pre-petition amounts owing to certain essential vendors.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real
estate leases, employment contracts, personal property leases, service contracts
and other unexpired executory pre-petition leases and contracts, subject to
Bankruptcy Court approval. Assumption of a contract requires the Debtors, among
other things, to cure all defaults under the contract, including payment of all
pre-petition liabilities. Rejection of a contract constitutes a breach of that
contract as of the moment immediately preceding the Chapter 11 filing and the
other party has the right to assert a general, unsecured claim against the
bankruptcy estate for damages arising out of such breach. These parties may also
seek to assert post-petition administrative claims against the Debtors to the
extent that the Debtors utilize the collateral or services of such parties
subsequent to the commencement of the Chapter 11 proceedings. The Debtors cannot
presently determine or reasonably estimate the ultimate liability that may
result from payments required to cure defaults under assumed leases and
contracts or from the filing of claims for all leases and contracts which may be
rejected.
In connection with the Chapter 11 filing, the Debtors notified all known
claimants that pursuant to an order of the Bankruptcy Court, all proofs of
claims, on account of pre-petition obligations, other than for certain
governmental entities, were required to be filed by June 16, 1997 (the "Bar
Date"). As of March 31, 1999, approximately 2,581 proofs of claim had been filed
against the Debtors. Included among the claims filed are claims of unspecified
and undeterminable amounts. The Debtors consider the amounts set forth in
certain proofs of claim to be inaccurate estimates of the Debtors' liabilities.
As of March 31, 1999, the Debtors had secured orders of the Bankruptcy Court
reducing approximately 1,607 claims filed in an aggregate amount of
approximately $143,362 to an allowed amount of $10,239. As of March 31,
F-48
<PAGE> 278
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
1999, the Debtors had also analyzed and resolved an additional 876 proofs of
claim, representing an aggregate allowed amount of $8,389. The Debtors expect
the objection process to continue.
On August 20, 1998, MobileMedia announced that it had executed a merger
agreement with Arch Communications Group, Inc. ("Arch"), pursuant to which
MobileMedia Communications, Inc. will be merged with and into a wholly-owned
subsidiary of Arch. Immediately prior to the Merger, Parent will contribute all
of its assets to MobileMedia Communications, Inc. Also on August 20, 1998, the
Debtors filed a First Amended Joint Plan of Reorganization that reflects the
proposed merger with Arch. On September 3, 1998, Arch and MobileMedia executed
an amendment to the merger agreement and the Debtors filed a subsequent Second
Amended Joint Plan of Reorganization. On December 1, 1998 Arch and MobileMedia
executed a second amendment to the merger agreement and on December 2, 1998, the
Debtors filed a Third Amended Joint Plan of Reorganization (the "Plan"). As of
February 9, 1999, Arch and MobileMedia executed a third amendment to the merger
agreement. Under the Plan, the Debtors' secured creditors will receive cash in
an amount equal to their allowed pre-petition claims and the Debtors' unsecured
creditors will receive cash or equity securities of Arch in satisfaction of
their pre-petition claims against the Debtors. Because there are a variety of
conditions precedent to the consummation of the Plan and the merger with Arch,
there can be no assurance that the transactions contemplated thereby will be
consummated.
In December 1998 and January 1999, MobileMedia solicited the votes of its
creditors on the Plan. 100% of the voting creditors in Class 4 voted to accept
the Plan. As to Allowed Claims in Class 5, 83% in number and 91% in amount of
those voting voted to accept the Plan. Of the Allowed Claims in Class 6 that
voted on the Plan, 968 of such holders (approximately 94% in number and 69% in
amount) voted to accept the Plan, and 61 of such holders (approximately 6% in
number and 31% in amount) voted to reject the Plan.
Objections to confirmation were filed by New Generation Advisors, Inc.
("New Generation"), Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Corporate
Bond Fund, Inc.--High Income Portfolio and State Street Research High Income
Fund (the "Objectors"). On February 12, 1999, at a continued hearing on
confirmation of the Plan, the Bankruptcy Court ordered MobileMedia to provide
due diligence to a nominee of New Generation, to prepare supplemental disclosure
to the holders of Allowed Claims in Class 6, and to resolicit the votes of such
holders on the Plan. At a hearing held before the Bankruptcy Court on February
18, 1999, the Bankruptcy Court entered an order approving a form of Notice and
Supplemental Disclosure, directing MobileMedia to resolicit the votes of all
holders of Allowed Class 6 Claims and establishing March 23, 1999 as (a) the
Supplemental Voting Deadline for Class 6 and (b) the deadline for any further
objections to confirmation of the Plan arising out of the matters set forth in
the Notice of Supplemental Disclosure. No further objections to the Plan were
received by March 23, 1999. Taking into account the resolicitation of Class 6,
the Plan was accepted by 59.6% in number and 69.3% in dollar amount of voting
Class 6 creditors.
On March 22, 1999, the Debtors and various other parties (including the
Objectors, Arch, the Committee and the Agent for the Company's pre-petition
secured lenders) executed a stipulation (the "Stipulation") that was approved by
the Bankruptcy Court, effective as of March 23, 1999. The Stipulation resolved
the pending objections to the Plan by providing for the withdrawal of the
Objectors' objections and the waiver of all appeal rights of the Objectors. The
Plan was confirmed by the Bankruptcy Court on April 12, 1999.
The consolidated financial statements at December 31, 1997, 1998 and March
31, 1999 (unaudited) have been prepared on a going concern basis which assumes
continuity of operations and realization of assets and liquidation of
liabilities in the ordinary course of business. As discussed herein, there are
significant uncertainties relating to the ability of MobileMedia to continue as
a going concern.
F-49
<PAGE> 279
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts, or the amounts
and classification of liabilities that might be necessary as a result of the
outcome of the uncertainties discussed herein.
2. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
MobileMedia provides paging and wireless messaging services in the United
States, including the 100 largest metropolitan areas.
Consolidation
The consolidated financial statements include the accounts of MobileMedia
and its wholly-owned subsidiaries (MobileMedia Communications, Inc.
(California), MobileMedia Paging, Inc., MobileMedia DP Properties, Inc., Dial
Page Southeast, Inc., Radio Call Company of Va., Inc., MobileMedia PCS, Inc.,
Mobile Communications Corporation of America, MobileComm of Florida, Inc.,
MobileComm of Tennessee, Inc., MobileComm of the Midsouth, Inc., MobileComm
Nationwide Operations, Inc., MobileComm of the West, Inc., MobileComm of the
Northeast, Inc., MobileComm of the Southeast, Inc., MobileComm of the Southeast
Private Carrier Operations, Inc., MobileComm of the Southwest, Inc. and FWS
Radio, Inc.). All significant intercompany accounts and transactions have been
eliminated.
Cash Equivalents
MobileMedia considers all highly-liquid securities with an original
maturity of less than three months to be cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject MobileMedia to
concentrations of credit risk consist principally of temporary cash investments
and accounts receivable. MobileMedia places its cash with high-quality
institutions and, by policy, limits its credit exposure to any one institution.
Although MobileMedia faces significant credit risk from its customers, such risk
does not result from a concentration of credit risk as a result of the large
number of customers which comprise MobileMedia's customer base. MobileMedia
generally does not require collateral or other security to support customer
receivables.
Inventories
MobileMedia values inventories at the lower of specific cost or market
value. Inventories consist of pagers held specifically for resale by
MobileMedia.
Revenue Recognition
MobileMedia recognizes revenue under service, rent and maintenance
agreements with customers at the time the related services are performed.
Advance billings for services are deferred and recognized as revenue when
earned. MobileMedia leases (as lessor) certain pagers under operating leases.
Sales of pagers are recognized upon delivery.
F-50
<PAGE> 280
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Property and Equipment
Effective October 1, 1997, MobileMedia shortened the estimated useful life
of pagers from four to three years. This change resulted in additional
depreciation expense of approximately $2,500 in 1997.
Property and equipment are stated at cost, less accumulated depreciation.
MobileMedia purchases a significant percentage of its pagers from one
supplier. Any disruption of such supply could have a material impact on
MobileMedia's operations.
Expenditures for maintenance are charged to expense as incurred.
Upon retirement of pagers, the cost and related accumulated depreciation
are removed from the accounts and the net book value, if any, is charged to
depreciation expense. Upon the sale of pagers, the net book value is charged to
cost of products sold.
Depreciation and amortization are computed using the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
Pagers...................................................... 3 years
Radio transmission equipment................................ 10 years
Computer equipment.......................................... 4 years
Furniture and fixtures...................................... 5 years
Leasehold improvements...................................... 1-10 years
Buildings................................................... 30 years
</TABLE>
Intangible Assets
Intangible assets consist primarily of customer lists and FCC licenses
which are being amortized principally using the straight-line method over
periods ranging from 3 to 25 years. In connection with the impairment writedown
discussed below, MobileMedia revised the useful lives of FCC licenses and
customer lists to 25 years and 3 years, respectively.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", MobileMedia records impairment losses on long-lived assets used
in operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the net book value of those assets. In 1997, MobileMedia
determined impairment existed with respect to its long-lived assets as of
December 31, 1996. Such determination was based upon the existence of adverse
business circumstances, such as MobileMedia's bankruptcy, its 1996 operating
results and the uncertainty associated with the pending FCC proceeding. In July
1998, MobileMedia evaluated the ongoing value of its long-lived assets effective
December 31, 1996 and, based on this evaluation, MobileMedia determined that
intangible assets with a net book value of $1,118,231 were impaired and wrote
them down by $792,478 to their estimated fair value. Fair value was determined
through the
F-51
<PAGE> 281
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
application of generally accepted valuation methods to MobileMedia's projected
cash flows, discounted at an estimated market rate of interest. The remaining
carrying amount of long-lived assets are expected to be recovered based on
MobileMedia's estimates of cash flows. However, it is possible that such
estimates could change based upon the uncertainties of the bankruptcy process
and because future operating and financial results may differ from those
projected which may require further writedowns to fair value.
Debt Issue Costs
Debt issue costs, which relate to the long term debt discussed in Note 6,
are reported as "Other assets" in the accompanying balance sheets. Such costs
amounted to $22,939 at December 31, 1997 and $19,295 at December 31, 1998 and
$18,384 at March 31, 1999 (unaudited) and are being amortized on a straight line
basis over the term of the related debt.
Book Cash Overdraft
Under MobileMedia's cash management system, checks issued but not presented
to banks occasionally result in overdraft balances for accounting purposes and
are classified as "Book cash overdraft" in the balance sheet.
Liabilities Subject to Compromise
Liabilities subject to compromise consists of pre-petition liabilities that
may be affected by a plan of reorganization. In accordance with AICPA Statement
of Position 90-7 "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code", MobileMedia records liabilities subject to compromise based on
the expected amount of the allowed claims related to these liabilities.
Accordingly, in December 1998 and March 1999 MobileMedia reduced such
liabilities by approximately $10,461 and $3,050 (unaudited), respectively, to
reflect changes in estimated allowed claims.
Restructuring Costs
Restructuring costs are primarily comprised of professional fees
constituting administrative expenses incurred by MobileMedia as a result of
reorganization under Chapter 11 of the Bankruptcy Code.
Income Taxes
Income taxes are accounted for by the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
New Authoritative Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which is effective for
years beginning after December 15, 1997. SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. SFAS No. 131 is effective
for financial statements for fiscal years beginning after December 15, 1997.
MobileMedia has adopted SFAS No. 131 as of December 31, 1998. Such adoption did
not have an impact on MobileMedia's financial reporting.
In April 1998, the Accounting Standards Executive Committee of the
Financial Accounting Standards Board issued Statement of Position 98-5 ("SOP
98-5") "Reporting on the Costs of Start-Up
F-52
<PAGE> 282
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Activities". SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. Initial application of SOP 98-5 will be
reported as the cumulative effect of a change in accounting principle.
MobileMedia has adopted SOP 98-5 effective January 1, 1999. Such adoption did
not have any effect on MobileMedia's financial position or results of
operations.
3. ACQUISITIONS AND DIVESTITURES
On September 3, 1998, MobileMedia completed the sale of 166 transmission
towers to Pinnacle Towers, Inc. ("Pinnacle") for $170,000 in cash (the "Tower
Sale"). Under the terms of a lease with Pinnacle, MobileMedia will lease antenna
sites located on these towers for an initial period of 15 years at an aggregate
annual rental of $10,700. The sale was accounted for in accordance with
Statement of Financial Accounting Standards No. 28, Accounting for Sales with
Leasebacks, and resulted in a recognized gain of $94,200 and a deferred gain of
$70,000. The deferred gain will be amortized on a straight-line basis over the
initial lease period of 15 years. Subsequent to the sale, MobileMedia
distributed the $170,000 in proceeds to its secured creditors, who had a lien on
such assets.
On January 4, 1996, MobileMedia completed its acquisition of MobileComm,
BellSouth's paging and wireless messaging unit, and an associated nationwide
2-way narrowband 50/12.5 kHz PCS license, and BellSouth agreed to enter into a
two-year non-compete agreement and a five-year reseller agreement with
MobileMedia (the "MobileComm Acquisition"). The aggregate consideration paid for
the MobileComm Acquisition (excluding fees and expenses and related financing
costs) was approximately $928,709.
The MobileComm Acquisition has been accounted for as a purchase transaction
in accordance with Accounting Principles Board Opinion No. 16 and, accordingly,
the financial statements for the periods subsequent to January 4, 1996 reflect
the purchase price and transaction costs of $24,328, allocated to tangible and
intangible assets acquired and liabilities assumed based on their estimated fair
values as of January 4, 1996. The allocation of the purchase price is summarized
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current assets............................................ $ 55,301
Property and equipment.................................... 112,986
Intangible assets......................................... 934,269
Other assets.............................................. 143
Liabilities assumed....................................... (149,662)
---------
$ 953,037
=========
</TABLE>
F-53
<PAGE> 283
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Pagers.................................. $196,791 $176,610 $190,903
Radio transmission equipment............ 202,296 203,048 204,054
Computer equipment...................... 30,896 32,679 32,866
Furniture and fixtures.................. 20,918 22,019 21,187
Leasehold improvements.................. 14,652 16,516 16,745
Construction in progress................ 1,128 11,624 13,140
Land, buildings and other............... 7,911 6,697 6,591
-------- -------- --------
474,592 469,193 485,486
Accumulated depreciation................ 216,655 249,551 259,920
-------- -------- --------
Property and equipment, net............. $257,937 $219,642 $225,566
======== ======== ========
</TABLE>
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999 (UNAUDITED)
----------------------------------------------------------------------- ----------------------------------
1997 1998
---------------------------------- ----------------------------------
ACCUMULATED ACCUMULATED ACCUMULATED
COST AMORTIZATION NET COST AMORTIZATION NET COST AMORTIZATION NET
-------- ------------ -------- -------- ------------ -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FCC Licenses.......... $261,323 $ (8,918) $252,405 $261,523 $(16,891) $244,632 $261,623 $(18,937) $242,686
Customer lists........ 64,430 (21,477) 42,953 64,430 (42,953) 21,477 64,430 (48,323) 16,107
-------- -------- -------- -------- -------- -------- -------- -------- --------
$325,753 $(30,395) $295,358 $325,953 $(59,844) $266,109 $326,053 $(67,260) $258,793
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
MobileMedia is not amortizing the cost of two nationwide Personal
Communications Services ("PCS") licenses, one acquired directly from the FCC and
the other as a result of the MobileComm acquisition, because the construction of
paging networks related to such licenses has not been completed. These networks
are expected to begin commercial operation in 1999 and, accordingly,
amortization of these licenses will begin at such time.
F-54
<PAGE> 284
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
6. DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
DIP credit facility.................................. $ 10,000 $ -- $ 5,000
Revolving loan....................................... 99,000 72,900 72,900
Term loan............................................ 550,000 406,100 406,100
10 1/2% Senior Subordinated Deferred Coupon Notes due
December 1, 2003................................... 174,125 174,125 174,125
9 3/8% Senior Subordinated Notes due November 1,
2007............................................... 250,000 250,000 250,000
Dial Page Notes...................................... 1,570 1,570 1,570
Note Payable......................................... 986 986 986
---------- -------- --------
Total debt...................................... $1,085,681 $905,681 $910,681
========== ======== ========
</TABLE>
The debt obligations of MobileMedia include:
1) A debtor-in-possession credit facility ("DIP Facility") with a
syndicate of lenders including The Chase Manhattan Bank, as Agent (the "DIP
Lenders"). As of March 31, 1999 there was $5,000 of borrowings outstanding
under this facility, as of December 31, 1998 there were no funded
borrowings and as of December 31, 1997, there was $10,000 of borrowings
outstanding under this facility. MobileMedia is subject to certain
financial and operating restrictions customary to credit facilities of this
type including a limitation on periodic capital expenditures, minimum
allowable periodic EBITDA and retention of a turnaround professional.
Additionally, MobileMedia is required to make monthly interest payments to
the DIP Lenders and pay a commitment fee of 0.5% on any unused portion of
the DIP Facility. The DIP Facility bears interest at a rate of LIBOR plus
250 basis points or Base Rate plus 150 basis points, at the option of
MobileMedia. During 1997, the Debtors drew down $47,000 of borrowings and
repaid $37,000 under the DIP Facility. During January and February, 1998
the Debtors repaid an additional $10,000. On January 27, 1998, the DIP
Facility was amended and reduced from $200,000 to $100,000. On August 12,
1998, MobileMedia received approval from the Bankruptcy Court to extend the
DIP Facility to March 31, 1999 and further reduce it from $100,000 to
$75,000. MobileMedia has negotiated an extension of the DIP Facility
through and including December 31, 1999.
2) A $750,000 senior secured and guaranteed credit agreement (the
"Pre-Petition Credit Agreement") with a syndicate of lenders including The
Chase Manhattan Bank, as Agent. As of March 31, 1999 and December 31, 1998
there was $479,000 outstanding under this facility consisting of term loans
of $101,500 and $304,600 and loans under a revolving credit facility
totaling $72,900. This agreement was entered into on December 4, 1995, in
connection with the financing of the MobileComm Acquisition. Commencing in
1996 MobileMedia was in default under this agreement. As a result of such
default and the bankruptcy filing, MobileMedia has no borrowing capacity
under this agreement. Since the Petition date, MobileMedia has brought
current its interest payments and has been making monthly payments to the
lenders under the Pre-Petition Credit Agreement equal to the amount of
interest accruing under such agreement. On September 3, 1998, MobileMedia
repaid $170,000 of borrowings under the Pre-Petition Credit Agreement with
proceeds from the Tower Sale (see Note 3).
F-55
<PAGE> 285
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
3) $250,000 Senior Subordinated Notes due November 1, 2007 (the
"9 3/8% Notes") issued in November 1995. These notes bear interest at a
rate of 9 3/8% payable semi-annually on May 1 and November 1 of each year.
On November 1, 1996, MobileMedia did not make its scheduled interest
payment on its 9 3/8% Notes which constituted an event of default. The note
holders have not exercised any rights or remedies afforded holders (which
rights include, but are not limited to, acceleration of the liquidation
maturity of the notes). Since the Petition date, any such right or remedy
is subject to the automatic stay created by the Bankruptcy Code.
4) $210,000 of Senior Subordinated Deferred Coupon Notes (the
"Deferred Coupon Notes") issued, at a discount, in November 1993. The
Deferred Coupon Notes accrete at a rate of 10 1/2%, compounded
semi-annually, to an aggregate principal amount of $210,000 by December 1,
1998 after which interest is paid in cash at a rate of 10 1/2% and is
payable semi-annually. By virtue of the missed interest payments on the
9 3/8% Notes and the Pre-Petition Credit Agreement an event of default has
occurred. The note holders have not exercised any rights or remedies
afforded such holders (which rights include, but are not limited to,
acceleration of the stated maturity of the notes). Since the Petition date,
any such right or remedy is subject to the automatic stay created by the
Bankruptcy Code.
Interest Expense on Debt
Interest paid during the years ended December 31, 1996, 1997 and 1998, and
the three months ended March 31, 1998 and 1999 (unaudited) was $65,978, $70,817,
$51,560, $13,915 and $9,383 respectively. Total interest cost incurred for the
years ended December 31, 1996, 1997 and 1998 was $94,231, $68,409 and $53,982,
respectively of which $1,292, $176 and $228 was capitalized. Total interest cost
incurred for the three months ended March 31, 1998 and 1999 (unaudited), was
$14,793 and $10,248, respectively, of which $21 and $149 was capitalized.
Subsequent to the Petition date, interest was accrued and paid only on the
Pre-Petition Credit Agreement and the DIP Facility. If not for the filing,
interest expense for the year ended December 31, 1997 and 1998 and March 31,
1998 and 1999 (unaudited), would have been approximately $104,152, $97,776,
$25,724 and $21,187, respectively.
7. INCOME TAXES
The components of income tax benefit (expense) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Current:
Federal.............................. $ -- $ -- $(1,757)
State and local...................... -- -- (2,201)
------- -------- -------
-- -- (3,958)
Deferred:
Federal.............................. 52,081 -- --
State and local...................... 17,361 -- --
------- -------- -------
Total........................... $69,442 $ -- $(3,958)
======= ======== =======
</TABLE>
F-56
<PAGE> 286
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
MobileMedia is included in the Parent's consolidated federal income tax
return. Income taxes are presented in the accompanying financial statements as
if MobileMedia filed tax returns as a separate consolidated entity.
A reconciliation of income tax benefit (expense) and the amount computed by
applying the statutory federal income tax rate to loss before income taxes is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- -------- --------
<S> <C> <C> <C>
Tax benefit (expense) at federal
statutory rate......................... $ 395,285 $ 43,604 $(13,838)
Goodwill and intangible amortization and
writedown.............................. (95,362) -- --
State income taxes....................... -- -- (1,783)
Nondeductible expenses................... -- -- (4,765)
Valuation allowance on federal deferred
tax assets............................. (230,481) (43,604) 16,428
--------- -------- --------
Total.......................... $ 69,442 $ -- $ (3,958)
========= ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for federal and state income tax purposes. The
components of deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Difference in book and tax basis of fixed assets....... $ 10,206 $ 19,974
Other.................................................. 68 27
--------- ---------
Deferred tax liabilities.......................... 10,274 20,001
Deferred tax assets:
Tax credit carryforwards............................... -- 1,757
Accounts receivable reserves........................... 10,578 6,000
Differences between the book and tax basis of
intangible assets.................................... 128,462 121,526
Difference between book and tax basis of accrued
liabilities.......................................... 5,089 4,794
Net operating loss carryforward........................ 161,840 135,458
Deferred gain on tower sale............................ -- 27,378
--------- ---------
Total deferred assets............................. 305,969 296,913
Valuation allowances for deferred tax assets...... (298,350) (279,567)
--------- ---------
Deferred tax assets............................... 7,619 17,346
========= =========
Net deferred tax liabilities...................... $ 2,655 $ 2,655
========= =========
</TABLE>
As of December 31, 1998, MobileMedia has available net operating loss
carryforwards for tax purposes of approximately $330,000 which expire in years
2008 through 2012. Utilization of these losses may be limited under Section 382
of the Internal Revenue Code.
MobileMedia believes consummation of the public offering of 15,525,000
shares of Parent's Class A Common Stock on November 7, 1995 caused an ownership
change for MobileMedia for purposes of
F-57
<PAGE> 287
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Section 382 of the Code. As a result, the use of MobileMedia's pre-ownership
change net operating loss carryforwards will be limited annually by the Section
382 Limitation, which is estimated to be approximately $40,000. In addition, if
a second ownership change has occurred subsequent to November 7, 1995, which has
not yet been determined, use of MobileMedia's net operating losses would be
severely limited. It is also anticipated that the net operating loss
carryforwards and certain other tax attributes of MobileMedia will be
substantially reduced and their utilization significantly limited as a result of
consummation of the Plan.
8. LEASES
Certain facilities and equipment used in operations are held under
operating leases. Rental expenses under operating leases were $44,574, $43,453,
$40,936, $10,423 and $12,989 for the years ended December 31, 1996, 1997 and
1998 and the three months ended March 31, 1998 and 1999 (unaudited),
respectively. At December 31, 1998, the aggregate minimum rental commitments
under leases were as follows:
<TABLE>
<S> <C>
1999........................................................ $ 48,951
2000........................................................ 25,457
2001........................................................ 19,250
2002........................................................ 15,726
2003........................................................ 13,327
Thereafter.................................................. 15,783
--------
$138,494
========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
MobileMedia has adopted a retirement savings plan that allows all employees
who have been employed for one year and have at least 1,000 hours of credited
service to contribute and defer up to 15% of their compensation. Effective
February 1, 1996, MobileMedia began a matching contribution of 50% of the first
2% of the elected deferral plus an additional 25% of the next 4% of the elected
deferral. MobileMedia's matching contribution was $700 in 1996, $730 in 1997 and
$692 in 1998 and $160 and $178 for the three months ended March 31, 1998 and
1999 (unaudited), respectively.
10. STOCK OPTION PLANS
MobileMedia has two stock option plans under which approximately 1.3
million options are currently outstanding. Under the proposed Plan of
Reorganization, MobileMedia's equity holders will receive no value for their
ownership interests in the Company, and accordingly, the options are also deemed
to have no value.
11. COMMITMENTS AND CONTINGENCIES
MobileMedia is party to a number of lawsuits and other matters arising in
the ordinary course of business.
As announced on September 27, 1996 and October 21, 1996, MobileMedia
disclosed that misrepresentations and other violations had occurred during the
licensing process for as many as 400 to 500, or approximately 6% to 7%, of its
approximately 8,000 local transmission one-way paging stations. MobileMedia
caused an investigation to be conducted by its outside counsel, and a
comprehensive report regarding these matters was provided to the FCC in the fall
of 1996.
F-58
<PAGE> 288
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
On January 13, 1997, the FCC issued a Public Notice relating to the status
of certain FCC authorizations held by MobileMedia. Pursuant to the Public
Notice, the FCC announced that it had (i) automatically terminated approximately
185 authorizations for paging facilities that were not constructed by the
expiration date of their construction permits and remained unconstructed, (ii)
dismissed as defective approximately 94 applications for fill-in sites around
existing paging stations because they were predicated upon unconstructed
facilities and (iii) automatically terminated approximately 99 other
authorizations for paging facilities that were constructed after the expiration
date of their construction permits. However, the FCC granted MobileMedia interim
operating authority to operate transmitters in this last category subject to
further action by the FCC.
On April 8, 1997, the FCC adopted an order commencing an administrative
hearing into the qualification of MobileMedia to remain a licensee. The order
directed an Administrative Law Judge to take evidence and develop a full factual
record on directed issues concerning MobileMedia's filing of false forms and
applications. MobileMedia was permitted to operate its licensed facilities and
provide service to the public during the pendency of the hearing.
On June 6, 1997, the FCC issued an order staying the hearing proceeding in
order to allow MobileMedia to develop and consummate a plan of reorganization
that provides for a change of control of MobileMedia and a permissible transfer
of MobileMedia's FCC licenses. The grant of the stay was premised on the
availability of an FCC doctrine known as Second Thursday, which provides that,
if there is a change of control that meets certain conditions, the regulatory
issues designated for administrative hearing will be resolved by the transfer of
MobileMedia's FCC licenses to the new owners of MobileMedia and the hearing will
not proceed. The stay was originally granted for ten months and was extended by
the FCC through October 6, 1998.
On September 2, 1998, MobileMedia and Arch Communications Group, Inc.
("Arch") filed a joint Second Thursday application. The FCC released an order
granting the application on February 5, 1999. The order, which is conditioned on
confirmation of the plan and consummation thereof within nine months, expressly
terminated the administrative hearing and resolved the issues designated
therein. The order denied the parties' request for permanent authority to
operate transmitters for which MobileMedia was granted interim authority on
January 13, 1997. If the Merger is consummated, Arch must cease operating these
facilities within 6 months after the merger. The order also denied the parties'
request for a waiver of the spectrum cap (which prohibits narrowband PCS
licensees from having ownership interest in more than three channels in any
geographic area). Arch must divest any excess channels within 6 months after the
merger.
Prior to the Petition date, five actions allegedly arising under the
federal securities laws were filed against MobileMedia and certain of its
present and former officers, directors and underwriters in the United States
District Court for the District of New Jersey (the "New Jersey District Court").
These actions were subsequently consolidated as In re MobileMedia Securities
Litigation, No. 96-5723 (AJL) (the "New Jersey Actions"). A consolidated amended
complaint (the "Complaint") was filed on November 21, 1997. The Complaint does
not name MobileMedia as a defendant.
In June 1997, the Debtors initiated an Adversary Proceeding in the
Bankruptcy Court to stay the prosecution of the New Jersey Actions. Pursuant to
a Stipulation entered into among the Debtors and the plaintiffs in the New
Jersey Actions and "So Ordered" by the Bankruptcy Court on October 31, 1997, the
plaintiffs in the New Jersey Actions could conduct only limited discovery in
connection with the New Jersey Actions and could not file any pleadings, except
responses to motions to dismiss, until the earlier of September 30, 1998 and the
effective date of a plan of reorganization. On October 21, 1998, the defendants'
motion to dismiss the New Jersey Actions filed with the New Jersey District
Court on January 16, 1998 was denied.
F-59
<PAGE> 289
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
In addition to the New Jersey Actions, two lawsuits (together, the
"California Actions" and, together with the New Jersey Actions, the "Securities
Actions") were filed in September 1997 in the United States District Court for
the Northern District of California and the Superior Court of California naming
as defendants certain former officers and certain present and former directors
of MobileMedia, certain investment entities and the Debtors' independent
auditors. None of the Debtors is named as defendant in the California Actions.
On November 4, 1997, the Debtors commenced an adversary proceeding in the
Bankruptcy Court seeking to stay the prosecution of the California Actions
against the named defendants. At hearings held on December 10, 1997 and May 29,
1998, the Bankruptcy Court enjoined the plaintiffs in the California Actions
until September 15, 1998 from taking certain actions in connection with the
California Actions, with certain exceptions.
The plaintiffs in both the New Jersey Actions and California Actions are
currently conducting discovery of MobileMedia in connection with their
prosecution of the actions against the named defendants. Following consummation
of the Plan of Reorganization, the Company may be subject to further discovery
in these proceedings.
Neither the New Jersey Actions nor the California Actions name any of the
Debtors as a defendant. However, proofs of claim have been filed against the
Debtors by the plaintiffs in the New Jersey Actions, and both the New Jersey
Actions and the California Actions may give rise to claims against the Debtors'
Directors, Officers and Corporate Liability Insurance Policy. It is anticipated
that under any plan of reorganization for MobileMedia these Claims will receive
no distributions.
12. OTHER INVESTMENTS
On March 21, 1995, MobileMedia purchased a 33% interest in Abacus
Communications Partners, L.P., ("Abacus") a Delaware limited partnership, from
Abacus Business Services, Inc. for $1,641. Abacus Communications Partners, L.P.
is one of MobileMedia's alphanumeric dispatch services providers. The investment
has been accounted for under the equity method in accordance with Accounting
Principles Board Opinion No. 18. Under the equity method, original investments
are recorded at cost and adjusted by MobileMedia's share of undistributed
earnings or losses of the purchased company. MobileMedia's share of income
(loss) of affiliate, net of distribution, for the years ended December 31, 1996,
1997 and 1998, was $160, $69, and $(87), respectively. On December 30, 1998
MobileMedia reached an agreement to sell its interest in Abacus to Abacus
Exchange Inc. for $1,400 and subsequently completed the sale on January 25,
1999. Accordingly, MobileMedia wrote down its investment in Abacus from $1,612
to $1,400 as of December 31, 1998.
13. IMPACT OF YEAR 2000 (UNAUDITED)
GENERAL
Computer systems were originally designed to recognize calendar years by
the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. Any of MobileMedia's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. As a result, in less than two
years, the computerized systems (including both information and non-information
technology systems) and applications used by MobileMedia will
F-60
<PAGE> 290
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
need to be reviewed, evaluated and, if and where necessary, modified or replaced
to ensure that all financial, information and operating systems are Year 2000
compliant.
State of Readiness
MobileMedia has formed an internal task force comprised of representatives
of its various relevant departments to address Year 2000 compliance matters. The
task force has undertaken a preliminary review of internal and external areas
that are likely to be affected by Year 2000 compliance matters and has
classified the various areas as mission critical, important or
non-critical/non-important. MobileMedia also expects to hire outside consultants
to review MobileMedia's testing methodology and test results, to assess its
contingency planning and to provide general oversight relating to Year 2000
compliance matters.
With respect to internal matters, MobileMedia has completed a review of its
hardware and software to determine whether its business-related applications
(including applications relating to distribution, finance, inventories,
operations, pager activation, purchasing and sales/marketing) will be Year 2000
compliant. In addition, in the last quarter of 1998, programs designed to
identify Year 2000 problems associated with dates embedded in certain
business-related files were created and executed to identify any Year 2000
compliance issues. The testing unearthed a few Year 2000 problems all of which
have been addressed and retested for Year 2000 readiness. Additional testing
took place the first quarter of 1999, which included testing of MobileMedia's
financial and human resource software packages. Although the results of these
tests are still being analyzed, relatively few Year 2000 problems were
identified. There can be no assurance, however, that such testing has detected,
or will detect, all compliance issues related to the Year 2000 problem.
With respect to external matters, MobileMedia has distributed
questionnaires and requests for certification to its mission-critical vendors
and is in the process of obtaining and reviewing the responses thereto. The
questionnaires have requested information concerning embedded technologies of
such vendors, the hardware and software applications used by such vendors and
the Year 2000 compliance efforts of such vendors relating thereto.
Estimated Year 2000 Compliance Costs
MobileMedia has an information technology staff of approximately 68 people
that has addressed technical issues relating to Year 2000 compliance matters.
Through December 31, 1998, MobileMedia has incurred approximately $50 in costs
(excluding in-house labor and hardware) in connection with Year 2000 compliance
matters. In addition, MobileMedia has purchased upgraded hardware at a cost of
approximately $175 for use as redundant equipment in testing for Year 2000
problems in an isolated production environment. MobileMedia estimates that it
will expend approximately $500 on additional hardware, software and other items
related to the Year 2000 compliance matters.
In addition, MobileMedia estimates that it will incur approximately $200 in
costs relating to Year 2000 remediation efforts for its paging network hardware.
MobileMedia also upgraded its paging network hardware during 1998 and plans
further upgrades in fiscal year 1999. Such upgrades have not been and are not
expected to be purchased solely for remediation of the Year 2000 compliance
problems; such upgrades are not themselves expected to have Year 2000 compliance
problems.
Risks Relating to Year 2000 Compliance Matters
MobileMedia has a goal to become Year 2000 compliant with respect to
internal matters during 1999. Although MobileMedia has begun testing of its
internal business-related hardware and software applications, there can be no
assurances that such testing will detect all applications that may be affected
F-61
<PAGE> 291
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
by Year 2000 compliance problems. With respect to external matters, due to the
multi-dependent and interdependent issues raised by Year 2000 compliance,
including many factors beyond its control, MobileMedia may face the possibility
that one or more of its mission-critical vendors, such as its utilities,
telephone carriers, equipment manufacturers or satellite carriers, may not be
Year 2000 compliant on a timely basis. Because of the unique nature of such
vendors, alternate providers may not be available. Finally, MobileMedia does not
manufacture any of the pagers, paging-related hardware or network equipment used
by MobileMedia or its customers in connection with MobileMedia's paging
operations. Although MobileMedia has tested such equipment, it has also relied
upon the representations of its vendors with respect to their Year 2000
readiness. MobileMedia can give no assurance as to the accuracy of such vendors'
representations.
Contingency Planning
MobileMedia has begun the process of assessing contingency plans that might
be available in the event of either internal or external Year 2000 compliance
problems. To this end, MobileMedia's various internal departments have begun to
prepare assessments of potential contingency alternatives. The task force will
undertake a review of these assessments on a department-by-department basis and
on a company-wide basis. MobileMedia intends to complete its contingency
planning during the second quarter of 1999.
F-62
<PAGE> 292
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
ANNEX A
SUBJECT TO COMPLETION, DATED MAY 12, 2000
PROSPECTUS
VAST LOGO
16,100,000 SHARES
VAST SOLUTIONS, INC.
CLASS B COMMON STOCK
-------------------------
Of the 16,100,000 shares of our Class B common stock covered by this
prospectus, 13,780,000 are being offered by Paging Network, Inc. in exchange for
its outstanding senior subordinated indebtedness and 2,320,000 are being
distributed by PageNet to its stockholders. PageNet currently owns all of our
outstanding Class A and Class B common stock.
We have the option to redeem shares of our Class B common stock, in whole
or in part, at any time following the sale by us of additional shares of Class A
common stock, or any shares of our capital stock convertible into shares of our
Class A common stock, other than sales pursuant to an employee benefit plan. All
shares of Class B common stock will automatically convert into Class A common
stock two years after completion of the Arch merger or, if earlier, one year
after we complete an underwritten public offering of common stock with net
proceeds of more than $25 million.
Neither our Class A nor our Class B common stock is listed on any
securities exchange. We do not intend to apply for listing of our Class B common
stock on any securities exchange or quotation system.
AN INVESTMENT IN OUR CLASS B COMMON STOCK INVOLVES RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE A-5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
The date of this prospectus is , 2000.
A-1
<PAGE> 293
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... A-3
Risk Factors................................................ A-5
Dividend Policy............................................. A-14
Use of Proceeds............................................. A-14
Selected Financial Data..................................... A-15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. A-16
Business.................................................... A-20
Management.................................................. A-31
Arrangements Between Vast and PageNet....................... A-35
Principal Stockholders...................................... A-37
Security Ownership of Management............................ A-38
Description of Vast Capital Stock........................... A-39
Shares Eligible for Future Sale............................. A-43
Legal Matters............................................... A-44
Experts..................................................... A-44
Where You Can Find More Information......................... A-44
Index to Financial Statements............................... F-1
</TABLE>
A-2
<PAGE> 294
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us, our Class B common stock being offered by this
prospectus and our financial statements and notes relating to those financial
statements appearing elsewhere in this prospectus.
THE COMPANY
We offer comprehensive end-to-end wireless data solutions that connect
corporate mobile users with the Internet or corporate data networks using
wireless devices. Our initial focus is on large businesses with mobile
workforces. Our proprietary Viaduct software technology provides us with a
platform for building wireless applications that facilitate data access via any
data-capable wireless device.
We are a development stage company and, since our inception, have been
engaged primarily in product research and development and developing markets for
our products and services. We have incurred significant operating losses as a
result of these startup activities and the sufficiency of future funding for our
operations is uncertain. As a result, our independent auditor will issue a
going-concern opinion in connection with this offering.
We are currently a wholly owned subsidiary of PageNet and certain assets
and third-party agreements on which our business is substantially dependent are
owned or controlled by PageNet. The assets include intellectual property
contained in our Viaduct technology and other products. PageNet will transfer or
license these assets to us in connection with the consummation of the Arch
merger and the Vast distribution. In some cases, we will have to enter into new
agreements directly with third parties. If the Arch merger does not occur, we
will remain a wholly owned subsidiary of PageNet and PageNet noteholders and
stockholders will not receive any interest in Vast.
Our historical revenues consist primarily of sales of software developed by
Silverlake Communications, Inc., which PageNet acquired in December 1998.
Silverlake's Airsource(R) product line is a suite of software products focusing
on wireless communications, including numeric paging and advanced messaging
services. Although we intend to maintain both sales and service of this product
line, the Silverlake marketing and development personnel will focus on other
areas. We do not expect the Silverlake product line to be a material part of our
future growth strategy.
We were incorporated in Delaware in 1999. Our operations include the
activities of PageNet's wireless solutions division since its formation in
September 1998, as well as the operations of Silverlake. Our principal executive
offices are located at 14131 Midway Road, Suite 500, Addison, Texas 75001,
telephone number: (972) 801-8800.
A-3
<PAGE> 295
THE EXCHANGE OFFER
PageNet is offering to exchange a pro rata portion of 616,830,757 shares of
PageNet common stock and a pro rata portion of 13,780,000 shares of our Class B
common stock for each of PageNet's:
- 8.875% senior subordinated notes due 2006;
- 10.125% senior subordinated notes due 2007; and
- 10% senior subordinated notes due 2008.
The pro rata portion will be computed immediately prior to the time when
the Arch merger occurs by dividing
- the principal amount, together with all accrued interest through the
expiration of the exchange offer, of each PageNet senior subordinated
note validly tendered and not withdrawn; by
- the principal amount, together with all accrued interest through the
expiration of the exchange offer, of all outstanding PageNet senior
subordinated notes.
As of the date of this prospectus, $1.2 billion in aggregate principal
amount at maturity of senior subordinated notes are outstanding. As of March 31,
2000, accrued and unpaid interest on the senior subordinated notes totalled
$66,525,354.
THE VAST DISTRIBUTION
The merger agreement between PageNet and Arch provides that PageNet
stockholders will receive a distribution of up to 11.6% of our total equity. To
satisfy the merger agreement, the PageNet board of directors will distribute
2,320,000 shares of our Class B common stock to the persons who are PageNet
stockholders immediately prior to the acceptance of senior subordinated notes in
the exchange offer. The distribution will not be made unless all of the
conditions to the merger have been satisfied. Because the distribution will be
made only to persons who were PageNet stockholders prior to the acceptance of
senior subordinated notes in the exchange offer, noteholders who become
stockholders of PageNet in the exchange offer will not be entitled to receive
any portion of this distribution.
PREPACKAGED BANKRUPTCY PLAN
PageNet is soliciting the vote of its noteholders and its stockholders to a
consensual or "prepackaged" bankruptcy plan of PageNet. If PageNet files a
prepackaged bankruptcy plan under Chapter 11 of the United States Bankruptcy
Code and the prepackaged bankruptcy plan is confirmed by the bankruptcy court
and consummated, then 100% of the senior subordinated notes will be converted
into shares of Arch common stock and our Class B common stock. The number of
shares of our Class B common stock which the holders of PageNet senior
subordinated notes will receive under the prepackaged plan and the exchange
offer are the same. PageNet stockholders will also receive the same number of
shares of our Class B common stock under the prepackaged bankruptcy plan as they
would receive pursuant to the Vast distribution.
A-4
<PAGE> 296
RISK FACTORS
You should carefully consider the following factors as well as other
information contained in this prospectus before deciding whether to participate
in the PageNet exchange offer or to vote in favor of the PageNet plan of
reorganization.
WE MAY NOT BE ABLE TO OBTAIN A LICENSE FOR SOFTWARE THAT WE RELY ON FOR OUR
BUSINESS.
Elements of software owned by TIBCO Software, Inc. constitute the core
components of the Viaduct technology. This software is currently licensed to
PageNet. In January of this year, TIBCO and PageNet agreed in principle, to
permit the transfer and assignment of the software license from PageNet to us.
The failure to consummate this transfer and assignment would render us unable to
continue our current operations until we are able to purchase and install
replacement software from another licensor.
PAGENET MAY BE REQUIRED TO REDUCE ITS OPERATIONS, INCLUDING THOSE OF VAST, PRIOR
TO THE COMPLETION OF ITS MERGER WITH ARCH.
If PageNet is unable to improve its operating results, it may not have
sufficient cash to sustain operations through the consummation of the Arch
merger. While PageNet is currently exploring various alternatives to ensure that
it has sufficient liquidity through the consummation of the merger, there can be
no assurance that such efforts will be timely or successful. Further, there can
be no assurance that the merger will not be substantially delayed. If PageNet's
strategies to maintain sufficient liquidity are not successful, or the merger is
delayed, PageNet may be required to reduce the level of its operations,
including the operations of Vast. Any reduction of operations would hinder the
development of our business and adversely affect our competitive position.
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO CONTINUE OUR CURRENT
OPERATIONS.
To date our operations have been funded exclusively through investments by
PageNet, which we do not expect to continue following the merger of PageNet and
Arch. We may be required to reduce our current level of operations unless we are
able to obtain capital through additional debt or equity financings. We cannot
assure you that debt or equity financings will be available as required. Even if
financing is available, it may not be on terms that are favorable to us or
sufficient for our needs. If we are unable to obtain sufficient financing, we
may be unable to continue our current operations.
WE HAVE A LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS ENCOUNTERED BY
EARLY-STAGE COMPANIES.
We commenced operations in September 1998 as the wireless division of
PageNet. Accordingly, we have a very limited operating history, which makes it
difficult to forecast our future revenues and expenses. Our business and
prospects must be considered in light of the heightened risks and uncertainties
to which early-stage companies in rapidly evolving markets such as wireless data
are particularly exposed. These include:
- risks that the intense competition and rapid technological change in our
industry could adversely affect demand for our products and services;
- risks that we may not be able to expand our direct sales and marketing
channels or establish and fully utilize relationships with strategic
partners and indirect sales channel partners;
- risks that our products may not be able to perform to or adequately
support our customers' technical specifications or scale to handle
increased transaction volumes; and
- risks that any fluctuations in our quarterly operating results will be
significant relative to our revenues for the corresponding period.
A-5
<PAGE> 297
Our revenue may be adversely affected by a number of risks and
uncertainties including those listed above and elsewhere in these risk factors.
As a result, our revenue may not grow in future periods and may remain flat or
decline over any given period.
We base our forecast for expenses in part on future revenue projections. We
incur expenses in advance of revenues and we may not be able to quickly reduce
spending if our revenues are lower than expected. In particular, we expect to
incur additional costs and expenses related to the following:
- the development of relationships with marketing partners, system
integrators, value-added resellers and original equipment manufacturers;
- the development and expansion of our sales force and marketing
operations;
- the development and enhancement of existing and new products and
services; and
- the expansion of our management team.
We cannot assure you that our business strategy will be successful or that
we will successfully address these risks and the other risks described below. We
expect that our business, operating results and financial condition could be
materially adversely affected if our revenues do not meet our projections or
that net losses are greater than expected.
WE HAVE HISTORICALLY INCURRED LOSSES AND WE MAY NOT ACHIEVE PROFITABILITY.
We have not operated profitably to date. We incurred net losses during our
development stage of $4,163,733 for the four months we operated in 1998 and
$34,745,574 for the year ended December 31, 1999. At December 31, 1999, we had
accumulated losses since inception of $38,909,307. We intend to make significant
investments in our research and development, marketing, services and sales
operations. We anticipate that these expenses could significantly precede any
revenues generated by the increased spending. As a result, we are likely to
continue to experience losses and negative cash flow from operations in future
periods. If we do become profitable, we may not sustain or increase our
profitability.
WE HAVE NO INDEPENDENT OPERATING HISTORY AND WE MAY NOT BE ABLE TO DEVELOP OUR
INFRASTRUCTURE TO EFFECTIVELY MANAGE OUR CURRENT AND FUTURE OPERATIONS.
We have no independent operating history. Most of our current business
operations include various operations of PageNet which were conducted as
separate business units within PageNet. Following the Arch merger, we will be
required to supplement our administrative and other resources to provide
services necessary to operate as an independent company. Although the costs of
the services provided to us by PageNet are reflected in our historical financial
results and we believe the amounts allocated to us are a reasonable allocation
of the costs PageNet incurred on our behalf, financial information included in
this prospectus may not necessarily reflect what our results of operations would
have been had we been a separate, stand-alone entity during the periods
presented.
We expect operating expenses and staffing levels to increase substantially
in the future. If we are not able to manage our intended growth successfully, we
will not grow as planned and our business could be adversely affected. Our
existing management, operational, financial and human resources, as well as our
management information systems and controls, are inadequate to support our
future operations. In addition, as the complexity of our product technology and
our third-party relationships increases, the management of those relationships
and the negotiation of contractual terms sufficient to protect our rights and
limit our potential liabilities will become more complicated. As a result, our
inability to successfully develop our infrastructure and manage the complexity
of our product technology and third-party relationships could have a material
adverse effect on us.
A-6
<PAGE> 298
AFTER THE ARCH MERGER, WE WILL NOT BENEFIT FROM THE RESOURCES OF PAGENET.
Since our inception, we have operated as a division of PageNet. Following
the Arch merger, we will not be able to rely on PageNet or Arch for financial
support or benefit from our relationships with PageNet to receive favorable
terms for the purchase or sale of various goods and services. In addition,
except as may be provided in agreements we expect to enter into with PageNet
prior to the Arch merger, we will be responsible after the merger for obtaining
our own sources of financing and for our own corporate administrative services
such as tax, treasury, risk management and insurance, accounting, payroll,
legal, information systems and human resources. We anticipate that these
agreements will allow for a transition period of up to 24 months, during which
PageNet will continue to provide some of these services. Following this
transition period, we will need to outsource these functions to third parties or
hire additional staff to perform them internally.
MANY OF OUR WIRELESS PRODUCTS AND SERVICES ARE IN DEVELOPMENT AND ARE NOT NOW
AVAILABLE FOR COMMERCIAL USE.
Several of our wireless products and services are in various stages of
development and others are in "beta" testing with various customers. A limited
number of our customers are currently using our wireless products and services
on a commercial basis. If one or more of our customers decide not to place our
products and services into service, our revenues will not grow as anticipated.
Further, if we are unable to achieve market acceptance of our wireless products
and services, our business would be materially adversely affected.
THE MARKETS FOR OUR PRODUCTS AND SERVICES ARE IN EARLY STAGES OF DEVELOPMENT AND
ARE CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE.
The markets for our products and services are in early stages of
development and are rapidly evolving. A viable market may fail to emerge or be
sustainable, so we cannot predict the level of demand and market acceptance for
our products and services. In particular, if the market for wireless
applications does not continue to grow, we may not be able to grow our business
as planned. The markets for our wireless products and services are characterized
by rapid technological change, frequent new product and service introductions
and enhancements, uncertain product life cycles and changing customer demands.
If the market for our products and services does not continue to mature or if
significant competitive pressures develop, our business will be harmed. In
addition, the introduction of products and services embodying new technologies
and the emergence of new industry standards could render our existing products
and services obsolete or unmarketable and cause us to incur significant
development costs to create new or modify our existing products and services to
utilize new technologies or industry standards.
OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY OUR LENGTHY SALES CYCLE THAT
LEADS TO UNPREDICTABLE REVENUE GROWTH.
We have generally experienced a lengthy sales cycle, averaging
approximately four to nine months. The lengthy sales cycle is one of the factors
that may cause our revenues and operating results to vary significantly from
quarter to quarter. Because of the unique characteristics of our products and
services, our prospective customers' decisions to license our products and/or
purchase our services often require significant investment and executive level
decision making. In addition, the length and success of our sales cycle for
customer orders depends on a number of other factors over which we have little
or no control, including:
- a customer's budgetary constraints;
- the timing of a customer's budget cycles;
- concerns by customers about the introduction of new products or services
by us or our competitors; and
A-7
<PAGE> 299
- potential downturns in general economic conditions, including reductions
in demand for wireless data services.
We also believe that many companies are not aware of the potential benefits
of our wireless products and services. For this reason, we must provide a
significant level of education and information to prospective customers about
the use and benefits of our products and services. This lengthy process can
cause potential customers to take many months to make these decisions. As a
result, sales cycles for customer orders vary substantially from customer to
customer. Excessive delay in acquiring new customers or completing sales could
reduce our revenue in any given period and cause our operating results to vary
significantly from quarter to quarter.
WE HAVE A LIMITED NUMBER OF CUSTOMERS AND THE LOSS OF A MAJOR CUSTOMER WOULD
LIKELY ADVERSELY AFFECT OUR REVENUES AND OUR OPERATING RESULTS.
Our business is in the development stage, and we have a limited number of
customer relationships established. We expect to have a high degree of customer
concentration in our business, although not necessarily involving the same
customers from period to period. To the extent that any significant customer
terminates or reduces the scope of its relationship with us, our revenues for
the relevant fiscal period could substantially decline. As a result, the loss of
any major customer could materially harm our business.
NEW AND EXISTING COMPETITORS IN OUR INDUSTRY MAY HAVE A MATERIAL ADVERSE EFFECT
ON US.
Because our industry is new and evolving and characterized by rapid
technological change, it is difficult for us to predict whether, when and by
whom new competing technologies or new competitors may be introduced into our
markets. Currently, we believe our competition will come from several different
market segments, including wireless data service providers, wireless
communications software companies, systems integrators, device manufacturers and
network carriers. Many of our existing and potential competitors have
substantially greater financial, technical, marketing and distribution resources
than we do. Additionally, many companies in these markets have greater name
recognition and more established relationships with our target customers. These
competitors may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can. Any one of these factors could have
a material adverse effect on our business, financial condition and results of
operations.
WE MAY BE UNSUCCESSFUL IN OUR EFFORTS TO EXPAND OUR SALES, MARKETING AND
DISTRIBUTION CAPABILITIES IN ORDER TO INCREASE MARKET AWARENESS OF OUR PRODUCTS
AND GENERATE INCREASED REVENUE.
We must expand our direct and indirect sales operations to increase market
awareness of our products and services and generate increased revenue. We have
very limited experience in direct sales and cannot be certain that we will be
successful in these efforts. We have recently expanded our direct sales force
and plan to hire additional sales personnel. Our products and services require a
sophisticated sales effort targeted at the senior management of our prospective
customers. New hires will require training and take time to achieve full
productivity. We cannot be certain that our hires will become as productive as
necessary or that we will be able to hire enough qualified individuals in the
future. As a result, we may be unable to expand our direct sales operations to
the extent necessary for us to maintain or grow our business.
We expect to derive a significant portion of our sales through formal and
informal relationships with co-marketing partners, system integrators,
value-added resellers, original equipment manufacturers and other third parties
that help develop and deploy enterprise applications for our customers. We do
not have a written agreement with some of partners who help us develop and
market our products and services. Many of our partners are under no obligation
to recommend or support our products and may recommend or give higher priority
to the products of other companies or to their own products. The maintenance and
development of these relationships is a critical part of our business strategy,
and we believe that our future revenues increasingly will be derived from such
partners and channels. In the future, we may be unable to establish new
relationships, or adequately service them once established. The occurrence of
any of these
A-8
<PAGE> 300
circumstances would limit our ability to sell our products and services and
could result in decreased revenues.
WE MAY NOT BE ABLE TO GROW OUR BUSINESS AS PLANNED IF WE DO NOT MAINTAIN
SUCCESSFUL RELATIONSHIPS WITH ENTERPRISE APPLICATION PROVIDERS AND CONTINUE TO
DEVELOP NEW RELATIONSHIPS WITH OTHER PROVIDERS.
Our ability to achieve revenue growth in the future will depend in part on
our success in maintaining successful relationships with enterprise application
providers and in developing new relationships with additional providers. We use
these relationships to jointly market and sell our products and services. Rapid
technological changes may result in our providers no longer offering the
products or services desired by our customers, and we may be unable to attract
additional providers with the types of products and/or services that our
customers require. We do not have long-term or exclusive agreements with
enterprise application providers, and the loss of these relationships could
materially adversely affect our business, financial condition or results of
operations.
OUR OPERATING RESULTS COULD BE ADVERSELY AFFECTED IF WE DO NOT HAVE CONTINUED
ACCESS TO SUFFICIENT CAPACITY ON RELIABLE WIRELESS NETWORKS OWNED AND CONTROLLED
BY OTHERS.
All of our airtime services are delivered using airtime purchased from
third parties. Our ability to grow and achieve profitability partly depends on
our ability to buy sufficient capacity on the networks of the wireless carriers,
such as PageNet, AT&T Corp., BellSouth Corporation, MCI WorldCom, Inc. and
others, and on the reliability and security of their systems. We depend on these
companies to provide uninterrupted and "bug free" service. We will not be able
to satisfy our customers' needs if wireless carriers fail to provide the
required capacity or needed level of service. In addition, our expenses would
increase and our profitability could be materially adversely affected if
wireless carriers were to increase the prices of their services. Some of these
wireless carriers are, or could become, our competitors and could restrict our
ability to purchase airtime on favorable terms, if at all.
AN INTERRUPTION IN THE SUPPLY OF PRODUCTS AND SERVICES THAT WE OBTAIN FROM THIRD
PARTIES COULD CAUSE A DECLINE IN SALES OF OUR SERVICES.
In designing, developing and supporting our wireless data products and
services, we rely on wireless carriers, device manufacturers, content providers
and computer hardware and software providers. We currently have relationships
with several of these parties indirectly through PageNet and will need to
transfer agreements to us or enter into new agreements directly with such
parties. We may not be able to transfer certain of these agreements or enter
into new agreements on favorable terms, if at all. In addition, these suppliers
may experience difficulty in supplying us products or services sufficient to
meet our needs, or they may terminate or fail to renew contracts for supplying
us these products or services on terms we find acceptable. Any significant
interruption in the supply of any of these products or services could cause a
decline in sales of our products and services unless and until we are able to
replace the functionality provided by these products and services. We also
depend on third parties to deliver and support reliable products, enhance their
current products, develop new products on a timely and cost-effective basis and
respond to emerging industry standards and other technological changes. The
failure of third parties to meet these criteria could materially harm our
business.
A FAILURE IN OUR MOBILE DATA OPERATIONS CENTER WOULD ADVERSELY AFFECT OUR
OPERATING RESULTS AND OUR FINANCIAL CONDITION.
Our operations are dependent upon our ability to prevent interruptions at
our mobile data operations center due to fire, power loss, natural disaster or a
similar event. A substantial portion of the computer equipment that is essential
to the operation of our mobile data operations center is located at PageNet's
technical operations center in Richardson, Texas. We believe our mobile data
operations center is supported by sufficient available backup computing and
electric power sources on site to maintain the provision of our services without
interruption. Although we intend to establish a second mobile data operations
center at a remote location, we currently do not have the financial resources to
create or operate
A-9
<PAGE> 301
a second facility. We would be materially adversely affected by substantial
damage to our current mobile data operations center or other catastrophic
failure that causes significant interruption in our operations. Although we
intend to purchase property and business interruption insurance, any recovery
under such a policy may not be adequate to compensate us for all losses that may
occur.
NEW LAWS AND REGULATIONS THAT IMPACT OUR INDUSTRY COULD INCREASE OUR COSTS OR
REDUCE OUR OPPORTUNITIES TO EARN REVENUE.
We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to businesses in general. However, in the future, we may
become subject to regulation by the Federal Communications Commission or another
regulatory agency. We may also become subject to regulations with respect to any
specific customer to whom we provide products and services. In addition, our
suppliers are or could become subject to regulations that indirectly affect us
or our ability to continue selling and supporting our products and services.
OUR FUTURE BUSINESS PROSPECTS DEPEND IN PART ON OUR ABILITY TO MAINTAIN AND
IMPROVE OUR CURRENT WIRELESS DATA SERVICES AND DEVELOP NEW PRODUCTS AND
SERVICES.
We believe that our future business prospects depend in large part on our
ability to maintain and improve our current products and services and to develop
new services on a timely basis. Our services will have to achieve market
acceptance, maintain technological competitiveness and meet an expanding range
of customer requirements. As a result of the complexities inherent in our
services, major new wireless data services and service enhancements require long
development and testing periods. We may not be successful in developing and
marketing, on a timely and cost-effective basis, service enhancements or new
services that respond to technological change, evolving industry standards or
customer requirements. We may also experience difficulties that could delay or
prevent the successful development, introduction or marketing of service
enhancements, and our new services and service enhancements may not achieve
market acceptance. If we cannot effectively maintain, improve and develop
services, we may not be able to recover our fixed costs or otherwise become
profitable. Significant delays in the general availability of our services or
significant problems in the implementation of new services could have a material
effect on our business, financial condition or results of operations.
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS ADEQUATELY, WHICH COULD
ALLOW THIRD PARTIES TO COPY OR OTHERWISE OBTAIN AND USE OUR TECHNOLOGY WITHOUT
AUTHORIZATION.
We regard our technology as proprietary. In an effort to protect our
proprietary rights, we rely primarily on a combination of copyright, trademark
and trade secret laws, as well as licensing and other agreements with
consultants, suppliers, strategic partners and customers, and employee and
third-party nondisclosure agreements. These laws and agreements provide only
limited protection of our proprietary rights. In addition, we have not signed
agreements containing these types of protective provisions in every case, and
the contractual provisions that are in place and the protection they provide
vary and may not provide us with adequate protection in all circumstances.
Although PageNet has agreed to transfer to us a provisional patent application
it holds for an invention embodied in Viaduct, we currently have no patents or
registered copyrights. In addition, we may need the consent of the bankruptcy
court to legally transfer these assets. We do not have any federal trademark
registrations in the name "Vast" and we may not be able to obtain such
registration due to conflicting marks or otherwise. Because our means of
protecting our proprietary rights may not be adequate, it may be possible for a
third party to copy or otherwise obtain and use our technology without
authorization, A third party could also develop similar technology
independently. Unauthorized copying, use or reverse engineering of our products
could materially adversely affect our business, results of operations or
financial condition.
We license technology that is embedded in our products from others. If one
or more of these licenses terminates or cannot be renewed on satisfactory terms,
we would have to modify the affected products to
A-10
<PAGE> 302
use alternative technology or eliminate the affected product function, either of
which could have a material adverse effect on us.
INFRINGEMENT CLAIMS COULD ADVERSELY AFFECT US.
A third party could claim that our technology infringes its proprietary
rights. As the number of software products in our target markets increases and
the functionality of these products overlap, we believe that wireless software
developers may face infringement claims.
Infringement claims, even if without merit, can be time consuming and
expensive to defend. A third party asserting infringement claims against us or
our customers with respect to our current or future products may require us to
enter into costly royalty arrangements or litigation, or otherwise materially
adversely affect us. In addition, an infringement claim related to a current or
future product may cause us to cease use of the infringing product and could
adversely affect our operating results and financial condition.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE HAVE DISPUTES OVER OUR RIGHT TO
RESELL OR REUSE INTELLECTUAL PROPERTY DEVELOPED FOR SPECIFIC CUSTOMERS.
Part of our business involves the development of software applications for
discrete customer engagements. Ownership of customer-specific software is often
retained by the customer, although we seek to retain the right to re-use some of
the applications, processes and other intellectual property developed in
connection with customer engagements. Issues relating to the rights to
intellectual property can be complicated, and we cannot give any assurance that
disputes will not arise that affect our ability to resell or re-use such
applications, processes and other intellectual property. Such disputes could
damage our relationships with our customers, divert our management's attention
and have a material adverse effect on our business, financial condition or
results of operations.
WE DEPEND ON KEY PERSONNEL AND WILL NEED TO RECRUIT ADDITIONAL SKILLED
PERSONNEL, FOR WHICH COMPETITION IS INTENSE, TO CONDUCT AND GROW OUR BUSINESS
EFFECTIVELY.
Our success depends in large part on our ability to retain our key
personnel, particularly our management and members of our engineering staff. The
loss of the services of certain individuals could have a material adverse effect
on our business, financial condition or results of operations. Our future
success also depends upon our ability to attract, train, assimilate and retain
additional qualified personnel. Competition for persons with skills in our
industry is intense, particularly for those with relevant technical experience.
We cannot assure you that we will be able to retain our key employees or that we
can attract, train, assimilate or retain other highly qualified personnel in the
future.
WE MAY PURSUE ACQUISITIONS THAT BY THEIR NATURE PRESENT RISKS AND THAT MAY NOT
BE SUCCESSFUL.
In the future we may pursue acquisitions to diversify our product offerings
and customer base or for other strategic purposes. We have made only one prior
acquisition and we cannot assure you that any future acquisitions will be
successful. The following are some of the risks associated with acquisitions
that could have a material adverse effect on our business, financial condition
or results of operations:
- We cannot ensure that any acquired businesses will achieve anticipated
revenues, earnings or cash flow;
- We may be unable to integrate acquired businesses successfully and
realize anticipated economic, operational and other benefits in a timely
manner, particularly if we acquire a business in a market in which we
have limited or no current expertise, or with a corporate culture
different from our own. If we are unable to integrate acquired businesses
successfully, we could incur substantial costs and delays or experience
other operational. technical or financial problems;
- Acquisitions could disrupt our ongoing business, distract management,
divert resources and make it difficult to maintain our current business
standards, controls and procedures;
A-11
<PAGE> 303
- We may finance future acquisitions by issuing common stock for some or
all of the purchase price. This could dilute the ownership interests of
our stockholders. We may also incur additional debt or be required to
recognize amortization expense related to goodwill and other intangible
assets purchased in future acquisitions; and
- We would be competing with other firms, many of which have greater
financial and other resources, to acquire attractive companies. We
believe this competition will increase, making it more difficult to
acquire suitable companies on acceptable terms.
OUR PRODUCTS COULD HAVE DEFECTS FOR WHICH WE ARE POTENTIALLY LIABLE AND WHICH
COULD RESULT IN LOSS OF REVENUE, INCREASED COSTS OR LOSS OF OUR CREDIBILITY OR
DELAY IN ACCEPTANCE OF OUR PRODUCTS IN THE MARKET.
Our products, including components supplied by others, may contain errors
or defects, especially when first introduced or when new versions are released.
Errors in new products or releases could be found after commencement of
commercial shipments, and this could result in additional development costs,
diversion of technical and other resources from our other development efforts,
or the loss of credibility with current or future customers. This could result
in a loss of revenue or delay in market acceptance of our products, which could
have a material adverse effect upon our business, financial condition or results
of operations.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability and some contract
claims. However, not all of these agreements contain these types of provisions
and, where present, these provisions vary as to their terms and may not be
effective under the laws of some jurisdictions. A product liability, warranty,
or other claim brought against us could have a material adverse effect on our
business, financial condition or results of operations.
WE HAVE THE RIGHT TO REDEEM YOUR SHARES OF CLASS B COMMON STOCK AT A PRICE THAT
MAY BE LESS THAN THEIR FAIR VALUE.
Our certificate of incorporation will provide that we may redeem the shares
of Class B common stock with the proceeds from future sales by us of shares of
Class A common stock or other capital stock that is convertible into Class A
common stock. The price at which we may redeem the shares of Class B common
stock will depend upon the price at which we sell the Class A common stock, or,
if we sell convertible capital stock, the price at which the shares of
convertible capital stock may be converted into Class A common stock. We cannot
assure you that the redemption price you would receive upon redemption of your
shares of Class B common stock will have any relation to the fair value of those
shares.
A LIQUID TRADING MARKET FOR OUR CLASS B COMMON STOCK LIKELY WILL NOT DEVELOP AND
THE MARKET PRICE OF OUR CLASS B COMMON STOCK COULD BE ADVERSELY AFFECTED.
There is no established trading market for our Class B common stock. A
liquid trading market likely will not develop for our Class B common stock,
which would adversely impact its market price. We do not intend to apply for
listing of our Class B common stock on any securities exchange, or for quotation
through any quotation system. Further, our Class B common stock will not be
convertible into shares of our Class A common stock until the earlier of (1) the
second anniversary of the completion of the merger or (2) one year following the
completion of an underwritten public offering of common stock by us in which the
net proceeds of the offering exceeds $25 million. It is likely that an
underwritten public offering, if made, would be of our Class A common stock.
The liquidity of any market and the market price for our Class B common
stock will depend on, among other things: (a) the number of holders of the Class
B common stock; (b) our performance; (c) the market for similar securities; (d)
the desire of former stockholders and debtholders of PageNet to continue to hold
our Class B common stock; and (e) the interest of securities dealers in making a
market in our Class B common stock. Even if a market for our Class B common
stock does develop there can be no assurance that it will continue.
A-12
<PAGE> 304
AVAILABILITY OF SIGNIFICANT AMOUNTS OF COMMON STOCK FOR SALE BY FORMER PAGENET
SECURITYHOLDERS COULD ADVERSELY AFFECT THE PRICE OF YOUR CLASS B COMMON STOCK,
AND SALES BY US OF ADDITIONAL SHARES OF COMMON STOCK WOULD DILUTE YOUR OWNERSHIP
INTEREST.
Following the Arch merger, all of the shares of Class B common stock
offered by this prospectus, which will represent up to 80.5% of our outstanding
common stock, will be held by former PageNet noteholders and stockholders. In
the absence of demand by other potential investors in our common stock, sales,
or the availability for sale, of a substantial number of these shares of Class B
common stock by former PageNet securityholders in the public market or otherwise
following the merger could adversely affect the market price for our Class B
common stock and make it more difficult for us to sell common stock in the
future at an appropriate time and price.
In order to finance our operations, we are seeking additional equity
financing from one or more institutional investors. Sales by us to these
investors of common stock or other securities convertible into shares of common
stock, such as preferred stock or debentures, would substantially reduce your
percentage ownership of Vast.
ANTITAKEOVER PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAKE
ANY CHANGE IN CONTROL OF US MORE DIFFICULT, MAY DISCOURAGE BIDS AT A PREMIUM
OVER THE MARKET PRICE AND MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR STOCK.
Our certificate of incorporation and bylaws contain provisions that may
have the effect of delaying, deferring or preventing a change in control of
Vast, may discourage bids at a premium over the market price of our common stock
and may adversely affect the market price of our common stock, and the voting
and other rights of the holders of our common stock. These provisions include:
- the division of our board of directors into three classes serving
staggered three-year terms;
- removal of directors only for cause and only upon a 66 2/3% stockholder
vote;
- prohibiting stockholders from taking action by written consent or calling
a special meeting of stockholders;
- the ability to issue shares of our preferred stock without stockholder
approval; and
- advance notice requirements for raising business or making nominations at
stockholders' meetings.
Delaware corporation law also contains provisions that may delay, deter or
inhibit a future acquisition of Vast. See "Description of Vast Capital Stock"
for a description of these provisions.
A-13
<PAGE> 305
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. Further,
we do not anticipate paying any dividends on our common stock in the foreseeable
future and intend to retain all available funds for use in the operation and
development of our business.
USE OF PROCEEDS
We will not receive any proceeds from the PageNet exchange offer or the
distribution of shares of our Class B common stock by PageNet to its
stockholders.
A-14
<PAGE> 306
SELECTED FINANCIAL DATA
The following table sets forth our selected historical and unaudited pro
forma financial data as of December 31, 1998 and December 31, 1999, and for the
four month period from September 1, 1998 (inception) through December 31, 1998
and the year ended December 31, 1999. The selected historical financial data has
been derived from our audited financial statements and notes. The unaudited
selected pro forma financial data gives effect to the following transactions as
if they were consummated as of December 31, 1999 with respect to the unaudited
pro forma condensed balance sheet, and as of September 1, 1998 with respect to
the unaudited pro forma statements of operations:
- the anticipated contribution by PageNet of assets comprising a portion of
the Viaduct to Vast;
- the anticipated forgiveness by PageNet of the $30.0 million, non-interest
bearing note payable to PageNet and the elimination of related interest
expense; and
- the anticipated forgiveness by PageNet of other amounts due PageNet and
the elimination of related interest expense.
We expect the contribution of the assets comprising the Viaduct and the
forgiveness of the $30.0 million, non-interest bearing note payable and other
amounts due PageNet to occur simultaneously with the completion of the Arch
merger and the Vast distribution by PageNet. However, these transactions are
subject to the approval of PageNet's lenders under its domestic credit facility.
If PageNet does not forgive these amounts, we will not be able to repay them
unless we obtain other sources of financing. Forgiveness of this intercompany
indebtedness is required under the merger agreement between PageNet and Arch and
is a condition to the consummation of the Vast distribution.
The following unaudited selected pro forma financial data is presented for
illustrative purposes only and does not necessarily predict the operating
results or financial position that would have occurred if the transactions had
been consummated on the dates indicated above, nor is it necessarily indicative
of future results of operations. You should read the following financial
information in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- ---------------------------
SEPTEMBER 1 SEPTEMBER 1
(INCEPTION) YEAR (INCEPTION) YEAR
THROUGH ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Total operating revenues.................. $ 90,035 $ 1,113,847 $ 90,035 $ 1,113,847
Total operating costs and expenses........ 4,163,149 33,992,608 4,163,149 33,992,608
Loss from operations...................... (4,073,114) (32,878,761) (4,073,114) (32,878,761)
Net loss.................................. (4,163,733) (34,745,574) (4,073,112) (32,739,180)
Loss per common share -- basic and
diluted................................. (0.21) (1.74) (0.20) (1.64)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Current assets............................ $ 220,110 $ 10,495,039 $10,495,039
Total assets.............................. 2,355,685 13,523,703 16,673,703
Amounts due PageNet....................... 6,302,220 20,293,452 --
Note payable to PageNet................... -- 30,000,000 --
Stockholders' equity (deficit)............ (3,963,733) (38,115,307) 15,328,145
</TABLE>
A-15
<PAGE> 307
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and notes appearing elsewhere in this prospectus. See
"Forward-Looking Statements."
BACKGROUND
We began operation in September 1998, when PageNet formed a wireless
solutions division. Our historical financial results consist primarily of the
results of operations of Silverlake, which PageNet acquired in December 1998,
and the losses we have accumulated during the development and initial marketing
of the wireless solutions products and services we began offering on a limited
basis in late 1999. Silverlake's product line is a suite of software products
focusing on wireless communications, including numeric paging and advanced
messaging services. Although we intend to maintain both sales and service of
this product line, the Silverlake marketing and development personnel will focus
on other areas. We do not expect the Silverlake product line to be a material
part of our future growth strategy.
We intend to derive future revenue from the sale of wireless solutions
products and services which include custom product development, wireless access
to our Viaduct, software licenses, maintenance contracts and monthly service
fees. Maintenance fee revenue will be based on a percentage of software license
fees. Development revenue will come from the development of custom applications
for specific customers. Monthly service revenue will be associated with airtime
on wireless networks, transactions that pass through our Viaduct and customer
service.
Since our inception, we have been engaged primarily in product research and
development and developing markets for products and services. We have incurred
significant operating losses as a result of these start-up activities. However,
we began offering some of these products and services in late 1999.
RESULTS OF OPERATIONS
Our historical financial statements include our results of operations from
September 1, 1998 and the results of operations of Silverlake from the date of
its acquisition, December 9, 1998. The assets and liabilities of PageNet
transferred to us have been accounted for on the basis of their historical cost.
Since our historical financial statements reflect our results of operations,
financial condition and cash flows as a component of PageNet, they may not be
indicative of our results of operations and financial position as an independent
company. As a result of our relationship with PageNet and its affiliates, we
have extensive related party transactions. These transactions have been
recognized on a basis determined by PageNet and Vast, which may not be
representative of the terms we could have negotiated with third parties.
Management believes the historical financial results include a reasonable
allocation of research and overhead costs incurred by PageNet on our behalf.
However, these amounts may not be indicative of the costs we would incur if
these services were performed by us or obtained from an independent third party.
Because of our limited operating history, comparisons with prior periods
are not meaningful.
Revenues. Total revenues were $90,035 for the four months ended December
31, 1998 and $1,113,847 for the year ended December 31, 1999. Revenues consisted
primarily of the sale of Silverlake products.
Costs of revenues. Costs of revenues generally consisted of packaging,
material and other costs associated with our software products and amortization
of acquired developed technology which had been capitalized as a result of the
Silverlake acquisition. Costs of revenues were $23,963 for the four months ended
December 31, 1998 and $1,307,229 for the year ended December 31, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses primarily consist of personnel costs associated with
selling, marketing, general management and software management, as well as fees
for professional services and other related costs. Selling, general and
A-16
<PAGE> 308
administrative expenses were $2,204,673 for the four months ended December 31,
1998 and $15,777,021 for the year ended December 31, 1999. Selling, general and
administrative expenses consisted primarily of salaries and benefits for our
direct sales force, our customer service and distribution personnel, and our
non-research and development technical and corporate staff. Salaries and
benefits for our corporate personnel, which include our executive officers, and
our business development, financial planning and human resources staff, also are
included. Other items included are professional fees, rent, travel, marketing
and trade shows.
Research and development expenses. Research and development expenses
consist primarily of compensation and related costs from our technical area, for
both employees and outside consultants engaged in research and development
activities and, to a lesser extent, costs of materials relating to these
activities. We expense research and development costs as they are incurred.
Research and development costs were $340,013 for the four months ended December
31, 1998 and $3,295,479 for the year ended December 31, 1999.
Allocated research and overhead expenses. PageNet allocated expenses of
$1,442,000 and $13,613,000 to us during the four months ended December 31, 1998
and the year ended December 31, 1999, respectively, for information technology
support, management services, accounting, marketing, customer service and order
fulfillment. Amounts allocated to us for information technology support were
$115,000 for the four months ended December 31, 1998 and $6,319,000 for the year
ended December 31, 1999, and included services such as research and development
activities, maintenance of the Viaduct and other technology used by us, and
other technology support services. Amounts allocated to us for accounting
services were $184,000 for the four months and $4,040,000 for the year ended
December 31, 1999. Amounts allocated to us for management services were
$1,071,000 for the four months ended December 31, 1998 and $1,510,000 for the
year ended December 31, 1999, and include charges for executive functions, human
resources, legal services, purchasing, treasury and other administrative
functions. We were also allocated expenses of $27,000 for the four months ended
December 31, 1998 and $656,000 for the year ended December 31, 1999 for
marketing. We were also allocated $45,000 for the four months ended December 31,
1998 and $516,000 for the year ended December 31, 1999 for the customer call
center. We were also allocated $572,000 for the year ended December 31, 1999 for
expenses relating to order fulfillment. These allocations are generally based on
employee headcount or estimated usage of the services provided by PageNet. We
believe the expenses we have recognized for the research and overhead services
performed for us by PageNet are a reasonable allocation of the costs incurred by
PageNet on our behalf. However, these amounts may not be indicative of the costs
we would incur if we performed these services or obtained them from an
independent third party.
Purchased in-process research and development. In connection with the
acquisition of Silverlake, we recorded a charge of $152,500 during the four
months ended December 31, 1998 for research and development activities in
process at the date of the acquisition. We used an independent third-party
appraiser to assess and value the in-process research and development. The
amount of the Silverlake purchase price allocated to in-process research and
development represents the estimated fair value, based on risk-adjusted cash
flows, of the one in-process research project that had not yet reached
technological feasibility and for which no alternative future use existed at the
date of the acquisition. The value assigned to the purchased in-process research
and development was determined by estimating the costs to develop Silverlake's
purchased in-process research and development into a commercially viable
product, estimating the resulting net cash flows from the project and
discounting the net cash flows to their present value. At the acquisition date,
the one in-process research and development project underway was approximately
60% complete, and total continuing costs to complete the project were expected
to be approximately $45,000. The project was successfully completed during 1999.
The rate utilized to discount the net cash flows to their present value was
based on Silverlake's weighted average cost of capital. However, given the
nature of the risks associated with the estimated growth, profitability and
developmental projects, Silverlake's weighted average cost of capital was
adjusted. The discount rate we utilized of 23% was intended to be commensurate
with Silverlake's corporate maturity and the uncertainties in the economic
estimates described above. The revenue estimates used to value the in-process
research and development
A-17
<PAGE> 309
were based on estimates of relevant market sizes and growth factors, expected
trends in technology and the nature and expected timing of new product
introductions. The estimates we used in valuing in-process research and
development were based upon assumptions we believe to be reasonable but which
are inherently uncertain and unpredictable. However, our assumptions may be
incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur.
Other income and expense. Other income and expense consists primarily of
interest expense on amounts due to PageNet. Interest expense on amounts due
PageNet was $90,621 for the four months ended December 31, 1998 and $2,006,394
for the year ended December 31, 1999. Since our inception, PageNet has funded
the majority of our disbursements, transferred assets used in our business to
us, funded the acquisition of Silverlake, and performed various administrative
services for us. To the extent that PageNet has provided funds, paid expenses
and performed services on our behalf, we have been charged interest at the rate
PageNet pays under its domestic credit facility. The weighted average interest
rate on the amounts due PageNet, which is reset monthly, was 7.59% and 7.60%
during the four months ended December 31, 1998, and the year ended December 31,
1999, respectively. This arrangement resulted in interest expense that may not
be representative of what we would have paid if we were not affiliated with
PageNet.
LIQUIDITY AND CAPITAL RESOURCES
In order to fund our operations after the Vast distribution, we are
currently in discussions with third parties regarding a potential private equity
investment in Vast. It is anticipated that the financing will close
simultaneously with the closing of the Arch merger and the Vast distribution.
The expected equity investment will dilute the ownership interests in Vast that
will be exchanged for the outstanding notes of PageNet, distributed to PageNet's
equity holders and retained by the combined company. It is not possible to
determine the specific amount of dilution until the terms of the transaction
have been agreed to with the potential third-party investors. We anticipate that
third parties will become owners of more than 5% of our stock as a result of the
private equity transaction. However it is not possible to determine the
resulting ownership positions until the terms of the transaction have been
agreed upon with the potential third party investors.
There can be no assurance that we will be successful in completing this
financing. If we are unable to raise sufficient funds through a private equity
transaction, we will not have sufficient liquidity to meet our obligations and
may be forced to reduce our operations.
As of May 5, 2000, we had approximately $6.5 million in cash, which we
believe is sufficient to meet our obligations through the second quarter of
2000. However, we may not have sufficient liquidity to meet our obligations
through the third quarter of 2000. Historically, our funding has been provided
by PageNet. PageNet is currently prohibited from advancing additional funds to
us under the terms of its credit agreement. However, PageNet is currently
negotiating with its bank group for relief from this restriction so that it can
provide additional funding to Vast should it be required prior to the date of
the Vast distribution. Any such funding is likely to be required to be repaid
with proceeds of the private equity investment discussed above prior to the Vast
distribution. While PageNet management believes that it is likely that they will
receive permission to fund Vast in this manner, there can be no assurances that
it will be successful in obtaining that permission from its bank group. PageNet
is also currently exploring strategic and financing alternatives to ensure its
continued liquidity through the consummation of the Arch merger. If PageNet's
efforts are unsuccessful or are delayed, or if its proposed merger with Arch is
not completed, PageNet may be required to reduce the level of its operations
and/or file for protection under Chapter 11 of the United States Bankruptcy Code
to restructure its obligations. These events could preclude any further
investments in Vast by PageNet and negatively impact our operations. The
possibility of the occurrence of these events also makes it more difficult for
us to obtain separate debt or equity financing prior to the Vast distribution.
A-18
<PAGE> 310
Since our inception, PageNet has funded our operations. Net cash used in
operating activities was $4,040,335 for the four months ended December 31, 1998
and $32,507,454 for the year ended December 31, 1999. The principal use of cash
in operating activities for both periods was to fund our losses from operations.
Net cash used in investing activities was $2,419,179 for the four months ended
December 31, 1998 and $2,009,167 for the year ended December 31, 1999. Cash used
in investing activities for the four months ended December 31, 1998 was
primarily for the purchase of Silverlake and includes the cash portion of the
purchase price along with the reimbursement to PageNet of the value of the
PageNet common stock issued in connection with the acquisition. Cash used in
investing activities for both periods also includes the acquisition of property
and equipment to support the expansion of our operations. As of December 31,
1999, we owed PageNet $20,293,586 for funds provided, expenses paid and services
performed by PageNet on our behalf.
On September 30, 1999, we borrowed $30.0 million from PageNet under a
promissory note agreement. The PageNet note is due on demand by PageNet, has no
stated maturity, and does not bear interest. For financial reporting purposes,
we will recognize interest expense on the PageNet note in subsequent periods
based on the interest rate PageNet pays under its domestic credit facility, with
a corresponding increase to stockholders' equity. As the PageNet note is payable
on demand by PageNet, it has been classified as a current liability in our
December 31, 1999 balance sheet.
In connection with the Vast distribution, we anticipate that PageNet will
forgive all amounts owed by Vast, including the $30.0 million, non-interest
bearing note. However, the forgiveness of the amounts we owe PageNet is subject
to the approval of PageNet's lenders under its domestic credit facility. If
PageNet does not forgive these amounts, we will not be able to repay them unless
we obtain other sources of financing. Forgiveness of this intercompany
indebtedness is required under the merger agreement between PageNet and Arch and
is a condition to the consummation of the Vast distribution.
Successful implementation of our growth strategy will likely require access
to additional capital in the future. We currently have no credit facilities or
sources of additional capital in place other than our relationship with PageNet.
Since we do not anticipate any additional funding from PageNet or Arch following
their merger, we will likely seek additional debt and/or equity financings to
fund our future operations and growth strategy. Our ability to continue our
current operations and to grow our business could be limited unless we are able
to obtain additional capital through future debt or equity financings.
INFLATION
We do not believe that the relatively moderate rates of inflation over the
past two years have had a significant effect on our revenues or our financial
results.
A-19
<PAGE> 311
BUSINESS
OVERVIEW
We offer comprehensive end-to-end wireless data solutions that connect
corporate mobile users with the Internet or corporate data networks using
wireless devices. Our initial focus is on large businesses with mobile
workforces. Our proprietary Viaduct software technology provides us with a
platform for building wireless applications that facilitate data access via any
data-capable wireless device. In addition, we can host, deploy, operate and
support our wireless solution for our customers, allowing them to outsource
their wireless data operations and provide their mobile users with continuous
connectivity to enterprise applications. We are an active member of the Wireless
Application Protocol, or WAP, Forum and intend to support new technologies and
applications based on emerging standards that support wireless communications.
WIRELESS DATA MARKET
Emergence of Wireless Data Market.
As businesses and individuals have become increasingly dependent on e-mail,
Internet-based services and corporate data networks, demand for wireless access
to these resources has increased dramatically. According to Cahners In-Stat
Group, the number of wireless data subscribers in the United States alone will
grow from 1.7 million subscribers in 1999 to 23.9 million subscribers in 2003.
We believe that five factors are driving the development of the wireless data
market:
Growth of the Internet and Corporate Data Networks. The Internet and
corporate data networks are emerging as mission critical business tools that
allow users to communicate and conduct transactions electronically over
distributed geographic areas. Investments in corporate data networks are growing
as businesses equip their employees with tools and information designed to
increase their productivity. As a result, the volume of information being
exchanged is growing significantly. For example, according to International Data
Corporation, or IDC, worldwide e-mail messages sent per day are expected to grow
from approximately 3 billion in 1998 to 26 billion in 2005.
Emergence of Mobile Workforce and Increased Personal Mobility. We believe
that workers and consumers are growing increasingly dependent upon critical
business information and enterprise applications that deliver this information.
In most cases, users of corporate data networks are limited to wired
connections. We believe increasing reliance on the exchange and availability of
critical information will drive businesses to seek out and implement wireless
access solutions.
Proliferation of Wireless Devices. There is an increasing number of
wireless devices capable of sending and receiving data, many of which are being
rapidly adopted by businesses. Some of these devices, including personal digital
assistants, pagers and mobile phones, are now wireless-data enabled, are smaller
and less expensive, and have longer battery life and more features than earlier
devices.
Build-Out of Wireless Data Networks. Anticipating the accelerated adoption
of mobile Internet devices, digital wireless carriers worldwide are in the
process of upgrading their networks to support the transmission of increased
volumes of data. These carriers are also expanding the geographic coverage of
their networks. Several major wireless carriers have recently launched or
announced the availability of data service in addition to their existing voice
service capabilities. The availability of these networks is a pre-requisite to
providing widespread, reliable wireless data services.
Development of WAP Standard. Wireless application protocol, or WAP, is an
open standard that provides a common platform for delivering Internet content to
wireless devices. WAP is an application environment and a set of communication
protocols for wireless devices designed to provide access to the Internet
without regard to manufacturer, vendor or technology. In 1998, the WAP Forum
published the wireless markup language, or WML, which allows a text version of a
specially formatted Web page to be displayed on wireless devices. In the same
manner that the programming language hypertext markup language, or HTML, has
provided an open standard that has fostered development of Internet applications
A-20
<PAGE> 312
and content for personal computers, WML is designed to be an industry standard
that will encourage the development of Internet applications and content for
wireless devices.
Challenges to Creating and Implementing an Effective Inhouse Wireless Data
Service.
As wireless data has become an important method of business communication,
corporations, enterprise software providers and telecommunications carriers have
been challenged to keep up with the rapid pace of change in technology and
standards. Businesses seeking to implement internal wireless data solutions will
face four primary challenges: disparate and complex networks and devices,
different communication protocols and data standards, capacity limitations and
complex operational issues.
Disparate and Complex Networks and Devices. Many wireless network
technologies exist today and new technologies are continually being developed.
Businesses need to have the ability to run their applications in a secure manner
across disparate networks and on multiple user devices. Today, there are many
competing networks and technologies with a range of capabilities, each able to
support digital wireless data transmission. These networks include: Reflex,
offered by PageNet, WebLink Wireless, Inc. and MCI WorldCom; MobiTex, offered by
BellSouth; digital PCS, offered by the nationwide voice carriers; and cellular
digital packet data, or CDPD, offered by the major analog cellular carriers.
Different Communication Protocols and Data Standards. Each network
technology has its own communication protocol and other unique characteristics.
In addition, each network technology supports different user devices. Despite
the emergence of WAP, the number of different languages and protocols for
expressing and transmitting data, such as HTML, WML and handheld device markup
language, or HDML, as well as hypertext transfer protocol, or HTTP, remain a
challenge to creating effective wireless data services. In addition, current WAP
standards are not dynamic and comprehensive enough to support many wireless data
applications. This environment of multiple languages and emerging protocols
presents major challenges for organizations seeking to implement a robust
wireless data solution. For example, supporting multiple data languages can add
significant data overhead and translating from one language to another or
switching from one protocol to another can add significant airtime expense.
Capacity Limitations. Currently, the speed and bandwidth of a wireless
network are only a fraction of that of a wired network. We expect wireless
networks to continue to lag behind wired networks in terms of speed and
bandwidth for the foreseeable future. We believe that the demands placed on
wireless networks for improved speed and performance will continue to outpace
the ability of wireless network providers to add capacity. Wireless data
solutions will need to be bandwidth efficient to provide useful and powerful
applications.
Complex Operational Issues. The implementation of a wireless network and
the delivery of wireless data present businesses with a wide range of
operational issues, including provisioning of devices, customer service and
integrated billing. Many corporations and enterprise application providers lack
the engineering talent and overall resources necessary to design, develop,
implement and manage wireless access solutions.
VAST'S WIRELESS SOLUTIONS
We offer comprehensive end-to-end wireless data solutions that connect
corporate mobile users with the Internet or corporate data networks using
wireless devices. We enable large businesses to extend their business critical
enterprise applications to the wireless devices of their mobile users. We work
closely with our customers to develop mobile applications that are tightly
integrated with their internal business systems. Our technology and services
provide the following key benefits:
Extending Enterprise Applications.
We enable our customers to extend the functionality of their mission
critical enterprise applications to wireless devices. Early partners like
Computer Associates International, Inc. and Siebel Systems, Inc. and our first
customers, New York Life Insurance Company and the Chicago Board of Trade, have
demonstrated the value of coupling leading enterprise applications with our
wireless technology. Through
A-21
<PAGE> 313
our Volley technology, we can connect to our customers' enterprise systems to
create wireless applications that extend interaction to their mobile users. The
ability to wirelessly connect to enterprise applications running on a corporate
network provides the mobile workforces of our customers with relevant,
up-to-date information whenever and wherever they need it, which is a key
competitive advantage for companies with large and dispersed professional
workforces.
Wireless Internet Access.
Through our ContentLink products and related services, we can help our
customers develop and deliver "private-labeled" wireless information portals
that allow their end-users to access Internet information and services from
wireless devices. We can provide integrated e-mail capabilities. We can also
create private-labeled Web environments that both preserve the "look and feel"
of our customers' brands and support the configuration of the wireless services
for end-users.
Leading Edge Technology.
We can provide our customers with access to our leading edge wireless
technologies. Viaduct, our software platform for building effective wireless
applications, manages the connections between wireless networks and devices,
providing a single, standard interface to the corporate enterprise. Our software
technology adapts and translates data transmissions for many wireless network
protocols, formats the transmissions for effective user presentation on a
particular user device and optimizes the data in a bandwidth efficient manner
for transmission over a wireless network. In doing so, Viaduct significantly
speeds time-to-solution for our customers, enhances an application's wireless
performance and reduces the airtime expense associated with operating a wireless
access solution. As WAP becomes the standard for interfacing with wireless
devices, we believe that WAP-based applications and information delivery will
become critical to the success of carriers, e-commerce companies and device
manufacturers. We are developing WAP-based applications to provide additional
and flexible solutions for our customers.
Complete, Outsourced Wireless Solution.
We can eliminate the need for our customers and partners to establish and
maintain a core competency in wireless systems by deploying new wireless
technologies, combating system failures and maintaining network and system
security. We will evaluate, test and implement the leading features of wireless
networks to maintain a leading edge wireless data solution. We maintain a mobile
data operations center that provides us with a secure, high availability
environment ready to host most wireless applications. In addition, we offer a
Web-based support system that includes credit card billing, e-mail customer
support, online training and software downloads for our customers. We can also
provide our customers with a privately branded Web portal that allows users to
order wireless devices and contact customer support over the Internet.
Faster Time to Solution.
We believe our customers benefit by our ability to rapidly implement and
deploy wireless data solutions by leveraging our technology, infrastructure and
expertise. Viaduct provides us with a "tool kit" that solves many of the common
challenges of building a wireless application. Viaduct provides developed and
tested software modules to handle the rendering of an application's output for
multiple wireless devices based on a user profile, thereby avoiding the need to
re-create this project each time. Our Volley enterprise software adapters bring
developed and tested interfaces to complex software systems like Siebel's
applications and Computer Associates' Unicenter. Our ContentLink products will
enable us to provide Internet information content for customers.
Lower Total Cost of Ownership.
Our customers do not need to lease, buy or continually upgrade existing
hardware and software or recruit and retain wireless systems engineers and
administrative personnel for their wireless data services.
A-22
<PAGE> 314
Our service is designed to reduce a customer's administrative burden by
eliminating the cycle of purchasing, installing, testing, debugging and
deploying a wireless data system. Our mobile data operations center, which
consists of network servers running our software, is maintained at a secure
facility, not at customers' facilities, and we employ systems administrators to
monitor the service 24 hours a day, seven days a week. Because we are able to
host this service, we believe that we can provide customers an additional cost
savings over inhouse solutions through economies of scale.
Scalability and Flexibility.
Viaduct has been designed to be an open, extensible architecture, allowing
our customers to protect their investments by allowing adoption of new versions
of both applications and wireless standards. For example, Viaduct is ideal for
those customers who need to deploy a working solution today, but who also want
to be able to take advantage of the emerging WAP standard as devices that
support it become prevalent. Viaduct has been designed to allow applications to
scale as our customers' businesses grow. It has been built on the TIBCO
Rendezvous platform, the same robust, scalable platform used by the Nasdaq Stock
Market to handle the trading of billions of shares a day. And when hosted at our
mobile data operations center, Viaduct supports the addition of servers and
bandwidth to handle growing traffic loads.
STRATEGY
Our objective is to be a leading provider of wireless applications and
solutions that connect corporate mobile users to the Internet or corporate data
networks using wireless devices. The key elements of our strategy are to:
Develop New Software Technology, Products and Services To Support Future
Growth.
We plan to develop technology, services and products that will open new
market opportunities. Most of these efforts will center on our commitment to the
WAP standard. Some examples of new software technology and product development
currently underway are:
- Software tools to enable instant send and receive paging. We are
currently developing software tools to enable instant send-and-receive
paging for WAP-enabled devices. We plan to license these products to
carriers supporting WAP environments and to companies building WAP
applications. Our products are being developed to work with the current
generation of WAP software and should result in a more complete solution
for those building WAP applications that require (a) time critical
delivery of data to the wireless user, (b) confirmed delivery of critical
information to a mobile user, or (c) a two-way response from the wireless
device.
- Wireless Portals. We plan to work with major Internet portals to extend
their Internet portal technology to wireless users. As part of this
project, we are creating a number of tools and Web portal extensions that
create wireless products for their users. In the future, visitors to
their Internet portal will be able to request that specific information
from the portal be made available to them at their wireless device. We
anticipate both subscriber fee and transaction revenue sharing
opportunities from this development work.
- In-Vehicle Personal Computers. We are working with one of the world's
largest automotive electronics companies to wirelessly enable leading
edge, in-vehicle personal computers. We are providing Web-based e-mail,
user content, such as weather, traffic conditions and travel assistance,
and a bandwidth efficient wireless interface to each vehicle equipped
with an in-vehicle personal computer. This company is also relying on us
for significant back office functions, including billing of their
customers and customer care. We expect our relationship with this vendor
will expand to include us as an aftermarket systems integrator for
commercial fleet management companies that want to utilize the in-vehicle
personal computers in their vehicles. The product, co-developed by us and
this automotive electronics firm, debuted at the Consumer Electronics
Show in Las Vegas in January of this year. Release of the product is
expected later this year. We are in discussions with
A-23
<PAGE> 315
several other major vendors of in-vehicle personal computers at this time
and we expect to focus on this as a vertical market for our products and
services,
- Corporate E-mail. We are currently working on a suite of e-mail
functionalities that will include both Web-based e-mail capability and
secure, corporate e-mail capability with encrypted access to corporate
Microsoft Exchange and Lotus Note Mail servers. Advanced features and
functionality includes selective filtering, rerouting of messages when
coverage is not available, and consolidation of multiple mailboxes.
Generate Near Term Revenues from Early Custom Projects.
We have produced a number of software technologies and products that are
currently in their final stages of testing prior to general release. In
addition, some custom development work done for specific companies is
approaching its deployment stage. We plan to leverage these existing
technologies and products into additional revenue opportunities to drive our
growth in 2000.
Expand Our Direct Sales Channel and Marketing Activities.
We are investing in the expansion of our direct sales organization to
improve our ability to take our products and services directly to market. This
expanded capability will enable us to establish a presence with major U.S. users
of wireless technology and to sell not only today's products and services, but
also our new products and services as they become available. As this capability
matures, our ability to drive revenue growth should improve. We plan to begin
using a variety of traditional marketing approaches to create awareness of Vast
and generate new business leads. We intend to actively participate in trade
shows, deploy cost-effective Web marketing, and advertise to gain visibility and
generate sales leads.
Continue to Develop Strategic Relationships.
We intend to expand the marketing and distribution of our products and
services by leveraging strategic relationships with key enterprise software
providers, e-commerce companies, carriers and device manufacturers. We will
continue to leverage our existing strategic relationships with Siebel and
Computer Associates, and will add other relationships that support our strategy.
Our relationships with leading enterprise application providers will allow us to
leverage their sales forces and installed bases of customers to identify
prospects and market a targeted wireless solution. Other strategic relationships
will be chosen to speed our time to market, enhance our positioning and further
improve the acceptance of our products and services in the marketplace.
PRODUCTS, SERVICES AND TECHNOLOGY
Core Technology and Architecture -- Viaduct.
Viaduct is the software architecture and technology that is the foundation
of most of our wireless data solutions. Viaduct addresses many of the challenges
of building robust, scalable wireless applications in a way that protects
against the impact of technological change. Viaduct manages wireless network and
device dependencies, providing a single, standard interface. Viaduct is a "tool
kit" that provides software modules that solve many of the common problems of
creating wireless applications. Among the functions performed by Viaduct are:
- Interfaces to multiple external wireless and wired networks;
- Protocol support for most of the commonly used standards, such as WAP and
HTTP;
- Subscriber profiles and management;
- Security services;
- Carrier management and billing;
- Device traffic management, such as message transformation services and
multiple device rendering;
A-24
<PAGE> 316
- Message services, such as text-to-voice; and
- Wireless desktop services, such as e-mail.
Viaduct has several underlying characteristics that differentiate it from
other software architectures and technologies:
- Open architecture. Viaduct is based on industry and de facto standards.
It also includes a suite of tools that allows users to rapidly create new
services, applications and Web interfaces that build on Viaduct
capabilities.
- Scalability. Viaduct is built on TIBCO's message broker and publish and
subscribe engine, a software engine tailored to process and distribute a
very high volume of transactions between applications.
- Flexibility. Viaduct is built to accommodate new technologies and devices
as they become available. We expect this feature to enable our customers
to take advantage of technological advancements with minimal impact on
their development costs.
- Integrated solution. The modules within Viaduct work together easily with
customer written software modules to provide an integrated solution. The
architecture of the solution makes it easy to create adapters that
interface one application module with another and provide a common
communications message format. Based on the TIBCO software, Viaduct
provides an "applications bus" that can link together many components of
a solution in a robust, highly scalable fashion.
Elements of a Wireless Solution.
[GRAPHIC IMAGE]
Mobile Resource Management Products.
Our mobile resource management products are software technologies that
facilitate building wireless applications that integrate mobile resources,
including people, processes and assets, with corporate data
A-25
<PAGE> 317
networks. These applications include wireless user interaction with enterprise
software packages and support for the tracking and monitoring of mobile
resources and processes. These technologies are:
Volley. Volley is software technology that we developed to facilitate the
interface between enterprise software packages and wireless devices. The Volley
technology consists of two major components:
- Enterprise Application Adapter: This is software that resides on the
Viaduct server that understands how to interface with an enterprise
software application's database and does so in a way that is secure and
auditable. The Enterprise Application Adapter processes transaction
requests from the wireless user and performs the appropriate action in
the enterprise application database.
- Enterprise Application Client: This is software that resides on the
wireless device that allows the user to query and update the application
database, receive information and alerts, and respond. Today, for many
devices, the Enterprise Application Client runs directly on each device
and must be customized to support the device's specific characteristics,
like screen size. In the future, devices that support the WAP
micro-browser will eliminate the need for some, although not all, client
programming.
We have created versions of Volley that implement Enterprise Application
Adapters and Enterprise Application Clients for Siebel Sales Enterprise, Siebel
Field Service and Computer Associates' Unicenter enterprise software
applications. The Volley framework can also be used as a toolkit for
implementing solutions for other enterprise software packages or for legacy
applications used by our customers.
TelePath. Our TelePath technology brings together global positioning
response system technology, motion sensing devices and wireless connectivity
with tracking software to create low-cost solutions for monitoring remote
processes and tracking remote assets. Using our technology, our customers are
able to monitor and track machines and equipment that cannot be easily monitored
with a wired connection.
WAP-Enabling Software Products.
Our WAP-enabling software products are tools designed to facilitate the
development of wireless products or services by others. Today, the principal
product in this area is ContentLink. We expect to add other products in this
area in the coming year.
ContentLink. Our ContentLink software products provide tools to help create
and operate WAP-based information delivery portals. While today's solutions
leverage existing wireless data networks and devices, the future will be
predominantly WAP-based. A "WAP portal" will consolidate information from a
variety of standard and corporate resources for easy presentation to the mobile
user. The WAP portal will augment standard Internet portals with
subscriber-specific knowledge that facilitates delivery of information desired
by the mobile users in the format appropriate for their wireless device. We are
working with carriers, e-commerce companies and device manufacturers to help
them develop and deliver wireless information service applications using WAP
protocols. Among the functions addressed by ContentLink are:
- Parsing of Internet content feeds for targeted dissemination to the
wireless user;
- Compression of content and graphics for bandwidth-efficient delivery; and
- Support for location-specific and user-pattern specific wireless
information delivery.
ContentLink and our services can help our customers to provide
"private-labeled" information services that allow users to access Internet
information and services from wireless devices. We create a bandwidth efficient
wireless interface that offers integrated e-mail capabilities and an integrated
private-labeled Web environment that supports user-configuration of the wireless
services.
Advanced Paging Software Products.
Our advanced paging products are packaged software products that, when
bundled with a wireless paging device such as a WAP-enabled Palm personal
digital assistant, RIM 950 or PageWriter 2000,
A-26
<PAGE> 318
provide important message and information delivery to mobile users on an
economical basis. Our paging products include:
AirSource(R). AirSource(R) is our software product that simplifies the
transmission of e-mail messages from a Windows-based personal computer to paging
devices. AirSource is distributed by major paging companies and carriers, such
as AT&T, Sprint Corporation, and Vodafone AirTouch plc.
MarketTrax. MarketTrax is a financial information delivery and management
product, developed in conjunction with the Chicago Board of Trade, that allows
traders to monitor a portfolio of financial instruments, and to receive
real-time data from most exchanges, including the Chicago Board of Trade and the
Chicago Mercantile Exchange. MarketTrax functionality includes alarms to notify
users of significant movement in their portfolios, and performance graphs.
KEY ALLIANCES AND STRATEGIC RELATIONSHIPS
Computer Associates.
We are working with Computer Associates to develop a wireless interface to
their Unicenter systems management software product. This relationship enables
us to offer a remote interface to Unicenter that allows Unicenter users to be
wirelessly notified of a system alert, to take action from a menu of typical
responses, monitor the status of the result, and notify all parties involved of
the outcome. For example, a facility that runs jobs overnight or over weekend
periods in which minimum onsite staff is available, can have off-duty staff
notified of job failure and can often restart the job remotely using wireless
devices. Using our remote systems management product, a version of Volley,
companies that operate large data centers can improve their responsiveness and
customer satisfaction.
Critical Path.
We are working with Critical Path to provide users of Viaduct with easy
access to Web mail from their wireless device. This relationship, together with
our corporate e-mail services, enables us to offer a complete, tightly
integrated wireless e-mail solution for any of our customer solutions.
Siebel Systems.
We are working with Siebel Systems to develop wireless applications for
Siebel's enterprise software solutions. This relationship enables us to provide
a wireless interface to Siebel's Field Service and Sales Force Automation
packages that offers customers the ability to interact with these applications
from their wireless devices. Siebel engineers and our engineers have worked
together to optimize software performance and we have begun to co-market and
co-sell to Siebel's installed base of customers, as well as to new customers.
TIBCO Software.
We have utilized TIBCO's software to develop our Viaduct technology. TIBCO
is the leading software provider for real time, event driven data communication.
Their software is used extensively by the Nasdaq National Market to conduct
billions of transactions. We are also working with TIBCO to bring wireless
capabilities to several customers and prospects. TIBCO's typical customers
purchase its software to integrate the customer's various enterprise systems
together on a real-time basis. For example, a company may use TIBCO to interface
Siebel's sales software with its accounting software.
SALES AND MARKETING
All of our products are marketed through a direct sales force comprised of
12 people located in 5 major business centers in the United States. Our sales
people target major corporate customers, generally the top 1,000 U.S. companies,
as measured by sales, to sell our products and services for their mobile
employees, their remote assets or their customers.
A-27
<PAGE> 319
We identify prospects primarily through cooperative marketing with our
strategic partners. We have also begun independent marketing efforts to increase
the visibility of the Vast name and solution and to generate sales leads within
our targeted markets.
Our advanced paging products are packaged software products that are
marketed directly through Internet-based Web marketing and indirectly through
the sales and marketing organizations of network carriers. In addition, our
direct sales force seeks to include these products in a larger, more
comprehensive solution for direct customers.
CUSTOMER SUPPORT
We maintain a customer support center in Los Angeles, California, that
offers support to match the needs of our customers. We offer customers a number
of support options, including:
- "800" number user support;
- Optional extended hours, 24x7 on-call user support;
- Web-based support tailored to each customer's solution;
- Device provisioning, including device acquisition, software loading and
testing;
- Extended warranty; and
- Software maintenance.
We also provide user training on our standard products and customized
training programs on customer-specific solutions at our facilities in Dallas,
Texas, or onsite at a customer's premises.
COMPETITION
The emerging wireless data market in which we compete is intensely
competitive and is characterized by evolving technology and industry standards.
We compete in this emerging market and it is difficult to assess the full extent
of our competition. There are many small companies that are building
capabilities to deliver wireless data services, as well as many larger ones that
are increasingly focused on this market. In many cases, we will have
opportunities to partner with some of these companies and in others we will be
direct competitors.
We assess potential competitors based primarily on their management,
functionality, and range of services, the security and scalability of their
architecture, and their customer base, geographic focus and capitalization.
We believe that our competitors and potential competitors fall into three
general categories:
- Wireless data services providers and software companies such as Wireless
Knowledge, a joint venture between Microsoft Corporation and QUALCOMM
Incorporated, Aether Systems, Inc., Go America, Inc., InfoSpace.com,
Inc., Phone.com, Inc., AvantGo, Inc., Nettech Systems Inc., Dynamic
Mobile Data, Mobimagic Co., a newly formed joint venture between
Microsoft and NTT Mobile Communications Network, Inc., Spyglass, Inc. and
724 Solutions Inc.
- Traditional Systems Integrators such as Andersen Consulting LLP,
Electronic Data Systems Corp. and Cablevision Systems Corporation.
- Wireless network carriers, such as AT&T Wireless Group, Cellco
Partnership d/b/a Bell Atlantic Mobile, Sprint PCS Group, Nextel
Communications, Inc., Vodafone AirTouch, Omnipoint Corporation, Metricom,
Inc., BellSouth, MCI Worldcom and WebLink Wireless.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we do. Many of
these companies have greater name recognition
A-28
<PAGE> 320
and more established relationships with our target customers. Furthermore, these
competitors may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can.
INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of copyright, trademark, service mark, trade
secret laws and contractual restrictions to establish and protect the
proprietary rights in our services. PageNet holds a preliminary patent
application on the architecture for message processing and routing used in our
Viaduct technology. PageNet has agreed to transfer this patent application to us
at the closing of the Arch merger, subject to the approval of PageNet's lenders
under its domestic credit facility. Such approvals have not yet been obtained
and there can be no assurance that they will be obtained. In addition, we may
need the consent of the bankruptcy court to legally transfer this patent
application.
We own one federal trademark, Airsource(R), and have applications for
federal registration in several other trademarks.
We rely on technologies that we license from third parties, including
Viaduct software currently licensed by PageNet from TIBCO, as well as
third-party software contained in administrative systems operated by PageNet.
TIBCO has agreed in principle to the assignment of a portion of PageNet's
license to us. We will also rely on data feeds and related software from Reuters
and other information content aggregators. Other third-party technology licenses
may not continue to be available to us on commercially attractive terms. The
loss of the ability to use such technology could require us to obtain the rights
to use substitute technology, which could be more expensive or offer lower
quality or performance, and therefore have a material adverse effect on our
business, financial condition or results of operations.
Third parties could claim infringement by us with respect to current or
future services. We expect that participants in our markets will be increasingly
subject to infringement claims as the number of services and competitors in our
industry segment grows. Any such claim, whether meritorious or not, could be
time consuming, result in costly litigation, cause service installation delays
or require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business, financial condition or results of operations.
GOVERNMENTAL REGULATION
We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. The
wireless network carriers we contract with to provide airtime are subject to
regulation by the Federal Communications Commission. Changes in Federal
Communications Commission regulations could affect the availability of wireless
coverage these carriers are willing or able to sell to us. We could also be
adversely affected by developments in regulations that govern or may in the
future govern the Internet, the allocation of radio frequencies or the placement
of cellular towers. Also, changes in these regulations could create uncertainty
in the marketplace that could reduce demand for our services or increase the
cost of doing business as a result of costs of litigation or increased service
delivery cost or could in some other manner have a material adverse effect on
our business, financial condition or results of operations.
We currently do not collect sales or other taxes with respect to the sales
of services or products in states and countries where we believe we are not
required to do so. We do collect sales and other taxes in the states where we
have offices and believe we are required by law to do so. One or more
jurisdictions have sought to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more jurisdictions that we should collect sales or other
taxes on our products and services, or remit payment of sales or other taxes for
prior periods, could have a material adverse effect on our business, financial
condition or results of operations.
Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to our
business, could have an adverse effect on our business.
A-29
<PAGE> 321
FACILITIES
Our principal offices cover 24,606 square feet in an office complex located
in Addison, Texas. Under the current lease, which commenced on May 10, 1999 and
expires on May 31, 2004, we pay an annual base rent of $516,726. We have the
right to extend the term of the lease for up to an additional 60 months. We have
the right of first refusal on additional space in the building. Although this
facility is adequate for our current needs, we expect that we will need
additional space in the future.
In addition to our offices in Addison, we rent office space in the Los
Angeles area. Our current office is 11,381 square feet. We pay an annual base
rent of $261,926 and the lease will expire in March 2007.
EMPLOYEES
As of May 4, 2000, our workforce was comprised of 86 full-time employees.
We also utilize the services of 23 independent contractors through relationships
with various third parties. None of our employees are covered by a collective
bargaining agreement. We believe that our relations with our employees are good.
LEGAL PROCEEDINGS
We are not currently subject to any legal proceedings.
A-30
<PAGE> 322
MANAGEMENT
EXECUTIVE OFFICERS AND SOLE DIRECTOR
The following table describes our executive officers and our current sole
director. We will add additional members to our board of directors before
completion of the Arch merger, some of whom may be members of PageNet's existing
board of directors. Although Vast was incorporated in Delaware in December 1999,
our operations continue the activities of PageNet's wireless solutions division
and the relevant experience of many of our executive officers includes the
management of those operations.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John P. Frazee, Jr. ...................... 55 Chairman of the Board and Chief Executive Officer
Mark A. Knickrehm......................... 37 President and Chief Operating Officer
Julian B. Castelli........................ 32 Acting Chief Financial Officer
Steve Leggett............................. 51 Senior Vice President-Sales
Christopher C. Sanders.................... 47 Senior Vice President-Marketing
William G. Scott.......................... 43 Chief Technology Officer
</TABLE>
John P. Frazee, Jr., has been our Chairman of the Board and Chief Executive
Officer since December 1999. He has been a Director of PageNet since 1995 and
has served as Chairman of the Board of Directors and Chief Executive Officer of
PageNet since June 1999. From August 1997 through June 1999, Mr. Frazee served
as Chairman of the Board, President and Chief Executive Officer of PageNet. Mr.
Frazee was a private investor from August 1993 to August 1997 and served as
President and Chief Operating Officer of Sprint Corporation from March 1993 to
August 1993. Prior to that time, Mr. Frazee had been Chairman and Chief
Executive Officer of Centel Corporation, a telecommunications company, from
April 1988 to January 1993. Mr. Frazee also serves as a director of Security
Capital Group, Inc., Dean Foods Company, Homestead Village Incorporated and
Cabot Microelectronics, Inc.
Mark A. Knickrehm has been our President and Chief Operating Officer since
December 1999 and served in a similar capacity for the wireless solutions
operations of PageNet from June 1999 through December 1999. He served as
Executive Vice President and Chief Financial Officer for PageNet from February
1998 through June 1999. Prior to that time, Mr. Knickrehm was employed by
McKinsey & Company, an international consulting firm, from 1989 to February
1998, serving as a Partner since 1995.
Julian B. Castelli has been our acting Chief Financial Officer since
December 1999. He has served as Senior Vice President and Chief Financial
Officer of PageNet since June 1999. Mr. Castelli served as Vice President and
Treasurer of PageNet from July 1998 to June 1999. Prior to joining PageNet, Mr.
Castelli was employed by McKinsey & Company, an international consulting firm,
from August 1995 to July 1998, serving as Engagement Manager from June 1997. Mr.
Castelli served in the Corporate Finance Department of Goldman, Sachs & Co. as
an analyst from 1990 to 1993.
Steve Leggett has been our Senior Vice President-Sales since December 1999
and served in a similar capacity for the wireless solutions operations of
PageNet from September 1999 through December 1999. From January 1995 to July
1999, he served in various sales positions with Platinum Technology, Inc., a
software consulting firm, serving most recently as Senior Vice President,
Northeast Region. Prior to that time, Mr. Leggett was Executive Vice President
of Marketing and Sales for the Meta Group, an information technology analytical
and consulting firm.
Christopher C. Sanders has been our Senior Vice President-Marketing since
December 1999. From January 1999 to December 1999, Mr. Sanders served as a
Principal of Neteligence, an Internet-related consulting firm. From September
1997 to January 1999, he served as Senior Vice President of Merant, Inc.,
formerly known as Micro Focus, Inc., a software vendor of enterprise
applications. From 1995 to September 1997, he served as Vice President of
Platinum Technology, Inc., a software vendor. Prior to that, Mr. Sanders served
as Vice President and General Manager of Locus Computing Corporation, a software
developer.
A-31
<PAGE> 323
William G. Scott has been our Chief Technology Officer since December 1999
and served in a similar capacity for the wireless solutions operations of
PageNet from June 1999 through December 1999. He served as Senior Vice
President-Systems and Technology for PageNet from February 1997 through June
1999 and as Vice President-Systems and Technology for PageNet from December 1995
to February 1997. Before that, Mr. Scott served as President of Lion Software,
Inc. from 1993 to 1995.
BOARD COMMITTEES
We plan to establish an audit committee and a compensation committee. The
audit committee will review our internal accounting procedures and consider and
report to our board of directors on other auditing and accounting matters,
including the selection of our independent auditors, the scope of annual audits,
fees to be paid to our independent auditors and the performance of our
independent auditors. The audit committee will be composed solely of directors
who are not our employees or affiliated with our management. The compensation
committee will review and recommend to our board of directors the salaries,
benefits and stock option grants of all employees, consultants, directors and
other individuals we compensate. The compensation committee will also administer
our stock option and other employee benefits plans. Our board of directors may
from time to time establish other committees.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to our Chief Executive
Officer and other executive officers whose total annual salary and bonus during
the period they were dedicated to the activities of Vast or PageNet's wireless
solutions division exceeded $100,000 for the fiscal year ended December 31,
1999. These persons are referred to in this prospectus as the named executive
officers.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
NAME AND ---------------------
PRINCIPAL OTHER ANNUAL SECURITIES UNDERLYING
POSITION SALARY BONUS COMPENSATION (5)($) OPTIONS (#)
--------- -------- ------- ------------------- ---------------------
<S> <C> <C> <C> <C>
John P. Frazee, Jr. (1)............... -- -- -- --
Chairman and Chief
Executive Officer
Mark A. Knickrehm (2)................. $164,423 -- $2,169 --
President and Chief
Operating Officer
Scott D. Grimes (3)................... 199,680 -- 5,316(6) 30,000(8)
Senior Vice President-
Business Development
William G. Scott (4).................. 112,500 -- 2,776(7) --
Chief Technology Officer
</TABLE>
- ---------------
(1) Mr. Frazee, who serves as Chairman and Chief Executive Officer of PageNet,
did not receive any compensation on account of serving as Chairman and Chief
Executive Officer of Vast, positions he was elected to hold in December
1999.
(2) Represents compensation from June 1999. This amount is included in, and is
not in addition to, the $299,038 disclosed in the PageNet prospectus as
total 1999 salary received by Mr. Knickrehm from PageNet.
(3) Represents compensation from January 1999. Mr. Grimes resigned as Senior
Vice President-Business Development in February 2000.
(4) Represents compensation from June 1999. This amount is included in, and is
not in addition to, the $213,462 disclosed in the PageNet prospectus as
total 1999 salary received by Mr. Scott from PageNet.
(5) Except where noted, represents premiums paid under Executive Long Term
Disability Plan.
A-32
<PAGE> 324
(6) Includes a matching contribution of $5,000 to Mr. Grimes' 401(k) plan.
(7) Includes a matching contribution of $1,714 to Mr. Scott's 401(k) plan.
(8) Options represent options to purchase PageNet common stock.
2000 LONG TERM STOCK INCENTIVE PLAN
Our board of directors has adopted our 2000 Long Term Stock Incentive Plan.
Under our incentive plan, we may grant stock options, stock appreciation rights,
shares of common stock and performance units to our employees and consultants.
The total number of shares of our Class A common stock that we may award under
our incentive plan is 5,000,000 shares, which may be adjusted in some cases. The
shares may be newly issued shares or shares purchased in the open market or in
private transactions. We anticipate granting options to acquire shares of our
Class A common stock only.
Our compensation committee will administer our incentive plan. Prior to the
creation of our compensation committee, our incentive plan will be administered
by PageNet's compensation committee. Our incentive plan essentially gives the
compensation committee sole discretion and authority to:
- select those employees and consultants to whom awards will be made;
- designate the number of shares covered by each award;
- establish vesting schedules and terms of each award;
- specify all other terms of awards; and
- interpret the plan.
Options awarded under our incentive plan may be either incentive stock
options or nonqualified stock options. Incentive stock options are intended to
satisfy the requirements of Section 422 of the Internal Revenue Code, while
nonqualified stock options are not. We may grant stock appreciation rights in
connection with options, or as freestanding awards. If a participant exercises
an option, he or she will surrender the related stock appreciation right. At a
minimum, the exercise price of an option or stock appreciation right must be at
least 100% of the fair market value of a share of Class A common stock on the
date on which we grant the option or stock appreciation right. Options and stock
appreciation rights will be exercisable and will expire in accordance with the
terms set by the compensation committee. Under our incentive plan, all options
and stock appreciation rights must expire within ten years after they are
granted. If a stock appreciation right is issued in connection with an option,
the stock appreciation right will expire when the related option expires.
Special rules and limitations apply to stock options which are intended to be
incentive stock options. Our compensation committee also may impose restrictions
on shares of our common stock that are issued upon the exercise of options and
stock appreciation rights under our incentive plan.
Under our incentive plan, our compensation committee may grant common stock
awards to participants. During the period that a stock award is subject to
restrictions or limitations, the participants may receive dividend rights awards
relating to the shares.
Our compensation committee may award plan participants performance units
which entitle them to receive value for the units at the end of a performance
period, if and to the extent the award so provides. Our compensation committee
will establish the number of units and the performance measures and periods at
the time it makes an award.
All awards under our incentive plan will accelerate and become fully vested
if a change in control, as defined under our incentive plan, of Vast occurs.
On February 16, 2000, our board of directors authorized an initial grant of
options to acquire a total of 1,180,000 shares of our common stock, at an
exercise price of $1.60 per share. Option grants were made to certain of our
named executive officers and 84 other employees. Our board of directors also
agreed to grant additional options to acquire an aggregate total of 320,000
shares of our Class A common stock to
A-33
<PAGE> 325
the same employees on or before the date of an underwritten public offering of
shares of our Class A common stock with an aggregate value of $25 million or
more. All option grants authorized by our board of directors were approved by
PageNet's compensation committee.
Prior to completion of the Arch merger, we may grant additional options to
purchase shares of our Class A common stock to other employees or to the initial
members of the Vast board of directors. These option grants will be reviewed and
authorized by PageNet's compensation committee.
Our incentive plan also contains an optional employee stock purchase plan
component. We do not intend to implement this purchase plan until such time as
our Class A common stock is listed on a securities exchange or quoted on Nasdaq.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
Some of our employees received grants of options to purchase PageNet common
stock during 1999 at a time when they were primarily involved in Vast
activities. The following table summarizes all such option grants to the named
executive officers for the year ended December 31, 1999.
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO PRESENT
UNDERLYING EMPLOYEES VALUE
OPTIONS IN EXERCISE EXPIRATION ON DATE
NAME GRANTED FISCAL YEAR(1) PRICE DATE OF GRANT(2)
---- ---------- -------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Scott D. Grimes......................... 30,000 0.74% $6.125 01/20/09 $142,200
</TABLE>
- ---------------
(1) As a percent of options granted to all PageNet employees in fiscal year.
(2) The determination of the present value of this option to purchase PageNet
common stock on the date of the grant was based on the Black-Scholes pricing
model. The estimated value under the Black-Scholes model was based on
standard assumptions as to variables in the model such as stock price
volatility, projected future dividend yield and interest rates. In addition,
the estimated value was discounted for potential forfeiture due to vesting
schedules. The estimated Black-Scholes value was based on the following key
variables: volatility -- 67.05%; dividend yield -- 0%; risk-free interest
rate -- yield to maturity of 10-year treasury note at grant date -- 4.745%.
A-34
<PAGE> 326
ARRANGEMENTS BETWEEN VAST AND PAGENET
Since our inception, there have been significant transactions between us
and PageNet involving services such as information technology support,
management services, accounting, marketing, customer service and order
fulfillment. See Note 3 to the Notes to Financial Statements. For purposes of
governing the on-going relationships between us and PageNet, we and PageNet have
or will enter into the following agreements.
LICENSE AGREEMENT
On May 11, 2000, we entered into a license agreement with PageNet. Pursuant
to the terms of the license agreement, PageNet granted to us an exclusive,
except as to PageNet, non-transferable license to use all of PageNet's software,
trademarks, tradenames and other intellectual property which is, or may be, used
by us in our business. In addition, PageNet granted to us an exclusive, except
as to PageNet, non-transferable sublicense to use all of the software and
related intellectual property licensed to PageNet by any third party and which
is used by us in our business. The license and sublicense are granted royalty
free for so long as we remain a wholly owned subsidiary of PageNet. The license
agreement will terminate on the earlier to occur of:
- the effective date of fully executed intercompany agreements between
PageNet and us with respect to the intellectual property licensed under
this agreement;
- the close of the Arch merger and the Vast distribution; or
- as to any specific software sublicensed from a third-party provider, our
entering into a new software license agreement with such third-party
provider.
SEPARATION AGREEMENT
On or prior to the Arch merger, we will enter into a separation agreement
with PageNet pursuant to which PageNet will agree to transfer and assign to us
all of the assets used in our business on or prior to the closing of the Arch
merger. Under the terms of the agreement, PageNet will also agree to cancel the
promissory note in the amount of $30 million owed by us to PageNet, along with
all of our other intercompany payables due to PageNet. Each party will also
agree to provide, or cause to be provided, to the other party, at any time
before or after the closing date of the transfer of assets and as soon as
reasonably practicable after written request therefor, any information in its
possession or under its control that the requesting party reasonably needs:
- to comply with reporting, disclosure, filing or other requirements
imposed upon the requesting party, including under applicable securities
or tax laws, by a governmental authority having jurisdiction over the
requesting party;
- for use in any judicial, regulatory, administrative, tax or other
proceeding or in order to satisfy audit, accounting, claims, regulatory,
litigation, tax or other similar requirements; or
- to comply with its obligations under this agreement or any of the
agreements described below,
provided, however, that if either party determines that the provision of
information could be commercially detrimental, violate any law or agreement, or
waive any attorney-client privilege, the parties will take reasonable measures
to permit compliance in a manner that avoids the harm or consequence.
TAX ALLOCATION AGREEMENT
Since our inception, Vast has also been included in the filing of
consolidated federal income tax returns filed by PageNet as the common parent of
a consolidated group consisting of Vast and other various subsidiaries. In light
of the separation of Vast and PageNet, which will result in Vast no longer being
included in PageNet's consolidated return, we and PageNet will enter into a tax
allocation agreement in which PageNet will indemnify and hold harmless Vast
against any and all liability for any
A-35
<PAGE> 327
federal, state, and local taxes, including interest and penalties, for which
Vast may be held liable pursuant to any law, attributable to periods through and
including the distribution date of Class B common stock of Vast to shareholders
and creditors of PageNet. Under such agreement, PageNet will be entitled to the
benefits of any net operating losses or other tax attributes generated by Vast
while a member of the consolidated group that are absorbed by PageNet in any
taxable year prior to and including the taxable year of the distribution of
Class B common stock of Vast to shareholders and creditors of PageNet. After the
date of such distribution, Vast will be responsible for its own taxes and may
also benefit from any net operating loss or other tax attribute it has. In the
event of a dispute with any governmental authority concerning tax liability
issues, PageNet and Vast agree to cooperate by furnishing to the other party all
records and documents and to make personnel available for testimony they may be
necessary or helpful with the negotiation or settlement of such dispute.
ADMINISTRATIVE SERVICES AGREEMENT
On or prior to the Arch merger, we will enter into an administrative
services agreement with PageNet with a term of ninety (90) days, pursuant to
which PageNet will provide us with certain administrative services. The services
to be provided are:
- after hours monitoring of the National Operations Center, at the rate of
$500 per month;
- human resources services, including stock option plan and 401(k) plan
administration, at the rate of $75 per hour; and
- corporate purchasing services, charged at the actual cost of our
purchases.
We will be able to cancel any or all of these services at any time by
providing not less than thirty (30) days prior written notice and specifying the
service or services to be canceled and the requested termination date(s).
TECHNOLOGY SERVICES AGREEMENT
On or prior to the Arch merger, we will enter into a two year agreement to
provide PageNet with various technology services. The technology services that
we will provide to PageNet are:
- Viaduct services, including access through our Viaduct for advanced
messaging services such as text to voice, text to fax, and 10 digit look
up and for which, beginning July 1, 2000, we will guarantee a monthly
uptime rate of 99.9% on each separate service component of our Viaduct;
- IPS Viaduct services, including connectivity for PageNet to the BellSouth
Mobitex network;
- Web services, including web site development;
- Customer Support for PageNet customers, including unlimited calls from
PageNet to our Call Center or Technical Center, at no charges, and the
ability to transfer or refer PageNet customers directly to us for
customer support, at the rate of $15.00 per call; and
- Software sublicensing, including providing PageNet with the right to use
and sublicense our alpha paging application software to PageNet's
customers on a private label basis.
PageNet will be able to terminate this agreement (1) as to the IPS Viaduct
services, at any time on not less than one hundred eighty (180) days notice in
the event that the agreement between PageNet and BellSouth for the resale of IPS
services by PageNet is terminated or is amended in a manner that would impact
PageNet's decision to use the IPS Viaduct services; and (2) upon not less than
sixty (60) days notice if we fail to meet the Viaduct uptime rate for two
consecutive months.
RESELLER AGREEMENT
On or prior to the Arch merger, we will enter into PageNet's standard form
reseller agreement in order to enable us to resell airtime on PageNet's paging
network to our customers. The reseller agreement
A-36
<PAGE> 328
has a one year term, which is automatically extended, unless either party
terminates the agreement upon not less than sixty (60) days notice to the other.
FACILITY ACCESS AGREEMENT
On or prior to the Arch merger, we will enter into a two year agreement to
allow us maintain our current level of equipment and employees at some of
PageNet's facilities. PageNet will continue to grant to us the same level of
access to these facilities as we have on the date of the Vast distribution.
PageNet will use reasonable efforts to provide us with additional space at these
facilities upon our request. We will be charged rent and expenses, including
maintenance and operations, each month, in advance, in an amount equal to our
pro-rata portion of the total square footage of each facility, multiplied by an
applicable lease rate. Under this agreement, we will have access to:
- PageNet's Technical Center of Excellence, located in Plano, Texas;
- PageNet's Southern Technical Operation Center, located in Richardson,
Texas;
- PageNet's Central Region headquarters office, located in Oakbrook
Terrace, Illinois; and
- PageNet's Manhattan office, located in New York, New York.
We may terminate this agreement with respect to any or all of the
facilities at any time upon not less than sixty (60) days notice to PageNet.
PRINCIPAL STOCKHOLDERS
As of the date of this prospectus, PageNet owns all 3,900,000 outstanding
shares of our Class A common stock and all 16,100,000 outstanding shares of our
Class B common stock. Following the exchange by PageNet of 13,780,000 shares of
our Class B common stock and 616,830,757 shares of PageNet common stock for up
to $1.2 billion of PageNet's senior subordinated indebtedness and the
distribution by PageNet of the remaining 2,320,000 shares of our Class B common
stock to its stockholders immediately prior to the merger of PageNet into a
subsidiary of Arch, PageNet will own no shares of our Class B common stock.
After the merger, Arch will indirectly own all of the outstanding shares of our
Class A common stock, which will constitute 19.5% of our outstanding common
stock.
The address of PageNet is 14911 Quorum Drive, Dallas, Texas 75240. The
address of Arch is 1800 West Park Drive, Suite 250, Westborough, Massachusetts
01581.
We are not aware of any person who will beneficially own more than 5% of
the outstanding shares of our Class B common stock after the merger. However, we
believe that the anticipated private equity transaction may result in third
parties becoming owners of greater than 5% of our stock. However, it is not
possible to determine the resulting ownership positions until the terms of the
private equity transaction have been agreed upon with the potential third-party
investors.
A-37
<PAGE> 329
SECURITY OWNERSHIP OF MANAGEMENT
OWNERSHIP OF VAST COMMON STOCK
The following table sets forth information with respect to the expected
beneficial ownership of our Class B common stock by each of our directors, by
each of our named executive officers and by all directors and executive officers
as a group based on their ownership as of April 25, 2000 of PageNet common
stock. Except as indicated in the footnotes to the table, the persons named in
the table will have sole voting and investment power with respect to all shares
of Class B common stock beneficially owned by them. None of our directors or
executive officers beneficially own any shares of our Class A common stock.
<TABLE>
<CAPTION>
SHARES OF CLASS B
COMMON STOCK
NAME BENEFICIALLY OWNED PERCENT OF CLASS
- ---- ------------------ ----------------
<S> <C> <C>
John P. Frazee, Jr. ........................................ 2,741 *
Mark A. Knickrehm........................................... -- *
Scott D. Grimes............................................. -- *
William G. Scott............................................ 176 *
All directors and executive officers as a group (6
persons).................................................. 2,966 *
</TABLE>
- ---------------
* Represents less than 1%
OWNERSHIP OF PAGENET COMMON STOCK
The following table sets forth information as of April 25, 2000 with
respect to the beneficial ownership of PageNet common stock by each of our
directors, each of our named executive officers and by all of our directors and
executive officers as a group. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all shares of PageNet common stock beneficially owned by then. The
number of shares beneficially owned includes shares covered by options that are
vested and exercisable as of April 25, 2000 or within 60 days of such date.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME BENEFICIALLY OWNED PERCENT OF CLASS
- ---- ------------------ ----------------
<S> <C> <C>
John P. Frazee, Jr. ........................................ 952,760(1) *
Mark A. Knickrehm........................................... 246,000(2) *
Scott D. Grimes............................................. 62,000(3) *
William G. Scott............................................ 113,368(4) *
All directors and executive officers as a group (6
persons).................................................. 1,443,328(5) 1.4%
</TABLE>
- ---------------
* Represents less than 1%
(1) Includes 829,600 shares subject to options.
(2) Includes 246,000 shares subject to options.
(3) Includes 62,000 shares subject to options.
(4) Includes 105,464 shares subject to options.
(5) Includes 1,310,064 shares subject to options.
A-38
<PAGE> 330
DESCRIPTION OF VAST CAPITAL STOCK
The following description summarizes some of the general terms and
provisions of our capital stock and our certificate of incorporation and bylaws.
This description is not complete and you should refer to our certificate of
incorporation and bylaws and to Delaware law for more information.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of Class A
common stock, par value $0.01 per share, 50,000,000 shares of Class B common
stock, par value $0.01 per share, and 25,000,000 shares of preferred stock, par
value $0.01 per share. Immediately following the Arch merger, 3,900,000 shares
of our Class A common stock and 16,100,000 shares of our Class B common stock
will be outstanding. All of the Class A common stock will be indirectly owned by
Arch. No shares of our preferred stock are currently outstanding.
COMMON STOCK
Voting Rights
The holders of Class A common stock and Class B common stock generally have
identical voting rights, with each holder entitled to one vote for each share of
common stock owned. Generally, matters to be voted on by stockholders, including
amendments to the certificate of incorporation, must be approved by a majority
vote of the holders of our common stock, voting together as a single class,
subject to any voting rights granted to holders of any preferred stock. However,
a majority vote of the affected class, voting separately, is also necessary for
amendments of the certificate of incorporation that would adversely affect the
rights of the Class A common stock or the Class B common stock. Any amendment to
the certificate of incorporation to increase the authorized shares of any class
of our capital stock requires the approval only of a majority of the votes
entitled to be cast by the holders of our common stock voting together as a
single class.
Holders of shares of our common stock may not cumulate their votes in the
election of directors. In cumulative voting, a stockholder has a number of votes
equal to the number to which his stockholdings would entitle him, multiplied by
the number of directors being elected. A stockholder can then vote all of those
votes in favor of one or more directors. This improves a minority stockholder's
ability to influence the election of specific directors.
Dividends
All holders of our common stock will share equally on a per share basis in
any dividend declared by the board of directors, subject to any rights of any
outstanding preferred stock to receive dividends. If the board declares a stock
dividend, stockholders of each class of common stock must receive shares of the
class of stock they already hold. Additionally, all common stockholders must
receive the same number of dividend shares on a per share basis.
We may not reclassify, subdivide or combine shares of either class of
common stock without simultaneously doing the same to shares of the other class.
Redemption
We may not redeem the Class A common stock.
We have the option to redeem the Class B common stock, in whole or in part,
at any time following the sale by us of additional shares of Class A common
stock, or any shares of our capital stock that are convertible into shares of
Class A common stock, other than sales pursuant to employee benefit plans. The
redemption price for the Class B common stock will be equal to the sale price of
the Class A common stock, net of any discounts or commissions, or the price at
which such capital stock may be converted into Class A common stock. The number
of shares of Class B common stock which may be redeemed at any
A-39
<PAGE> 331
time is limited to the maximum number that we can redeem at the applicable
redemption price using the proceeds from the sale of the Class A common stock or
the capital stock that is convertible into Class A common stock. In the case of
a redemption of less than all of the Class B common stock, we will redeem the
then outstanding shares of Class B common stock on a pro rata basis.
In order to exercise our optional redemption right with respect to the
Class B common stock, we must send a redemption notice to holders not more than
15 business days following the sale of shares of Class A common stock or the
capital stock that is convertible into Class A common stock. Such notice will
include the redemption date, which may not be more than 60 days or less than 30
days from the date the notice is sent, and the applicable redemption price.
We intend to use all or a portion of the proceeds from any sale of equity
securities by us after the Arch merger to redeem shares of our Class B common
stock.
Conversion
Holders of Class A common stock may not convert their shares into any other
securities.
Each share of Class B common stock will automatically convert into one
share of Class A common stock upon the earlier of (i) the second anniversary of
the completion of the Arch merger or (ii) one year following the completion of
an underwritten public offering of common stock by us in which the net proceeds
of the offering exceeds $25 million.
Other Rights
If we merge or consolidate with another corporation and shares of our
common stock are converted into or exchangeable for shares of stock, other
securities or property, all holders of our common stock, regardless of class,
will be entitled to receive the same kind and amount of payment for their
shares. This requirement can be waived by a majority vote of each class of
holders of our common stock.
If we are liquidated, dissolved or wound up, after full payment of required
amounts to preferred stockholders, if any, all holders of our common stock,
regardless of class, will receive the same amount per share of any assets
distributed to common stock holders.
No shares of either class of common stock have any right to purchase
additional shares of common stock or other securities of ours.
All outstanding shares of our common stock, including all shares of common
stock issued in the distribution and the exchange offer, are or will be, when
issued, validly issued, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors can issue shares of our preferred stock, in one or
more series, without stockholder approval. For each series of our preferred
stock, our board of directors can determine the powers, preferences, rights,
qualifications, limitations and restrictions, including the dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares in the series. As a result, our board of directors can
authorize and issue shares of preferred stock with voting or conversion rights
which may adversely affect the voting or other rights of holders of our common
stock. In addition, the issuance of preferred stock may delay or prevent a
transaction which would cause a change in our control, because the rights given
to the holders of a series of preferred stock may prohibit a merger,
reorganization, sale of all or substantially all of our assets, liquidation or
other extraordinary corporate transaction.
A-40
<PAGE> 332
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation will provide that our board of directors
may establish the number of our directors, provided that we must have at least
three directors and may not have more than 15. We intend to increase the size of
our board of directors to approximately seven directors before the closing of
the Arch merger. A majority of the remaining directors may fill any vacancy in
our board of directors, including a vacancy resulting from an increase in the
size of our board of directors. Our certificate of incorporation divides our
board of directors into three classes of directors, with approximately one-third
of our directors serving in each class. As the term of each class expires, the
directors elected to that class will hold office for three years, unless they
die or resign or are removed before that time. As a result, at least two annual
meetings of stockholders, instead of one, will generally be required to change a
majority of our directors. Also, our stockholders can only remove directors for
cause by the affirmative vote of the holders of 66 2/3% or more of the
outstanding shares of capital stock entitled to vote in the election of
directors.
We believe that our classified board of directors and the inability of our
stockholders to remove directors without cause or to fill vacancies on our board
of directors will help ensure the continuity and stability of our business
strategy and policies from year to year. However, it also makes the removal of
incumbent directors more time-consuming and difficult. This may discourage third
parties from attempting to obtain control of our company, even if the change in
control would be in the best interests of our stockholders.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND BUSINESS PROPOSALS
We have adopted advance notice provisions in our bylaws which require our
stockholders to present their nominations for directors or other business
proposals for our annual meeting within a specified time frame. In general,
stockholders must deliver their notice of nominations or business proposals to
our Secretary not less than 60 days nor more than 90 days before the first
anniversary of the prior year's annual meeting of stockholders. Any nominations
must include all information relating to the nominated person which is required
to be disclosed in proxy statements under the Securities Act. Any business
proposals must include:
- a brief description of the business proposal;
- the reason for conducting that business at the annual meeting;
- any material interest of the proposing stockholder in that business; and
- the name, address and number of shares owned by the proposing
stockholder.
These requirements make the election of new directors not nominated by our
board of directors more time-consuming and difficult, which may discourage third
parties from attempting to obtain control of our company, even if the change in
control would be in the best interests of our stockholders.
SPECIAL MEETINGS
Our certificate of incorporation and our bylaws provide that only the
chairman of the board or the board of directors may call special meetings of
stockholders and stockholders may not call special meetings. In addition, our
certificate of incorporation and our bylaws provide that stockholders may only
act at an annual or special meeting of stockholders and not by written consent.
No business other than that stated in the notice of such meeting may be
transacted at any special meeting.
AMENDMENT OF BYLAWS AND CERTIFICATE OF INCORPORATION
Our certificate of incorporation requires the approval of 66 2/3% or more
of the outstanding shares of capital stock entitled to vote to amend our bylaws
or the provisions of our certificate of incorporation relating to the
classification and composition of our board of directors, stockholder action by
written consent and the right to call special meetings of stockholders. This
requirement may discourage third parties from attempting to obtain control of
our company.
A-41
<PAGE> 333
DELAWARE BUSINESS COMBINATION STATUTE
We are organized under Delaware law. Some provisions of Delaware law may
delay or prevent a transaction which would cause a change in our control. In
addition, our certificate of incorporation contains some provisions which may
delay or prevent this type of transaction, even if our stockholders consider the
transaction to be in their best interests.
After the merger, we will be subject to Delaware's anti-takeover laws.
Delaware law prohibits a publicly held corporation from engaging in a "business
combination" with an "interested stockholder" for three years after the
stockholder becomes an interested stockholder, unless the corporation's board of
directors and stockholders approve the business combination in a prescribed
manner. Generally, an "interested stockholder" is a person who directly or
indirectly owns 15% or more of the corporation's outstanding voting stock. A
"business combination" includes a merger, asset sale or other transaction which
results in a financial benefit to the interested stockholder. Delaware law does
not prohibit these business combinations if:
(1) the corporation's board approves either the business combination
or the transaction which results in the stockholder becoming an interested
stockholder, before the stockholder becomes an interested stockholder;
(2) after the transaction which results in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
corporation's outstanding stock; or
(3) the corporation's board approves the business combination and the
holders of at least two-thirds of the corporation's outstanding voting
stock which the interested stockholder does not own, authorize the business
combination.
Although following the Arch merger Arch will indirectly own all of the
Class A common stock, which will constitute approximately 19.5% of all of our
outstanding common stock, Arch will not be an "interested stockholder."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation provides that our directors will not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for:
(1) any breach of the director's duty of loyalty to us or our
stockholders;
(2) misconduct or a knowing violation of law;
(3) liability under Delaware corporate law for an unlawful payment of
dividends or an unlawful stock purchase or redemption of stock; or
(4) any transaction from which the director derives an improper
personal benefit;
Our certificate of incorporation and bylaws require us to indemnify and
advance expenses to our directors and officers to the fullest extent permitted
by Delaware law. Our certificate of incorporation and bylaws also permit us to
indemnify and advance expenses to our employees and agents if our board of
directors approves it.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is . Its
address is .
A-42
<PAGE> 334
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the exchange offer with PageNet noteholders, and the
distribution to PageNet stockholders, we will have 3,900,000 million shares of
Class A common stock and 16,100,000 million shares of Class B common stock
outstanding, without taking into account any outstanding options or options
which may be granted in the future. Of these shares, the shares of Class B
common stock offered by this prospectus will be freely tradeable without
restriction or further registration under the Securities Act of 1933, unless
they are held by persons deemed to be "affiliates" of Vast as that term is
defined in Rule 144 under the Securities Act of 1933. Shares acquired by our
affiliates may generally be sold in compliance with the requirements of Rule
144.
Although the shares of Class B common stock held by persons who are not our
affiliates will be freely tradeable under the Securities Act of 1933, we do not
intend to apply for listing of our Class B common stock on any securities
exchange, or for quotation through any quotation system. Accordingly, a liquid
trading market for the Class B common stock is not likely to develop. See "Risk
Factors -- A liquid trading market for our Class B common stock likely will not
develop and the market price of our Class B common stock could be adversely
affected."
The 3,900,000 million shares of Class A common stock that will be owned
indirectly by Arch will be "restricted" securities within the meaning of Rule
144 under the Securities Act of 1933 and may not be sold in the absence of
registration under the Securities Act or unless an exemption from registration
is available, including the exemption contained in Rule 144 under the Securities
Act of 1933.
In general, under Rule 144, a stockholder who has owned Class A or Class B
common stock for at least one year may, within any three-month period, sell up
to the greater of:
- 1% of the total number of shares of the applicable class of common stock
then outstanding; and
- the average weekly trading volume of the applicable class of common stock
on the national securities exchange and/or automated quotation system on
which the common stock is traded during the four weeks before the person
files a notice on Form 144 of that sale.
Sales of shares under Rule 144 are also subject to manner of sale and
notice requirements and requirements as to the availability of current public
information about us. Under Rule 144, a stockholder who has not been an
affiliate of Vast for at least 90 days and who has beneficially owned shares of
common stock for at least two years may sell those shares without complying with
the volume limitations or other requirements of Rule 144.
At the closing of the merger, options to purchase approximately 1,180,000
shares of our Class A common stock will be outstanding. After the merger, we
plan to file a registration statement on Form S-8 under the Securities Act
covering the 5,000,000 shares of Class A common stock which are reserved for
issuance under our long term stock incentive plan. This registration statement
will become effective automatically upon filing. Shares of Class A common stock
registered under this registration statement will be available for sale in the
open market, subject to vesting restrictions. Any sales of these shares will be
subject to the volume limitations of Rule 144 described above if sold by
affiliates.
Prior to the exchange offer and distribution, there has been no market for
our Class B common stock, and no precise predictions can be made of the effect,
if any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of our common stock in the public market, or the possibility
of those sales, may have an adverse effect on the market price of our common
stock and may make it more difficult for us to raise capital by issuing
additional common stock. See "Risk Factors -- Availability of significant
amounts of common stock for sale by former PageNet securityholders could
adversely affect the price of your Class B common stock and sales by us of
additional shares of common stock would dilute your ownership interest."
A-43
<PAGE> 335
LEGAL MATTERS
The validity of the shares of Class B common stock being offered hereby
will be passed upon for us by Mayer, Brown & Platt, Chicago, Illinois.
EXPERTS
The financial statements of Vast Solutions, Inc. as of December 31, 1998
and December 31, 1999, and for the period September 1, 1998 (inception) through
December 31, 1998, the year ended December 31, 1999, and the period September 1,
1998 (inception) through December 31, 1999, appearing in this prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon (which contains explanatory paragraphs describing the conditions
that raise substantial doubt about the ability of Vast Solutions, Inc. to
continue as a going concern as described in Note 1 to the financial statements
and the dependence of Vast on PageNet for certain activities and assets
necessary for the operation of its business) appearing elsewhere herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The financial statements of Silverlake Communications, Inc. as of December
31, 1997 and December 9, 1998, and for the year ended December 31, 1997 and the
period January 1, 1998 through December 9, 1998, appearing in this prospectus
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
Class B common stock offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. For further information with respect to us and
our Class B common stock offered by this prospectus, reference is made to the
registration statement and the exhibits and schedules filed with the
registration statement. A copy of the registration statement may be inspected
without charge at the Securities and Exchange Commission's public reference
facilities in Washington, D.C., New York, New York or Chicago, Illinois. You may
also copy any document we file with the Securities and Exchange Commission at
prescribed rates by writing to the Public Reference Section of the Securities
and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the operation of the public reference facilities. The Securities
and Exchange Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as Vast, that file electronically with the Securities and
Exchange Commission.
A-44
<PAGE> 336
INDEX TO FINANCIAL STATEMENTS
VAST SOLUTIONS, INC.
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets as of December 31, 1998 and December 31,
1999...................................................... F-3
Statements of Operations for the period September 1, 1998
(inception) through December 31, 1998, the year ended
December 31, 1999, and the period September 1, 1998
(inception) through December 31, 1999..................... F-4
Statements of Stockholder's Deficit for the period September
1, 1998 (inception) through December 31, 1998, the year
ended December 31, 1999, and the period September 1, 1998
(inception) through December 31, 1999..................... F-5
Statements of Cash Flows for the period September 1, 1998
(inception) through December 31, 1998 and the year ended
December 31, 1999......................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
SILVERLAKE COMMUNICATIONS, INC.
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-16
Balance Sheets as of December 9, 1998 and December 31,
1997...................................................... F-17
Statements of Operations for the year ended December 31,
1997 and the period ended December 9, 1998................ F-18
Statements of Stockholders' Equity for the year ended
December 31, 1997 and the period ended December 9, 1998... F-19
Statements of Cash Flows for the year ended December 31,
1997 and the period ended December 9, 1998................ F-20
Notes to Financial Statements............................... F-21
</TABLE>
F-1
<PAGE> 337
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Vast Solutions, Inc.
We have audited the accompanying balance sheets of Vast Solutions, Inc.
(the Company), a company in the development stage and a wholly-owned subsidiary
of Paging Network, Inc., (PageNet) as of December 31, 1998 and December 31,
1999, and the related statements of operations, stockholder's deficit, and cash
flows for the period September 1, 1998 (inception) through December 31, 1998,
the year ended December 31, 1999 and the period September 1, 1998 (inception)
through December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vast Solutions, Inc. as of
December 31, 1998 and December 31, 1999, and the results of its operations and
its cash flows for the period September 1, 1998 (inception) through December 31,
1998, the year ended December 31, 1999, and the period September 1, 1998
(inception) through December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has accumulated losses of
$38.9 million since its inception and has negative working capital of $41.1
million as of December 31, 1999. As more fully described in Note 1, the Company
may not have sufficient liquidity to meet its obligations or fund its operations
through the second quarter of 2000. The Company currently does not have any
available borrowing facilities and does not anticipate any additional financing
from its parent company, PageNet. Furthermore, the financial position of its
parent company makes it difficult for the Company to obtain separate debt or
equity financing prior to the planned spinoff of the Company by its parent as
part of a larger transaction, the completion of which is subject to various
approvals and consents and not expected to occur until the second or third
quarter of 2000. These events raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The accompanying financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.
As described in Notes 1 and 3, the Company is a wholly-owned subsidiary of
PageNet and is dependent upon PageNet for financing, management and other
activities necessary for the operation of its business. In addition, the Company
is dependent upon PageNet for certain licenses, hardware and other assets
necessary for the conduct of its business, and PageNet will require approval
from the creditors to transfer these assets. The financial position, results of
operations, and cash flows presented in the financial statements referred to
above are not necessarily indicative of the financial position, results of
operations and cash flows of the Company for the periods referred to above had
it not been a wholly owned subsidiary of PageNet.
/s/ ERNST & YOUNG LLP
Dallas, Texas
May 3, 2000
F-2
<PAGE> 338
VAST SOLUTIONS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 42,706 $ 10,111,451
Accounts receivable....................................... 108,688 282,141
Accounts receivable from PageNet.......................... 56,232 58,551
Prepaid expenses and other current assets................. 12,484 42,896
---------- ------------
Total current assets........................................ 220,110 10,495,039
Property and equipment:
Computer equipment........................................ 100,006 1,279,129
Furniture and fixtures.................................... 21,970 622,632
Leasehold improvements.................................... -- 193,843
Other property and equipment.............................. -- 100,194
Accumulated depreciation.................................. (9,487) (661,837)
---------- ------------
Total property and equipment................................ 112,489 1,533,961
Other non-current assets:
Goodwill.................................................. 1,135,039 1,135,039
Software development costs................................ 727,600 727,600
Other intangible assets................................... 217,500 217,500
Accumulated amortization.................................. (57,053) (585,436)
---------- ------------
Total other non-current assets.............................. 2,023,086 1,494,703
---------- ------------
Total assets................................................ $2,355,685 $ 13,523,703
========== ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable.......................................... $ 2,113 $ 162,555
Accrued compensation...................................... -- 95,019
Other accrued liabilities................................. 15,085 786,277
Amounts due PageNet....................................... 6,302,220 20,293,452
Deferred revenue.......................................... -- 301,707
Note payable to PageNet................................... -- 30,000,000
---------- ------------
Total current liabilities................................... 6,319,418 51,639,010
Commitments and contingencies
Stockholder's deficit:
Preferred stock ($.01 par value; 25,000,000 shares
authorized; no shares issued or outstanding)........... -- --
Common stock ($.01 par value; 50,000,000 shares
authorized; 20,000,000 shares issued and
outstanding)........................................... 200,000 200,000
Paid-in capital........................................... -- 594,000
Deficit accumulated during the development stage.......... (4,163,733) (38,909,307)
---------- ------------
Total stockholder's deficit................................. (3,963,733) (38,115,307)
---------- ------------
Total liabilities and stockholder's deficit................. $2,355,685 $ 13,523,703
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 339
VAST SOLUTIONS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FROM
SEPTEMBER 1 SEPTEMBER 1, 1998
(INCEPTION) (INCEPTION)
THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------ ------------ -----------------
<S> <C> <C> <C>
Revenues:
External customers.......................... $ 43,563 $ 1,031,874 $ 1,075,437
PageNet..................................... 46,472 81,973 128,445
----------- ------------ ------------
Total revenues................................ 90,035 1,113,847 1,203,882
Operating costs and expenses:
Costs of revenues........................... 23,963 1,307,229 1,331,192
Selling, general and administrative
expenses................................. 2,204,673 15,777,021 17,981,694
Research and development activities......... 340,013 3,295,479 3,635,492
Allocated research and overhead expenses.... 1,442,000 13,612,879 15,054,879
Purchased in-process research and
development.............................. 152,500 -- 152,500
----------- ------------ ------------
Total operating costs and expenses............ 4,163,149 33,992,608 38,155,757
----------- ------------ ------------
Loss from operations.......................... (4,073,114) (32,878,761) (36,951,875)
Other income (expense):
Interest expense on amounts due PageNet..... (90,621) (2,006,394) (2,097,015)
Other income (expense)...................... 2 139,581 139,583
----------- ------------ ------------
Net loss...................................... $(4,163,733) $(34,745,574) (38,909,307)
=========== ============ ============
Loss per common share -- basic and diluted.... $ (0.21) $ (1.74)
=========== ============
Weighted averaged number of common shares
outstanding................................. 20,000,000 20,000,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 340
VAST SOLUTIONS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
COMMON PAID-IN DEVELOPMENT STOCKHOLDER'S
STOCK CAPITAL STAGE DEFICIT
-------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at September 1, 1998
(inception)......................... $200,000 $ -- $ -- $ 200,000
Net loss............................ -- -- (4,163,733) (4,163,733)
-------- -------- ------------ ------------
Balance at December 31, 1998.......... 200,000 -- (4,163,733) (3,963,733)
Capital contribution from PageNet --
imputed interest on note payable.... -- 594,000 -- 594,000
Net loss............................ -- -- (34,745,574) (34,745,574)
-------- -------- ------------ ------------
Balance at December 31, 1999.......... $200,000 $594,000 $(38,909,307) $(38,115,307)
======== ======== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 341
VAST SOLUTIONS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 1 CUMULATIVE FROM
(INCEPTION) YEAR SEPTEMBER 1, 1998
THROUGH ENDED (INCEPTION)
DECEMBER 31, DECEMBER 31, THROUGH
1998 1999 DECEMBER 31, 1999
------------ ------------ -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss...................................... $(4,163,733) $(34,745,574) $(38,909,307)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................ 9,487 587,695 597,182
Amortization................................ 57,053 528,383 585,436
Provision for doubtful accounts............. -- 25,000 25,000
Purchased in-process research and
development.............................. 152,500 -- 152,500
Changes in operating assets and liabilities:
Accounts receivable...................... (68,934) (200,772) (269,706)
Prepaid expenses and other current
assets................................. 2,037 (30,412) (28,375)
Accounts payable and accrued
liabilities............................ (28,745) 1,026,653 997,908
Deferred revenue......................... -- 301,707 301,707
----------- ------------ ------------
Net cash used in operating activities......... (4,040,335) (32,507,320) (36,547,655)
INVESTING ACTIVITIES:
Capital expenditures.......................... (79,291) (2,009,167) (2,088,458)
Acquisition of Silverlake Communications,
Inc., net of cash acquired.................. (2,339,888) -- (2,339,888)
----------- ------------ ------------
Net cash used in investing activities......... (2,419,179) (2,009,167) (4,428,346)
FINANCING ACTIVITIES:
Paid-in Capital............................... 594,000 594,000
Proceeds from note payable to PageNet......... -- 30,000,000 30,000,000
Increase in amounts due to PageNet............ 6,502,220 13,991,232 20,493,452
----------- ------------ ------------
Net cash provided by financing activities..... 6,502,220 44,585,232 51,087,452
----------- ------------ ------------
Net increase in cash and cash equivalents..... 42,706 10,068,745 10,111,451
Cash and cash equivalents at beginning of
period...................................... -- 42,706 --
----------- ------------ ------------
Cash and cash equivalents at end of period.... $ 42,706 $ 10,111,451 $ 10,111,451
=========== ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during the period...... $ 90,621 $ 1,412,394 $ 1,503,015
Cash paid for taxes during the period......... -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 342
VAST SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION
Vast Solutions, Inc. (the Company) was formed in September 1998 by its
parent company, Paging Network, Inc. (PageNet), to develop three principal
businesses: (1) wireless information services, (2) customized wireless
solutions for business customers, and (3) wireless Internet gateway
services. The Company initially operated as a division of PageNet and had
no separate legal status or existence. On December 9, 1998, PageNet
acquired Silverlake Communications, Inc. (Silverlake) for a total purchase
price of approximately $2.4 million, comprised of cash consideration of
$1.75 million and 100,000 shares of common stock of PageNet (the
Acquisition). The Acquisition, additional terms of which are discussed in
Note 4, was carried out by PageNet to provide additional in-house software
development capabilities for the Company. On June 22, 1999, PageNet
publicly announced the organization of the Company as an operating unit to
be known as Vast Solutions to focus on the emerging market for wireless
information services. PageNet further announced that the Company would
include several parts of PageNet's then current organization; however, the
Company continued to operate as a division of PageNet following the June
1999 announcement. During the third quarter of 1999, PageNet determined
that the optimal structure for the Company would be for its operations to
be combined with those of Silverlake, which had remained a separate
subsidiary of PageNet following the Acquisition, as the activities of
Silverlake related directly to the operations of the Company. On September
13, 1999, the board of directors of PageNet authorized (i.) a capital
investment in the form of a promissory note, of $30 million in Silverlake,
and (ii.) the operation of the activities of the Company within Silverlake.
On December 29, 1999, Silverlake merged into a wholly-owned subsidiary of
Silverlake, Vast Solutions, Inc., primarily to change the Company's state
of incorporation from California to Delaware.
On November 8, 1999, PageNet and Arch Communications Group, Inc. (Arch)
announced a merger agreement under which the common stock and public
indebtedness of PageNet will be exchanged for Arch common stock (the
Arch-PageNet Merger). Under the terms of the Arch-PageNet Merger, holders
of PageNet's public indebtedness will receive up to a 68.9% direct interest
in the Company, while holders of PageNet's common stock will receive up to
a 11.6% direct interest (the Vast Distribution). The remaining 19.5%
interest will be held by Arch following the Arch-PageNet Merger. The
Company will account for the Vast Distribution on a historical cost
carryover basis. Consummation of the Arch-PageNet Merger is subject to the
approval of the stockholders of Arch and PageNet, completion of a
recapitalization of Arch and PageNet, customary regulatory review, and
certain third-party consents. Arch and PageNet anticipate the Arch-PageNet
Merger will be completed during the second or third quarter of 2000.
In May 2000, the Company entered into a royalty free licensing arrangement
with PageNet for the exclusive rights to certain hardware, proprietary
software technology and licensed software technology which together
comprise the Company's Viaduct while the Company remains a wholly owned
subsidiary of PageNet. In order to convey these assets to the Company
simultaneously with the Vast Distribution, PageNet will be required to
obtain approval from its creditors. There are no assurances such approval
will be obtained.
The Company is in the development stage, and, since inception, has been
engaged primarily in product research and development and developing
markets for its products and services. The Company has had minimal revenues
from operations and in the course of its start-up activities has sustained
significant operating losses. The Company does not expect to generate
significant revenues until such time as it successfully completes its
development and marketing activities. Subsequent to the Acquisition, the
Company's revenues have been derived primarily from the sale of software
from
F-7
<PAGE> 343
Silverlake's Airsource suite of products. However, the Company's primary
operations in the future will be comprised of the following integrated
wireless solutions:
- Viaduct. The Company will provide solutions enabled through its
expandable software platform (Viaduct), which allows the Company to
deliver data services across multiple network technologies. Through the
Viaduct, the Company will provide a single, transparent bridge between
the Internet and corporate data networks and wireless devices, managing
the complexities associated with wireless networks, protocols, and data
management. The Company's Viaduct technology consists of network servers
running proprietary software. The Viaduct manages the differences
between individual networks and devices, providing a single, standard
interface to the corporate enterprise. The Viaduct adapts and translates
data transmissions for many wireless network protocols, formats the
transmissions for particular user devices and optimizes the data in a
bandwidth efficient manner for transmission over a wireless network. The
Viaduct also facilitates wireless extensions of corporate e-mail
applications and the delivery of personalized wireless content, such as
news and sports.
- Wireless Software System Design and Development. The Company is
designing and developing software to allow corporations and enterprise
application providers to extend Internet and corporate enterprise
applications to most available wireless devices. The Company will
develop, implement, support, and manage wireless software applications
for use on multiple device platforms.
- Wireless Device Development and Integration. The Company is designing
and developing custom wireless devices for unique telemetry applications
that connect a business to its remote assets, such as vending machines,
automobiles and storage tanks. These devices are integrated with
commercially available wireless modems designed for the appropriate
network technology.
- Internet-based Provisioning and Customer Support. The Company will
offer a privately branded web-portal that allows users to order wireless
devices and contact customer support over the Internet. This web-based
support model includes credit card billing, e-mail customer support,
on-line training and software downloads. The Company also will operate a
customer support center to manage all operational components of their
wireless solution including distribution, coverage, billing and
technical support.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has accumulated
losses of $38.9 million since its inception and has negative working
capital of $41.1 million as of December 31, 1999. As of December 31, 1999,
the Company had approximately $10.1 million in cash, which the Company
believes is sufficient to meet its obligations through the second quarter
of 2000. However, the Company may not have sufficient liquidity to meet its
obligations or fund its development and operating activities through the
end of the third quarter of 2000. The Company is currently involved in
discussions with third parties regarding potential private equity
investments in the Company, which, if consummated, the Company would expect
to close simultaneously with the Vast Distribution. However, there can be
no assurance that the Company's efforts to obtain such an equity investment
will prove successful or that the Company will have adequate liquidity to
meet its obligations through the date of the Vast Distribution.
Furthermore, the Company does not anticipate additional financing from
PageNet, which is currently precluded by the terms of its public
indebtedness from further borrowings under its domestic credit facility.
PageNet is also currently exploring certain strategic and financing
alternatives to ensure its continued liquidity through the consummation of
the Arch-PageNet Merger. If such efforts of PageNet prove untimely or
unsuccessful, or if the Arch-PageNet Merger is not completed, PageNet may
be required to reduce the level of its operations and/or file for
protection under Chapter 11 of the United States Bankruptcy Code to
restructure its obligations. These events would preclude any further
investments in the Company by PageNet and negatively impact the Company's
operations. The possibility of the occurrence of these events also makes it
more difficult for the Company to obtain separate debt or equity financing
prior to the Vast Distribution. These events raise substantial doubt about
the Company's ability to continue as a going concern. The accompanying
F-8
<PAGE> 344
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome
of these uncertainties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The accompanying financial statements have been prepared using PageNet's
historical basis in the assets and liabilities of the Company. The
financial statements reflect the results of operations, financial condition
and cash flows of the Company as a component of PageNet and may not be
indicative of the Company's results of operations and financial position as
a separate, stand-alone entity. Management believes the accompanying
financial statements include a reasonable allocation of administrative
costs, which are described in Note 3, incurred by PageNet on behalf of the
Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues since the Company's inception have been derived primarily from the
sale of Airsource software licenses. The Company has also generated
revenues from sales of wireless communication devices; however, revenues
from such sales have been insignificant since the Company's inception.
Revenue for software sales is recognized in accordance with the provisions
of American Institute of Certified Public Accountants' Statement of
Position (SOP) 97-2, Software Revenue Recognition. Under SOP 97-2, software
sales are recognized upon execution of a contract and delivery of software,
provided that the license fee is fixed and determinable, no significant
production, modification or customization of the software is required, and
collection is considered probable by management. The Company provides free
telephone customer and technical support and software upgrades on its
Airsource software products as an accommodation to purchasers of these
products as a means of fostering customer satisfaction. The majority of
such services are provided during the first 30 days of ownership of the
Company's products. The costs associated with these services, which are
insignificant in relation to product sales value, are accrued. Maintenance
revenue on sales of wireless devices and related software is recognized
over the term of the maintenance contract.
Sales of wireless communication devices are recognized upon delivery to the
customer. Revenue for custom development services is recognized as services
are performed and after obtaining an executed contract from the customer.
Revenue for development services which have deliverables which are subject
to customer acceptance is recognized as services are performed if
management believes it is probable that development work will be completed
to customer specification set forth in the development arrangement and
acceptance by the customer is considered to be probable. Revenue for custom
development services for which management believes there is uncertainty
regarding customer acceptance is recognized when the services have been
completed and acceptance has been obtained from the customer. Custom
development revenues derived from fixed-fee contracts are recognized on the
percentage-of-completion method based on costs incurred in relation to
total estimated costs. The percentage-of-completion method is used when
acceptance is considered to be probable and the Company has a reasonable
basis to estimate costs to complete. Anticipated contract losses are
recognized when they can be estimated. Revenue for time-and-materials
contracts is recognized as services are performed.
F-9
<PAGE> 345
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents consists primarily of depository and money market accounts.
PROPERTY AND EQUIPMENT
Property and equipment is stated at original cost less accumulated
depreciation. Property and equipment transferred from PageNet is recorded
at PageNet's net book value on the date of the transfer. Expenditures for
normal maintenance and repairs are charged to expense as incurred.
Depreciation of property and equipment is computed using the straight-line
method over the estimated lives of the assets which range from five to
seven years. Property and equipment transferred from PageNet is depreciated
over the remainder of its original estimated useful life.
INTANGIBLE ASSETS
All intangible assets were recorded upon the acquisition of Silverlake by
the Company in December 1998. The acquisition of Silverlake is discussed in
Note 4. Intangible assets are amortized on a straight-line basis over the
following lives:
<TABLE>
<S> <C>
Goodwill.............................................. 5 years
Software development costs............................ 3 years
Other intangible assets............................... 3 years
</TABLE>
Other intangible assets consist of the value of Silverlake's trademarks and
workforce as of the date of the Acquisition.
DEFERRED REVENUE
Deferred revenue represents amounts billed to customers under terms
specified in consulting, software licensing, and maintenance contracts for
which completion of contractual terms or delivery of the software has not
occurred.
RESEARCH AND DEVELOPMENT COSTS
Research and product development costs, which are not subject to Statement
of Financial Accounting Standards No. 86, Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed, are expensed
as incurred and relate mainly to the development of new products and the
ongoing maintenance of existing products. Software development costs are
expensed as incurred until technological feasibility has been established,
at which time such costs are capitalized until the point at which the
product is available for general release to customers. Since the Company's
inception, the establishment of technological feasibility of the Company's
products and general release of such software have substantially coincided.
As a result, software development costs qualifying for capitalization have
been insignificant and, therefore, the Company has historically expensed
all software development costs.
EMPLOYEE STOCK OPTIONS
The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. No compensation expense
was recognized for any period presented for stock option grants since the
exercise price of PageNet's stock option grants to personnel of the Company
was equal to the fair market value of the underlying stock on the date of
grant.
F-10
<PAGE> 346
3. RELATED PARTY TRANSACTIONS
As a result of its relationship with PageNet and its affiliates, the
Company has extensive related party transactions. These transactions have
been recognized on a basis determined by the parties, which may not be
representative of the terms the Company might have negotiated with third
parties.
Revenues from PageNet consist of sales of software from the Company's
Airsource product line to PageNet. Sales to PageNet are typically made on
terms and conditions similar to those of transactions with non-affiliates.
Research and overhead expenses are charged to the Company by PageNet for
information technology support, management services, and accounting,
marketing, customer service and order fulfillment. Amounts allocated for
information technology support included services such as research and
development activities, maintenance of the Viaduct and other technology
used by us. The amounts are allocated on the same proportion of Vast's
direct expenses to PageNet's direct expenses applied to the technology cost
centers. Amounts allocated for accounting services are based on the number
of Vast departments as a percent of PageNet total departments. Amounts
allocated to us for management services include charges for executive
functions, human resources, legal services, purchasing, treasury and other
administrative functions. The human resource costs are allocated based on
Vast's headcount as a percent of total PageNet headcount. The executive
functions and legal services are based on an estimated portion of their
time spent on Vast business. The remaining expenses are allocated based on
the same proportion of Vast's direct expenses to PageNet's direct expenses
applied to those cost centers. The marketing and customer service expense
are allocated on the same proportion of Vast's direct expenses to PageNet's
direct expenses applied to those cost centers. The order fulfillment
expenses are allocated based on a percent of square footage used by Vast as
a percent of the total. Management of PageNet and the Company believe such
amounts are a reasonable allocation of the costs incurred by PageNet on
behalf of the Company. However, such amounts may not be indicative of the
costs the Company would incur if such services were performed internally or
obtained from an independent third party.
Expenses charged to the Company by PageNet are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 1
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ -------------
<S> <C> <C>
Information technology support.............................. $ 115,000 $ 6,319,000
Accounting services......................................... 184,000 4,040,000
Management services......................................... 1,071,000 1,510,000
Marketing................................................... 27,000 656,000
Order fulfillment........................................... -- 572,000
Customer support............................................ 45,000 516,000
---------- -----------
$1,442,000 $13,613,000
========== ===========
</TABLE>
In connection with the Vast Distribution, the Company will enter into
various agreements with PageNet and Arch for certain of the services
described above. The Company is currently negotiating the terms of these
agreements with PageNet and Arch and it is currently not practical to
determine the related expense as if the Company was operating on a
stand-alone basis. Certain of the services currently provided by PageNet
will be performed by the Company or obtained from third parties following
the Vast Distribution.
Through the first quarter of 2000, PageNet funded certain disbursements on
behalf of the Company, with a corresponding increase in amounts due
PageNet. In addition, amounts due PageNet are immediately credited or
charged upon the recording of certain transactions, including the
recognition of certain sales to PageNet and the payment of certain expenses
by PageNet on behalf of the
F-11
<PAGE> 347
Company. Accordingly, no receivables or payables for these transactions are
reflected on the Company's balance sheet. For purposes of the statement of
cash flows, amounts paid by PageNet on behalf of the Company and expenses
allocated to the Company by PageNet are presented as cash used in operating
or investing activities and changes in the amount due PageNet are presented
as financing activities. To the extent that PageNet has provided funds to
the Company and paid expenses on behalf of the Company in excess of the
amounts transferred to PageNet, the Company is charged interest at the rate
PageNet pays under its domestic credit facility. The weighted average
interest rate on the amounts due PageNet, which is reset monthly, was 7.59%
and 7.60% during the period September 1, 1998 (inception) through December
31, 1998, and the year ended December 31, 1999, respectively. This
arrangement resulted in interest expense that may not be representative of
what the Company would have paid if it were not affiliated with PageNet.
On September 30, 1999, the Company borrowed $30.0 million from PageNet
under a promissory note agreement between PageNet and the Company (the
PageNet Note). The PageNet Note is due on demand by PageNet, has no stated
maturity, and does not bear interest. For financial reporting purposes,
interest expense will be recognized by the Company on the PageNet Note
based on the interest rate PageNet pays under its domestic credit facility,
which was the source of the funds loaned to the Company by PageNet, with a
corresponding increase to stockholder's net investment. As the PageNet Note
is payable on demand by PageNet, it has been classified as a current
liability in the accompanying balance sheet as of December 31, 1999.
4. SILVERLAKE ACQUISITION
On December 9, 1998, PageNet completed the acquisition of all the
outstanding stock of Silverlake for a total purchase price of $2.4 million,
comprised of cash consideration of $1.75 million and 100,000 shares of
common stock of PageNet (the Acquisition). The Acquisition of Silverlake
was accounted for as a purchase. The Company has not provided pro forma
information as if Silverlake had been acquired on September 1, 1998, due to
the insignificance of Silverlake to the total operations of the Company for
the period September 1, 1998 to December 31, 1998.
The purchase price has been allocated to the assets and liabilities
acquired based upon their fair values at the date of acquisition, as
follows:
<TABLE>
<S> <C>
Consideration:
Cash...................................................... $1,750,000
Common stock of PageNet................................... 612,500
Acquisition costs......................................... 18,000
----------
Total consideration............................... $2,380,500
==========
Assets acquired and liabilities assumed:
Cash...................................................... $ 40,612
Accounts receivable....................................... 95,986
Prepaid expenses and other assets......................... 14,521
Property and equipment.................................... 42,685
Developed technology...................................... 727,600
Goodwill.................................................. 1,135,039
Other intangible assets................................... 217,500
Accounts payable.......................................... (11,225)
Accrued liabilities....................................... (34,718)
----------
Total assets acquired and liabilities assumed............... 2,228,000
In-process research and development costs................. 152,500
----------
Total....................................................... $2,380,500
==========
</TABLE>
F-12
<PAGE> 348
In connection with the acquisition of Silverlake, the Company recorded a
charge of $152,500 for research and development activities in process at
the date of the acquisition. The Company used an independent third-party
appraiser to assess and value the in-process research and development. The
amount of the Silverlake purchase price allocated to in-process research
and development represents the estimated fair market value, based on
risk-adjusted cash flows, of the one in-process research project that had
not yet reached technological feasibility and for which no alternative
future use existed at the date of the acquisition. The value assigned to
the purchased in-process research and development was determined by
estimating the costs to develop Silverlake's purchased in-process research
and development into a commercially viable product, estimating the
resulting net cash flows from the project and discounting the net cash
flows to their present value.
The terms of the Acquisition also provided for additional consideration of
up to $4.0 million payable at various dates through March 31, 2001, if
certain conditions were met. The additional consideration is equal to
twenty-five percent of revenues derived from purchasers and licensees of
Silverlake's products existing on December 1, 1998 during the six month
periods ended June 30, 1999 and December 31, 1999, and fifty percent of
such revenues during the six month periods ended June 30, 2000 and December
31, 2000. Any additional consideration due is payable by the Company three
months following the end of the respective valuation period. The payment of
the additional consideration is contingent upon the continued employment of
the former owners of Silverlake. As a result, any consideration due to the
former owners of Silverlake is recorded as an expense over the respective
valuation period. The Company recorded expense of $173,500 under this
arrangement for the additional consideration earned during the year ended
December 31, 1999.
5. CONCENTRATIONS OF RISK
A significant portion of the Company's revenues consists of licensing
software to companies in the U.S. paging industry, which gives rise to a
concentration of credit risk in receivables. As of December 31, 1999,
amounts receivable from companies in the U.S. paging industry represented
approximately 11% of gross accounts receivable from non-affiliates.
Revenues from companies in the U.S. paging industry represented
approximately 25% of revenues from external customers for the year ended
December 31, 1999. The Company performs on-going credit evaluations of its
customers' financial condition and generally requires no collateral. The
Company maintains an allowance for doubtful accounts based on the expected
collectability of its accounts receivable. The allowance for doubtful
accounts as of December 31, 1998 and December 31, 1999 and write-offs of
accounts receivable during 1998 and 1999 were insignificant.
6. INCOME TAXES
The Company is included in the consolidated U.S. federal and various state
income tax returns of PageNet. Under the terms of PageNet's tax sharing
policy, income taxes are allocated to the Company as if the Company was a
separate taxable entity. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted
tax rates.
For the period September 1, 1998 (inception) through December 31, 1998, and
the year ended December 31, 1999, the Company had no provision or benefit
for income taxes because the deferred benefit from the operating losses was
offset by an increase in the valuation allowance on deferred tax
F-13
<PAGE> 349
assets of $1.6 million, and $13.4 million, respectively. The income tax
provision differed from amounts computed at the federal statutory income
tax rate as follows:
<TABLE>
<CAPTION>
SEPTEMBER 1
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ -------------
<S> <C> <C>
Income tax benefit at the federal statutory rate........... $(1,457,307) $(12,160,951)
Increase in income taxes resulting from:
Non-recognition of tax benefit of current year
losses.............................................. 1,644,296 13,773,046
Amortization of intangible assets..................... 6,621 88,130
Meals and entertainment expenses...................... 14,577 37,054
State income tax provision, net of federal benefit.... (208,187) (1,737,279)
----------- ------------
Income tax provision (benefit)............................. $ -- $ --
=========== ============
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1998 and December 31, 1999, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 1,535,431 $ 14,738,383
Intangible assets........................................ 71,970 151,543
Deferred revenue......................................... -- 117,665
Accounts receivable...................................... -- 9,750
Accrued liabilities...................................... 7,020 7,020
Valuation allowance...................................... (1,607,255) (15,016,431)
----------- ------------
Total deferred tax assets.................................. 7,166 7,930
Deferred tax liabilities:
Depreciation............................................. (7,166) (7,930)
----------- ------------
Net deferred tax asset (liability)......................... $ -- $ --
=========== ============
</TABLE>
As of December 31, 1999, the Company has net operating loss carryforwards
of approximately $33.9 million available under the terms of PageNet's tax
sharing policy. These net operating loss carryforwards expire in 2018 and
2019. There were no significant federal or state income taxes paid or
refunded during 1998 or 1999.
Following the Spinoff, the Company will file separate U.S. federal and
state income tax returns. The net operating loss carryforwards retained by
the Company following the Spinoff may differ from the amounts presented
above.
7. STOCK OPTIONS
The Company participates in PageNet's 1991 Stock Option Plan (1991 Plan),
whereby officers and key employees of PageNet and its affiliates may be
granted incentive stock options and non-statutory options to purchase
common stock of PageNet at not less than 100% of the fair market value of
PageNet's common stock on the date the options are granted. The 1991 Plan
is administered by the Compensation and Management Development Committee of
the Board of Directors of PageNet (the Committee). Options granted under
the 1991 Plan are non-transferable except by the laws of descent and
distribution and are exercisable upon vesting, which occurs in installments
as determined by the Committee at the time it grants such options.
F-14
<PAGE> 350
Options to purchase shares of PageNet have been granted to officers and key
employees of the Company. Options granted are exercisable at the market
value upon grant, become exercisable over one to five years following the
date of grant, and expire ten years from the date of grant. As of December
31, 1999, there were approximately 1.4 million outstanding options to
purchase shares of PageNet common stock held by officers and key employees
of the Company, of which approximately 440,000 were exercisable. These
options have exercise prices ranging from $1.03 to $17.13 per share of
PageNet common stock, with a total exercise value of approximately $12.0
million. Upon the consummation of the Arch-PageNet Merger, all outstanding
options to purchase shares of PageNet common stock, including those held by
officers and key employees of the Company, will be converted into options
to purchase shares of Arch common stock.
The Company has adopted the pro forma disclosure features of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (FAS 123). As required by FAS 123, pro forma information
regarding net income has been determined as if the Company had accounted
for grants of stock options and awards by PageNet to employees of the
Company using the fair value method prescribed by FAS 123. For purposes of
the pro forma disclosures, the estimated fair market value of the options
is amortized to expense over the vesting period. The Company's pro forma
net loss for the period September 1, 1998 (inception) through December 31,
1998, and the year ended December 31, 1999 is $4,168,879 and $34,761,012,
respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities and certain equipment under operating
leases for various periods. Leases that expire are generally expected to be
renewed or replaced by other leases. Rental expense was $524,753 for the
year ended December 31, 1999. Future minimum base rents under terms of non-
cancellable operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000................................................. $ 755,250
2001................................................. 813,829
2002................................................. 817,808
2003................................................. 827,481
2004................................................. 498,141
Thereafter........................................... 614,556
----------
Total........................................ $4,327,065
==========
</TABLE>
F-15
<PAGE> 351
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Silverlake Communications, Inc.
We have audited the accompanying balance sheets of Silverlake
Communications, Inc. (the Company) as of December 31, 1997 and December 9, 1998,
and the related statements of operations, stockholders' equity, and cash flows
for the year ended December 31, 1997, and the period January 1, 1998 through
December 9, 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Silverlake Communications,
Inc. as of December 31, 1997 and December 9, 1998, and the results of its
operations and its cash flows for the year ended December 31, 1997, and the
period January 1, 1998 through December 9, 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
December 23, 1999
F-16
<PAGE> 352
SILVERLAKE COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 9,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $172,513 $ 40,612
Accounts receivable....................................... 75,580 95,986
Prepaid expenses and other current assets................. 2,400 5,405
-------- --------
Total current assets........................................ 250,493 142,003
Property and equipment, at cost............................. 77,526 84,345
Accumulated depreciation.................................... (29,151) (41,660)
-------- --------
Total property and equipment................................ 48,375 42,685
-------- --------
Total assets................................................ $298,868 $184,688
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,801 $ 11,225
Accrued compensation...................................... 39,711 18,694
Other accrued liabilities................................. 23,481 16,024
-------- --------
Total current liabilities................................... 68,993 45,943
Stockholders' equity:
Common stock ($1.00 par value; 100,000 shares authorized;
100 shares issued and outstanding)..................... 100 100
Retained earnings......................................... 229,775 138,645
-------- --------
Total stockholders' equity.................................. 229,875 138,745
-------- --------
Total liabilities and stockholders' equity.................. $298,868 $184,688
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 353
SILVERLAKE COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 9,
1997 1998
------------ -----------
<S> <C> <C>
Revenues.................................................... $896,166 $897,379
Operating costs and expenses:
Costs of revenues......................................... 145,618 157,149
Selling, general and administrative....................... 538,142 610,560
Research and development activities....................... 75,500 68,750
-------- --------
Total operating costs and expenses.......................... 759,260 836,459
-------- --------
Income from operations...................................... 136,906 60,920
Interest income............................................. 3,893 1,891
-------- --------
Income before taxes......................................... 140,799 62,811
Provision for income taxes.................................. (2,112) (941)
-------- --------
Net income.................................................. $138,687 $ 61,870
======== ========
Pro forma information (Note 4):
Income before taxes....................................... $140,799 $ 62,811
Provision for income taxes................................ (60,112) (31,501)
-------- --------
Net income................................................ $ 80,687 $ 31,310
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 354
SILVERLAKE COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance at January 1, 1997............................. $100 $ 109,088 $ 109,188
Net income........................................... -- 138,687 138,687
Dividends declared................................... -- (18,000) (18,000)
---- --------- ---------
Balance at December 31, 1997........................... 100 229,775 229,875
Net income........................................... -- 61,870 61,870
Dividends declared................................... -- (153,000) (153,000)
---- --------- ---------
Balance at December 9, 1998............................ $100 $ 138,645 $ 138,745
==== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 355
SILVERLAKE COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 9,
1997 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $138,687 $ 61,870
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 10,348 12,509
Changes in operating assets and liabilities:
Accounts receivable.................................... 33,955 (20,406)
Prepaid expenses and other current assets.............. (1,614) (3,005)
Accounts payable and accrued liabilities............... 34,296 (23,050)
-------- ---------
Net cash provided by operating activities................... 215,672 27,918
INVESTING ACTIVITIES:
Capital expenditures........................................ (48,620) (6,819)
FINANCING ACTIVITIES:
Repayment of note receivable from officer................... 20,210 --
Cash dividends paid......................................... (18,000) (153,000)
-------- ---------
Net cash provided by (used in) financing activities......... 2,210 (153,000)
-------- ---------
Net increase in cash and cash equivalents................... 169,262 (131,901)
Cash and cash equivalents at beginning of period............ 3,251 172,513
-------- ---------
Cash and cash equivalents at end of period.................. $172,513 $ 40,612
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 356
SILVERLAKE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Silverlake Communications, Inc. (the Company) was incorporated as a
California corporation on June 9, 1995. Prior to June 9, 1995, the Company
operated as partnership from its inception in 1993. The Company has created
and markets a sophisticated suite of software products focusing on wireless
communications management for mobile professionals. The Company's Airsource
suite of products spans from stand-alone one-way wireless messaging to
advanced two-way local area and wide area network solutions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
For software sales transactions entered into subsequent to December 31,
1997, revenue is recognized in accordance with the provisions of American
Institute of Certified Public Accountants' Statement of Position (SOP)
97-2, Software Revenue Recognition. Under SOP 97-2, software license
revenues are recognized upon execution of a contract and delivery of
software, provided that the license fee is fixed and determinable, no
significant production, modification or customization of the software is
required, and collection is considered probable by management.
For software sales transactions entered into prior to December 31, 1997,
revenues were recognized in accordance with SOP 91-1, Software Revenue
Recognition. Under SOP 91-1, software license revenues were recognized upon
execution of a contract and shipment of the software and after any customer
cancellation right had expired, provided that no significant vendor
obligations remained outstanding, amounts were due within one year, and
collection was considered probable by management. The application of SOP
97-2 did not have a material impact on the Company's consolidated financial
statements for the period ended December 9, 1998.
The Company provides free telephone customer and technical support and
software upgrades as an accommodation to purchasers of its products as a
means of fostering customer satisfaction. The majority of such services are
provided during the first 30 days of ownership of the Company's products.
The costs associated with these services, which are insignificant in
relation to product sales value, are accrued.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents consists primarily of depository and money market accounts.
PROPERTY AND EQUIPMENT
Property and equipment consists of furniture and fixtures, computer
equipment, and computer software and is stated at original cost less
allowance for accumulated depreciation. Expenditures for normal maintenance
and repairs are charged to expense as incurred. Depreciation of property
and equipment is computed using the straight-line method over the estimated
lives of the assets which range from five to seven years.
F-21
<PAGE> 357
The Company leased its office facilities under an operating lease expiring
on December 31, 1998. Rental expense was $54,375 and $70,498 for the year
ended December 31, 1997 and the period ended December 9, 1998,
respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and product development costs, which are not subject to Statement
of Financial Accounting Standards No. 86, Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed, are expensed
as incurred and relate mainly to the development of new products and the
ongoing maintenance of existing products. Software development costs are
expensed as incurred until technological feasibility has been established,
at which time such costs are capitalized until the point at which the
product is available for general release to customers. Since the Company's
inception, the establishment of technological feasibility of the Company's
products and general release of such software have substantially coincided.
As a result, software development costs qualifying for capitalization have
been insignificant and, therefore, the Company has historically expensed
all software development costs.
3. CONCENTRATIONS OF RISK
A significant portion of the Company's revenues consists of licensing
software and providing consulting services to the U.S. paging industry,
which gives rise to a concentration of credit risk in receivables. The
Company performs on-going credit evaluations of its customers' financial
condition and generally requires no collateral. Revenues from companies in
the U.S. paging industry represented approximately 59% and 42% of total
revenues during the year ended December 31, 1997 and the period January 1,
1998 through December 9, 1998, respectively. Paging Network, Inc. (PageNet)
represented 45% and 25% of revenues during the year ended December 31, 1997
and the period January 1, 1998 through December 9, 1998, respectively. One
other customer represented 13% of revenues during the period January 1,
1998 through December 9, 1998.
4. INCOME TAXES
Effective at its incorporation on June 9, 1995, the Company elected to be
treated as an S Corporation for federal and California state tax purposes.
As a result of this election, the Company was not a taxable entity for
federal tax purposes from June 9, 1995, through December 9, 1998, and,
accordingly, the Company's net income was includable in the Federal income
tax returns of the Company's stockholders. No provision for federal income
taxes has been made in the accompanying financial statements for the period
from January 1, 1997, through December 9, 1998. Also as a result of this
election, the Company was taxed for California state income tax purposes at
the S Corporation state tax rate of 1.5% through December 9, 1998. The
accompanying financial statements include a provision of 1.5% of income
before taxes for California state income taxes for the year ended December
31, 1997, and the period ended December 9, 1998. Deferred income tax assets
and liabilities are determined based on differences between financial
reporting and income tax bases of assets and liabilities and are measured
using the California S Corporation state tax rate of 1.5%. The net deferred
tax asset or liability as of each balance sheet date, which is not
material, has been included in prepaid expenses and other current assets
and accrued liabilities in the accompanying balance sheet.
The pro forma provision for income taxes and net income presented in the
accompanying financial statements has been determined as if the Company
were taxed as a C Corporation for federal and state tax purposes. The pro
forma net deferred tax asset or liability as of each balance sheet date is
not material.
5. EMPLOYEE BENEFITS
The Company maintains a Section 401(k) Salary Deferral Plan (the Plan).
Employees 21 years of age or older and with one or more years of service to
the Company are eligible to participate in the Plan. Under the Plan, the
Company makes an annual contribution of a portion of the Company's
F-22
<PAGE> 358
profits for the benefit of participating employees. The Company's expenses
under the Plan were $35,149 for the year ended December 31, 1997 and
$21,517 for the period January 1, 1998 through December 9, 1998. The Plan
was terminated on December 9, 1998.
6. ACQUISITION OF THE COMPANY
On December 9, 1998, all of the outstanding stock of the Company was
acquired by PageNet for a total purchase price of approximately $2.4
million, comprised of cash consideration of $1.75 million and 100,000
shares of common stock of PageNet. The terms of the acquisition also
provide for additional consideration of up to $4.0 million payable at
various dates through March 31, 2001, if certain conditions are met.
F-23
<PAGE> 359
ANNEX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
PAGING NETWORK, INC.,
ARCH COMMUNICATIONS GROUP, INC.
AND
ST. LOUIS ACQUISITION CORP.
DATED AS OF NOVEMBER 7, 1999
AND AMENDED AS OF
JANUARY 7, 2000
AND
MAY 10, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 360
TABLE OF CONTENTS
ARTICLE I.
The Merger; Closing; Effective Time
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1.1. The Merger.................................................. B-1
1.2. Closing..................................................... B-1
1.3. Effective Time.............................................. B-1
ARTICLE II.
Certificate of Incorporation and Bylaws of the Surviving Corporation
2.1. The Certificate of Incorporation............................ B-2
2.2. The Bylaws.................................................. B-2
ARTICLE III.
Directors & Officers
3.1. Directors of Arch........................................... B-2
3.2. Directors of the Surviving Corporation...................... B-2
3.3. Officers of the Surviving Corporation....................... B-2
ARTICLE IV.
Effect of the Merger on Capital Stock; Exchange of Certificates
4.1. Effect on Capital Stock..................................... B-2
4.2. Exchange of Certificates for Shares......................... B-3
4.3. Dissenters' Rights.......................................... B-5
4.4. Adjustments to Prevent Dilution............................. B-5
4.5. Alternate Transaction Structure............................. B-5
ARTICLE V.
Representations and Warranties
5.1. Representations and Warranties of PageNet, Arch and Merger
Sub......................................................... B-6
ARTICLE VI.
Covenants
6.1. Interim Operations.......................................... B-16
6.2. Acquisition Proposals....................................... B-20
6.3. The Certificate Amendments.................................. B-21
6.4. Information Supplied........................................ B-21
6.5. Stockholders Meetings....................................... B-21
6.6. Filings; Other Actions; Notification........................ B-23
6.7. Access; Consultation........................................ B-24
6.8. Affiliates.................................................. B-24
</TABLE>
i
<PAGE> 361
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.9. Stock Exchange Listing...................................... B-25
6.10. Publicity................................................... B-25
6.11. Benefits.................................................... B-25
6.12. Expenses.................................................... B-26
6.13. Indemnification; Directors' and Officers' Insurance......... B-26
6.14. Takeover Statute............................................ B-27
6.15. Confidentiality............................................. B-27
6.16. Tax-Free Reorganization..................................... B-27
6.17. Senior Credit Facilities.................................... B-27
6.18. The Exchange Offers......................................... B-27
6.19. Bankruptcy Provisions....................................... B-31
6.20. Rights Agreement............................................ B-35
6.21. Payment of Dissenters' Rights............................... B-35
6.22. Distribution of Interests in Vast to PageNet Shareholders... B-35
ARTICLE VII.
Conditions
7.1. Conditions to Each Party's Obligation to Effect the
Merger...................................................... B-35
7.2. Conditions to Obligations of Arch and Merger Sub............ B-36
7.3. Conditions to Obligation of PageNet......................... B-37
ARTICLE VIII.
Termination
8.1. Termination by Mutual Consent............................... B-38
8.2. Termination by Either Arch or PageNet....................... B-38
8.3. Termination by PageNet...................................... B-39
8.4. Termination by Arch......................................... B-39
8.5. Effect of Termination and Abandonment....................... B-39
ARTICLE IX.
Miscellaneous and General
9.1. Survival.................................................... B-41
9.2. Modification or Amendment................................... B-41
9.3. Waiver of Conditions........................................ B-41
9.4. Counterparts................................................ B-41
9.5. Governing Law and Venue; Waiver of Jury Trial............... B-41
9.6. Notices..................................................... B-42
9.7. Entire Agreement............................................ B-43
9.8. No Third Party Beneficiaries................................ B-43
9.9. Obligations of Arch and of PageNet.......................... B-43
9.10. Severability................................................ B-43
9.11. Interpretation.............................................. B-43
</TABLE>
ii
<PAGE> 362
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
9.12. Captions.................................................... B-43
9.13. Assignment.................................................. B-43
</TABLE>
<TABLE>
<S> <C>
Exhibits
Certificate of Incorporation of the Surviving Corporation... Exhibit A
Arch Rights Agreement Amendment............................. Exhibit B
PageNet Affiliates Agreement................................ Exhibit C
</TABLE>
iii
<PAGE> 363
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- --------
<S> <C>
Acquisition Proposal........................................ 6.2(a)
Agreement................................................... preamble
Alternative Merger.......................................... 4.5
Alternative Merger Notice................................... 4.5
Arch........................................................ preamble
Arch Class B Common Stock................................... .51(b)(ii)
Arch Common Stock........................................... 4.1(a)
Arch Companies.............................................. 4.1(a)
Arch Disclosure Letter...................................... 5.1
Arch Exchange Offer......................................... 6.18(a)
Arch Exchange Prospectus.................................... 6.18(d)
Arch Exchange Registration Statement........................ 6.18(d)
Arch Notes.................................................. 6.18(a)
Arch Preferred Shares....................................... .51(b)(ii)
Arch Required Consents...................................... 5.1(d)(i)
Arch Requisite Vote......................................... .51(c)(ii)
Arch Rights Agreement....................................... .51(b)(ii)
Arch Series B Preferred Share............................... .51(b)(ii)
Arch Series C Preferred Share............................... .51(b)(ii)
Arch Stock Plans............................................ .51(b)(ii)
Arch Stockholders Approval.................................. 6.5(b)
Arch Stockholders Meeting................................... 6.5(b)
Arch Termination Fee........................................ 8.5(c)
Audit Date.................................................. 5.1(f)
Bankruptcy and Equity Exception............................. 5.1(c)(i)
Bankruptcy Case............................................. 6.19
Bankruptcy Code............................................. 6.19
Bankruptcy Court............................................ 6.19
Bylaws...................................................... 2.2
Certificate................................................. 4.1(a)
Certificate Amendments...................................... recitals
Certificate of Merger....................................... 1.3
Charter..................................................... 2.1
Closing..................................................... 1.2
Closing Date................................................ 1.2
Code........................................................ recitals
Communications Act.......................................... 5.1(d)(i)
Compensation and Benefit Plans.............................. 5.1(h)(i)
Confidentiality Agreement................................... 6.15
Contracts................................................... .51(d)(ii)
Costs....................................................... 6.13(a)
Current Premium............................................. 6.13(c)
D&O Insurance............................................... 6.13(c)
</TABLE>
iv
<PAGE> 364
<TABLE>
<CAPTION>
TERM SECTION
---- --------
<S> <C>
Delaware Courts............................................. 9.5(a)
DGCL........................................................ 1.1
Disclosure Letter........................................... 5.1
Dismissal Order............................................. .619(a)(v)
Dissenting Shares........................................... 4.3
Distributed Interests....................................... 6.22
Distributed Subsidiary...................................... 6.22
Effective Time.............................................. 1.3
Environmental Law........................................... 5.1(n)
ERISA....................................................... 5.1(h)(i)
ERISA Affiliate............................................. 5.1(h)(i)
Exchange Act................................................ 5.1(b)(i)
Exchange Agent.............................................. 4.2(a)
Exchange Offers............................................. 6.18(a)
Exchange Offers Expiration Date............................. 6.18(h)
Exchange Ratio.............................................. 4.1(a)
Exchange Prospectus......................................... 6.18(d)
Exchange Registration Statements............................ 6.18(d)
Excluded PageNet Shares..................................... 4.1(a)
Exclusivity Provision....................................... 6.19(d)
Exit Financing.............................................. 6.19
Extended Determination Date..................................169(a)(iii)
FCC......................................................... 5.1(d)(i)
FCC Regulations............................................. 5.1(d)(i)
Final Confirmation Order.................................... 6.19
Final Order................................................. 7.1(c)
GAAP........................................................ 5.1(e)
Governmental Entity......................................... 5.1(d)(i)
Governmental Regulations.................................... 5.1(d)(i)
Hazardous Substance......................................... 5.1(n)
HSR Act..................................................... 5.1(d)(i)
Indemnified Parties......................................... 6.13(a)
Indenture Amendments........................................ 6.18(c)
Initial Determination Date.................................. 6.19
Initial Merger Motion....................................... 6.19(d)
Initial Merger Order........................................ 6.19(d)
Interim Financing........................................... 6.19
Involuntary Insolvency Event................................ .619(a)(v)
Involuntary Insolvency Event Date........................... .619(a)(v)
IRS......................................................... .51(h)(ii)
Knowledgeable Executives.................................... 5.1(g)
Laws........................................................ 5.1(i)
Material Adverse Effect..................................... 5.1(a)
Merger...................................................... recitals
</TABLE>
v
<PAGE> 365
<TABLE>
<CAPTION>
TERM SECTION
---- --------
<S> <C>
Merger Consideration........................................ 4.1(a)
Merger Sub.................................................. preamble
NASDAQ...................................................... 6.9
Note Consents............................................... 6.18(b)
Note Waivers................................................ 6.18(c)
Notes....................................................... 6.18(a)
Notes Exchange Agent........................................ 6.18(i)
Order....................................................... 7.1(d)
PageNet..................................................... preamble
PageNet Affiliates Agreement................................ 6.8
PageNet Conditions to the Prepackaged Plan.................. 6.19
PageNet Disclosure Letter................................... 5.1
PageNet Exchange Offer...................................... 6.18(a)
PageNet Exchange Prospectus................................. 6.18(d)
PageNet Minimum Condition................................... 6.18(b)
PageNet Notes............................................... 6.18(a)
PageNet Option.............................................. .611(a)(i)
PageNet Required Consents................................... 5.1(d)(i)
PageNet Rights Agreement.................................... 5.1(b)(i)
PageNet Secured Creditors................................... 6.17
PageNet Share............................................... 4.1(a)
PageNet Stock Plans......................................... 5.1(b)(i)
PageNet Stockholders Approval............................... 6.5(a)
PageNet Stockholders Meeting................................ 6.5(a)
PageNet Termination Fee..................................... 8.5(b)
Pension Plan................................................ .51(h)(ii)
Permits..................................................... 5.1(i)
Person...................................................... 4.2(a)
Prepackaged Plan............................................ 6.19
Prospectus/Proxy Statement.................................. 6.4
PUC......................................................... 5.1(d)(i)
Reports..................................................... 5.1(e)
Representatives............................................. 6.2(a)
Requisite Bankruptcy Vote of the PageNet Notes.............. 6.19
Requisite Bankruptcy Vote of the PageNet Secured
Creditors................................................. 6.19
Requisite Conditions to the Prepackaged Plan................ 6.19
Rule 145 Affiliates......................................... 6.8
S-4 Registration Statement.................................. 6.4
SEC......................................................... 5.1(e)
Section 16 Person............................................161(a)(iii)
Securities Act.............................................. 5.1(d)(i)
Significant Investees....................................... .51(d)(ii)
Significant Subsidiaries.................................... 5.1(b)(i)
State Laws.................................................. 5.1(d)(i)
</TABLE>
vi
<PAGE> 366
<TABLE>
<CAPTION>
TERM SECTION
---- --------
<S> <C>
Subsidiary.................................................. 5.1(a)
Substitute Option........................................... .611(a)(i)
Superior Proposal........................................... 6.2(a)
Surviving Corporation....................................... 1.1
Takeover Statute............................................ 5.1(j)
Tax......................................................... 5.1(l)
Tax Return.................................................. 5.1(l)
Taxable..................................................... 5.1(l)
Termination Date............................................ 8.2
Vast Distribution........................................... 6.22
Vast Distribution Record Date............................... 6.22
</TABLE>
vii
<PAGE> 367
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of November 7,
1999, as amended by the Amendment dated January 7, 2000 and May 10, 2000, among
Paging Network, Inc., a Delaware corporation ("PageNet"), Arch Communications
Group, Inc., a Delaware corporation ("Arch"), and St. Louis Acquisition Corp., a
Delaware corporation that is a wholly owned subsidiary of Arch ("Merger Sub").
RECITALS
WHEREAS, the respective Boards of Directors of each of Arch, Merger Sub and
PageNet have approved, recommended and declared advisable this Agreement and the
merger of Merger Sub with and into PageNet (the "Merger") upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the parties hereto intend, by executing and delivering this
Agreement, to adopt a plan of reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and to
cause the Merger and the other transactions which are part of this plan of
reorganization to qualify as a "reorganization" as therein defined;
WHEREAS, the Arch Board of Directors has approved, recommended and declared
advisable certain amendments to its Certificate of Incorporation to effectuate
the actions described herein (the "Certificate Amendments"), contemporaneously
upon and in connection with the Merger;
WHEREAS, Arch, Merger Sub and PageNet desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained in this
Agreement, the parties hereto agree as follows:
ARTICLE I.
THE MERGER; CLOSING; EFFECTIVE TIME
1.1. The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub
shall be merged with and into PageNet and the separate corporate existence of
Merger Sub shall thereupon cease. PageNet shall be the surviving corporation in
the Merger (sometimes referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Delaware, and the separate
corporate existence of PageNet with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger, except as set
forth in Articles II and III of this Agreement. The Merger shall have the
effects specified in the Delaware General Corporation Law, as amended (the
"DGCL").
1.2. Closing. The closing of the Merger (the "Closing") shall take place:
(i) at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts,
at 9:00 A.M., local time, on the second business day after the date on which the
last to be fulfilled or waived of the conditions set forth in Article VII (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the fulfillment or waiver of those conditions) shall be satisfied
or waived in accordance with this Agreement; or (ii) at such other place and
time and/or on such other date as Arch and PageNet may agree in writing (the
"Closing Date").
1.3. Effective Time. At the Closing, Arch and PageNet will cause a
Certificate of Merger (the "Certificate of Merger") to be executed,
acknowledged, and filed with the Secretary of State of the State of Delaware as
provided in Section 251 of the DGCL. The Merger shall become effective at the
time when the Certificate of Merger has been duly filed with the Secretary of
State of the State of Delaware or such other later time as shall be agreed upon
by the parties and set forth in the Certificate of Merger in accordance with the
DGCL (the "Effective Time").
B-1
<PAGE> 368
ARTICLE II.
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
2.1. The Certificate of Incorporation. The certificate of incorporation
of PageNet, amended and restated in its entirety as set forth in Exhibit A,
shall be the certificate of incorporation of the Surviving Corporation (the
"Charter"), until duly amended as provided therein or by applicable law.
2.2. The Bylaws. The bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the bylaws of the Surviving Corporation (the
"Bylaws"), until thereafter amended as provided therein or by applicable law.
ARTICLE III.
DIRECTORS & OFFICERS
3.1. Directors of Arch. Arch shall take all actions necessary (subject to
applicable law and any necessary stockholder approval) to cause, at the
Effective Time, the number of directors comprising the full Board of Directors
of Arch to be comprised of twelve directors, six of which shall be nominated by
the Board of Directors of Arch, and six of which shall be nominated by the Board
of Directors of PageNet, each such person to serve from the Effective Time until
his or her successor has been duly elected and qualified, or until his or her
earlier death, resignation, or removal in accordance with the Charter and the
Bylaws; provided, however, that of the six directors nominated by the Board of
Directors of PageNet, one shall be designated by each of the three holders of
PageNet Notes holding the greatest percentage in aggregate principal amount of
the PageNet Notes; and if and to the extent that any such holder declines to
make such designation, the number of directors nominated by the Board of
Directors of PageNet shall be decreased and the number of directors nominated by
the Board of Directors of Arch shall be increased. The directors nominated by
PageNet shall be divided as nearly evenly as is possible among the classes of
directors of Arch.
3.2. Directors of the Surviving Corporation. The directors of Merger Sub
at the Effective Time shall, from and after the Effective Time, be the directors
of the Surviving Corporation until his or her successor has been duly elected
and qualified, or until his or her earlier death, resignation, or removal in
accordance with the Charter and the Bylaws;
3.3. Officers of the Surviving Corporation. The officers of PageNet at
the Effective Time shall at the Effective Time, be the officers of the Surviving
Corporation until his or her successor has been duly elected and qualified, or
until their earlier death, resignation, or removal in accordance with the
Charter and the Bylaws.
ARTICLE IV.
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
4.1. Effect on Capital Stock. At the Effective Time, the Merger shall
have the following effects on the capital stock of Arch, Merger Sub and PageNet,
without any action on the part of the holder of any capital stock of Arch,
Merger Sub or PageNet:
(a) Merger Consideration. Each share of common stock, par value $0.01
per share, of PageNet (each, a "PageNet Share") issued and outstanding
immediately prior to the Effective Time (excluding PageNet Shares
(collectively, "Excluded PageNet Shares") that are owned by Arch, Merger
Sub or any direct or indirect, wholly owned subsidiary of Arch or Merger
Sub (collectively, the "Arch Companies") or Dissenting Shares (as defined
below)), shall be converted into and become exchangeable for 0.1247 of a
share (the "Exchange Ratio") of common stock, par value $0.01 per share, of
Arch (the "Arch Common Stock"), subject to adjustment as provided in
Section 4.4, (the "Merger Consideration"). At the Effective Time, all
PageNet Shares shall no longer be outstanding, shall be canceled and
retired and shall cease to exist, and each certificate (a
B-2
<PAGE> 369
"Certificate") formerly representing any of such PageNet Shares (other than
Excluded PageNet Shares) shall thereafter represent only the right to
receive the Merger Consideration and the right, if any, to receive a
distribution or dividend pursuant to Section 4.2(b)(i), in each case
without interest, or to vote pursuant to Section 4.2(b)(ii).
(b) Cancellation of Excluded PageNet Shares. At the Effective Time,
each Excluded PageNet Share shall no longer be outstanding, shall be
canceled and retired without payment of any consideration therefor, and
shall cease to exist.
(c) Merger Sub Capital Stock. At the Effective Time, each share of
Common Stock, par value $0.01 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into
one share of common stock of the Surviving Corporation, and the Surviving
Corporation shall thereby become a wholly owned subsidiary of Arch.
4.2. Exchange of Certificates for Shares.
(a) Exchange Procedures. Promptly after the Effective Time, Arch
shall cause its transfer agent or another exchange agent selected by Arch
with PageNet's prior approval (the "Exchange Agent"), which shall not be
unreasonably withheld, to mail to each holder of record as of the Effective
Time of a Certificate: (i) a letter of transmittal specifying that delivery
of the Certificates shall be effected, and that risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates (or
affidavits of loss in lieu thereof) to the Exchange Agent in accordance
with the terms and conditions of such letter of transmittal, such letter of
transmittal to be in such form and have such other provisions as Arch and
PageNet may reasonably agree; and (ii) instructions for exchanging the
Certificates for: (A) certificates representing shares of Arch Common
Stock; (B) with respect to holders of PageNet Shares at the Vast
Distribution Record Date (as defined in Section 6.22), the Distributed
Interests (as defined in Section 6.22), and (C) any unpaid dividends and
other distributions due to such holder with respect to such shares. Subject
to Sections 4.2(g) and 4.3, upon proper surrender of a Certificate for
cancellation (or affidavits of loss in lieu thereof) to the Exchange Agent
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor: (x) a
certificate representing that number of shares of Arch Common Stock that
such holder is entitled to receive pursuant to this Article IV and, with
respect to PageNet Shares at the Vast Distribution Record Date,
certificates representing the Distributed Interests that such holder is
entitled pursuant to Section 6.22; and (y) a check in the amount (after
giving effect to any required tax withholdings) of any dividends or other
distributions that such holder has the right to receive pursuant to the
provisions of this Article IV. The Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on any amount
payable upon due surrender of any Certificate. Notwithstanding the
foregoing, a holder of Dissenting Shares shall not be required to surrender
a Certificate in order to receive Distributed Interests with respect to the
PageNet Shares represented by such Certificate, provided that Arch has
confirmed to the Exchange Agent that such holder has taken all necessary
steps to perfect appraisal rights pursuant to Section 4.3 hereof and the
DGCL. In the event of a transfer of ownership of PageNet Shares that is not
registered in the transfer records of PageNet, a certificate representing
the proper number of shares of Arch Common Stock and, with respect to
PageNet Shares at the Vast Distribution Record Date, certificates
representing the Distributed Interests, together with a check for any
dividends or distributions with respect thereto, may be issued and/or paid
to such a transferee if the Certificate formerly representing such PageNet
Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that all
applicable stock transfer taxes have been paid. If any certificate for
shares of Arch Common Stock (and/or Distributed Interests) is to be issued
in a name other than that in which the Certificate surrendered in exchange
therefor is registered, it shall be a condition of such exchange that the
Person (as defined below) requesting such exchange shall pay all transfer
and other taxes required by reason of the issuance of certificates for
shares of Arch Common Stock and/or Distributed Interests in a name other
than that of the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of Arch or the Exchange Agent that such tax
has been paid or is not applicable.
B-3
<PAGE> 370
The term "Person" means any individual, corporation (including
not-for-profit), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, Governmental
Entity (as defined in Section 5.1(d)(i)), or other entity of any kind or
nature.
(b) Distributions with Respect to Unexchanged Shares; Voting.
(i) Whenever a dividend or other distribution is declared by Arch
with respect to Arch Common Stock, the record date for which is at or
after the Effective Time, that declaration shall include dividends or
other distributions with respect to all shares of Arch Common Stock
issuable pursuant to this Agreement. No dividends or other distributions
with respect to such Arch Common Stock shall be paid to any holder of
any unsurrendered Certificate until such Certificate is surrendered for
exchange in accordance with this Article IV. Subject to the effect of
applicable Laws, following surrender of any such Certificate, there
shall be issued or paid to the holder of the certificates representing
shares of Arch Common Stock issued in exchange therefor, without
interest: (A) at the time of such surrender, the dividends or other
distributions with a record date after the Effective Time and a payment
date on or prior to the date of issuance of such shares of Arch Common
Stock and not previously paid; and (B) at the appropriate payment date,
the dividends or other distributions payable with respect to such shares
of Arch Common Stock with a record date after the Effective Time and
prior to the date of issuance of such shares of Arch Common Stock but
with a payment date subsequent to surrender. For purposes of dividends
or other distributions with respect to shares of Arch Common Stock, all
such shares to be issued pursuant to the Merger shall be deemed issued
and outstanding as of the Effective Time.
(ii) At any meeting of stockholders of Arch with a record date at
or after the Effective Time, registered holders of unsurrendered
Certificates shall be entitled to vote the number of shares of Arch
Common Stock represented by such Certificates, regardless of whether
such holders have exchanged their Certificates; provided, however, that
any such vote shall be at the times, upon the conditions, and in the
manner prescribed by the certificate of incorporation and bylaws of
Arch.
(c) Transfers. From and after the Effective Time, there shall be no
transfers of PageNet Shares or, if Arch elects to convert shares of Arch
Class B Common Stock (as defined below) into shares of Arch Common Stock at
the Effective Time, Arch Class B Common Stock that were outstanding
immediately prior to the Effective Time recorded on the stock transfer
books of PageNet or Arch, as the case may be.
(d) Fractional Shares. Notwithstanding any other provision of this
Agreement to the contrary, no certificates or scrip representing fractional
shares of Arch Common Stock will be issued in the Merger, but in lieu
thereof, each holder of Certificates otherwise entitled to a fractional
share of Arch Common Stock will be entitled to receive, from the Exchange
Agent in accordance with the provisions of this Section 4.2(d), a cash
payment in lieu of such fractional shares of Arch Common Stock determined
by multiplying such fraction (rounded to the nearest one-hundredth of a
share) by the average closing price of a share of Arch Common Stock, as
reported in The Wall Street Journal, New York City edition, on the ten (10)
days immediately prior to the Effective Time. As soon as practicable after
the determination of the amount of cash, if any, to be paid to the holders
of Certificates in lieu of any fractional shares of Arch Common Stock, the
Exchange Agent shall make available such amounts of cash to such holders of
Certificates, without interest thereon.
(e) Termination of Exchange Period; Unclaimed Stock. Any shares of
Arch Common Stock, and any portion of the dividends or other distributions
with respect to the Arch Common Stock deposited by Arch with the Exchange
Agent (including the proceeds of any investments thereof) that remain
unclaimed by the holders of Certificates 180 days after the Effective Time
shall be re-delivered to Arch. Any holders of Certificates who have not
theretofore complied with this Article IV shall thereafter be entitled to
look only to the Surviving Corporation for exchange of shares of Arch
Common Stock, and any dividends and other distributions with respect
thereto issuable and/or
B-4
<PAGE> 371
payable pursuant to Section 4.1, Section 4.2(b), and Section 4.2(d) upon
due surrender of their Certificates (or affidavits of loss in lieu
thereof), in each case, without any interest thereon. Any Distributed
Interests, and any portion of the dividends or other distributions with
respect to the Distributed Interests deposited by PageNet with the Exchange
Agent (including the proceeds of any investments thereof) that remain
unclaimed by the holders of Certificates 180 days after the Effective Time
shall be re-delivered to the Distributed Subsidiary. Any holders of
Certificates who have not theretofore complied with this Article IV shall
thereafter be entitled to look only to the Distributed Subsidiary for the
Distributed Interests, and any dividends and other distributions with
respect thereto issuable and/or payable pursuant to Section 4.1, Section
4.2(b), and Section 6.22 upon due surrender of their Certificates (or
affidavits of loss in lieu thereof), in each case, without any interest
thereon. Notwithstanding the foregoing, none of Arch, the Distributed
Subsidiary, the Exchange Agent, nor any other Person shall be liable to any
former holder of Certificates for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar
laws.
(f) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Certificate to be
lost, stolen or destroyed, and the posting by such Person of a bond in the
form customarily required by Arch as indemnity against any claim that may
be made against it with respect to such Certificate, Arch and PageNet will
issue the shares of Arch Common Stock and the Distributed Interests and the
Exchange Agent will issue stock and any dividends and other distributions
with respect thereto issuable or payable in exchange for such lost, stolen,
or destroyed Certificate pursuant to Section 4.1, Section 4.2(b), Section
4.2(d), and Section 6.22, in each case, without interest.
(g) Affiliates. Notwithstanding anything in this Agreement to the
contrary, Certificates surrendered for exchange by any Rule 145 Affiliate
(as determined pursuant to Section 6.8) of PageNet shall not be exchanged
until Arch has received a written agreement from such Person as provided in
Section 6.8.
4.3. Dissenters' Rights. Notwithstanding anything to the contrary,
PageNet Shares outstanding immediately prior to the Effective Time and held by a
stockholder of record as of the time of the PageNet Stockholders Meeting who has
not voted in favor of the Merger or consented thereto in writing and who has
delivered a written demand for appraisal of such shares at or before the PageNet
Stockholders Meeting in accordance with Section 262 of the DGCL ("Dissenting
Shares"), shall not be converted into the right to receive the Merger
Consideration unless such holder fails to perfect or withdraws or otherwise
loses his right to appraisal and payment under the DGCL. If, after the Effective
Time, any such holder fails to perfect or effectively withdraws or loses his
right to appraisal and payment, such Dissenting Shares shall thereupon be
treated as if they had been converted as of the Effective Time into the right to
receive the Merger Consideration to which such holder is entitled, without
interest or dividends thereon.
4.4. Adjustments to Prevent Dilution. In the event that prior to the
Effective Time, solely as a result of a distribution, reclassification, stock
split (including a reverse split), stock dividend or stock distribution, or
other similar transaction, there is a change in the number of PageNet Shares,
Arch Common Stock, or securities convertible or exchangeable into, or
exercisable for, PageNet Shares or Arch Common Stock issued and outstanding, the
Exchange Ratio shall be equitably adjusted to eliminate the effects of such
event.
4.5. Alternate Transaction Structure. At any time prior to the
effectiveness of the S-4 Registration Statement (as defined herein), either Arch
or PageNet may notify the other party (the "Alternative Merger Notice") that it
desires to restructure the Merger or the other transactions contemplated hereby
in a manner contemplated to (i) increase the likelihood that the Merger would be
treated as a tax-free reorganization within the meaning of Section 368(a) of the
Code, (ii) decrease any potential tax liability of PageNet, Arch or the
Surviving Corporation after the Effective Time, (iii) provide greater
operational flexibility to Arch and the Surviving Corporation after the
Effective Time, or (iv) increase the number of PageNet Shares (or Distributed
Interests) offered to holders of PageNet Notes or the number of shares of
B-5
<PAGE> 372
Arch Common Stock offered to holders of Arch Notes in the Exchange Offers (with
a corresponding reduction in the number of shares of Arch Common Stock (or
Distributed Interests) offered to the holders of PageNet Shares or the holders
of Arch Common Stock, respectively). Upon delivery of the Alternative Merger
Notice, the parties to this Agreement shall cooperate with each other and use
their respective reasonable best efforts to determine the manner in which the
Merger, the Agreement and the transactions contemplated hereby shall be
restructured (the Merger, restructured as contemplated by the parties pursuant
to this Section 4.5, shall be referred to herein as the "Alternative Merger").
With the written consent of each of the parties to this Agreement (such consent
not to be unreasonably withheld), the Merger, this Agreement and the other
transactions contemplated hereby may be modified to reflect the Alternative
Merger with a view to ensuring that the parties hereto are not adversely
affected by the restructuring.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of PageNet, Arch and Merger Sub.
Except as set forth in the corresponding sections or subsections of the
respective disclosure letters, dated as of the date of this Agreement, and
delivered by PageNet to Arch or by Arch to PageNet (each a "Disclosure Letter,"
and the "Pagenet Disclosure Letter" and the "Arch Disclosure Letter,"
respectively), as the case may be, PageNet (except for subparagraphs (b)(ii),
(c)(ii), (j)(ii) and (o)(ii) below and references in subparagraphs (a) and (e)
below to documents made available by Arch to PageNet) represents and warrants to
Arch and Merger Sub, and Arch, on behalf of itself and Merger Sub (except for
subparagraphs (b)(i), (c)(i), (j)(i), and (o)(i) below, and references in
subparagraphs (a) and (e) below to documents made available by PageNet to Arch)
represents and warrants to PageNet, that:
(a) Organization, Good Standing and Qualification. Each of it and its
Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of its respective jurisdiction of organization and
has all requisite corporate or similar power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted, and is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation
of its properties or conduct of its business requires such qualification,
except when the failure to be so qualified or in good standing, when taken
together with all other such failures, is not reasonably likely to have a
Material Adverse Effect (as defined below) on it. It has made available to
Arch, in the case of PageNet, and to PageNet, in the case of Arch, a
complete and correct copy of its certificate of incorporation and bylaws,
each as amended to date. Such certificates of incorporation and bylaws are
in full force and effect.
The term "Subsidiary" means, with respect to PageNet or Arch, as the case
may be, any entity, whether incorporated or unincorporated, of which at least a
majority of the securities or other ownership interests having by their terms
ordinary voting power to elect at least a majority of the Board of Directors or
other persons performing similar functions is directly or indirectly owned by
such party.
The term "Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, assets (including licenses, franchises
and other intangible assets), financial condition and results of operations of
such Person and its Subsidiaries, taken as a whole; provided, however, that
Material Adverse Effect shall exclude any effect resulting from, or related to,
changes or developments involving: (1) a prospective change arising out of any
proposed or adopted legislation, or any other proposal or enactment by any
governmental, regulatory, or administrative authority; (2) general conditions
applicable to the U.S. economy, including changes in interest rates; or (3)
conditions affecting the U.S. wireless telecommunications industry, in each case
taken as a whole.
Reference to "the other party" means, with respect to PageNet, Arch and
means, with respect to Arch, PageNet.
B-6
<PAGE> 373
(b) Capital Structure.
(i) The authorized capital stock of PageNet consists of 250,000,000
PageNet Shares, of which 103,960,240 PageNet Shares were issued and
outstanding and no PageNet Shares were held in treasury as of the close of
business on November 5, 1999, and 25,000,000 shares of preferred stock, of
which no shares were issued and outstanding as of the close of business on
November 5, 1999. All of the outstanding PageNet Shares have been duly
authorized and are validly issued, fully paid and nonassessable. There are
no PageNet Shares reserved for issuance pursuant to the Shareholder Rights
Agreement, dated as of September 8, 1994, between PageNet and The First
National Bank of Boston, as Rights Agent, as amended (the "PageNet Rights
Agreement"), and PageNet Shares subject to issuance as set forth below, as
of the date of this Agreement, and PageNet has no PageNet Shares or
preferred stock reserved for, or subject to, issuance. As of November 5,
1999, there were 9,887,588 PageNet Shares that PageNet was obligated to
issue pursuant to PageNet's stock plans, at a weighted average exercise
price of $9.2637 per PageNet Share, and each of such plans is listed in
Section 5.1(b)(i) of the PageNet Disclosure Letter (collectively, the
"PageNet Stock Plans"). Each of the outstanding shares of capital stock or
other securities of each of PageNet's "Significant Subsidiaries" (as
defined in Rule 1.02(w) of Regulation S-X promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
any Subsidiaries that, if aggregated, would together constitute a
Significant Subsidiary) is duly authorized, validly issued, fully paid and
nonassessable and owned by PageNet or a direct or indirect wholly owned
subsidiary of PageNet, free and clear of any lien, pledge, security
interest, claim or other encumbrance. Except as set forth above, as of the
date of this Agreement there are no preemptive or other outstanding rights,
options, warrants, conversion rights, stock appreciation rights, redemption
rights, repurchase rights, agreements, arrangements or commitments to issue
or to sell any shares of capital stock or other securities of PageNet or
any of its Significant Subsidiaries or any securities or obligations
convertible or exchangeable into, or exercisable for, or giving any Person
a right to subscribe for or acquire, any securities of PageNet or any of
its Significant Subsidiaries, and no securities or obligation evidencing
such rights are authorized, issued or outstanding. As of the date hereof,
PageNet does not have outstanding any bonds, debentures, notes or other
debt obligations, the holders of which have the right to vote (or
convertible into or exercisable for securities having the right to vote)
with the stockholders of PageNet on any matter. No PageNet Shares are held
by a Subsidiary of PageNet.
(ii) The authorized capital stock of Arch consists of 65,000,000
shares of Arch Common Stock, of which 45,837,186 shares of Arch Common
Stock were issued and outstanding and no shares of Arch Common Stock were
held in treasury as of the close of business on November 5, 1999,
10,000,000 shares of Class B common stock, par value $0.01 per share, of
Arch (the "Arch Class B Common Stock") of which 5,360,261 shares of Arch
Class B Common Stock were issued and outstanding as of the close of
business on November 5, 1999, and 10,000,000 shares of preferred stock, of
which (x) 250,000 were designated Series C Convertible Preferred Stock, par
value $0.01 per share (each a "Arch Series C Preferred Share"), of which
250,000 shares were issued and outstanding as of the close of business on
November 5, 1999, and (y) 300,000 shares of which were designated Series B
Junior Participating Preferred Stock, par value $0.01 per share (each a
"Arch Series B Preferred Share," collectively the "Arch Series B Preferred
Shares"), none of which were outstanding as of the close of business on
November 5, 1999 (the Arch Series B Preferred Shares together with the Arch
Series C Preferred Shares, the "Arch Preferred Shares"). All of the
outstanding shares of Arch Common Stock, Arch Class B Common Stock and Arch
Preferred Shares have been duly authorized and are validly issued, fully
paid and nonassessable. Other than 300,000 Arch Series B Preferred Shares
reserved for issuance pursuant to the Rights Agreement, dated as of October
13, 1995, between Arch and The Bank of New York, as Rights Agent, as
amended (the "Arch Rights Agreement"), and Arch Common Stock subject to
issuance as set forth below, and Arch Preferred Shares, Arch has not
authorized, issued, or reserved for issuance any common stock, preferred
stock, or other shares of capital stock as of the date of this Agreement.
As of November 5, 1999, there were 1,834,253 shares of Arch Common Stock
that Arch was obligated to issue pursuant to Arch' stock plans, at a
weighted average exercise price of $10.18 per share of Arch Common
B-7
<PAGE> 374
Stock, each of such plans is listed in Section 5.1(b)(ii) of the Arch
Disclosure Letter (collectively the "Arch Stock Plans"), and 5,902,702
shares of Arch Common Stock that Arch was obligated to issue pursuant to
outstanding warrants having an expiration date of September 1, 2001 and an
effective exercise price of $9.03 per Share of Arch Common Stock. As of the
date hereof, each outstanding Arch Series C Preferred Share is convertible
into 6.7444 shares of Arch Common Stock. Each of the outstanding shares of
capital stock or other securities of each of Arch' Significant Subsidiaries
is duly authorized, validly issued, fully paid and nonassessable and owned
by Arch or a direct or indirect wholly owned Subsidiary of Arch, free and
clear of any lien, pledge, security interest, claim, or other encumbrance.
Except as set forth above and except pursuant to the Arch Series B
Preferred Shares or the Arch Series C Preferred Shares, there are no
preemptive or other outstanding rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights,
agreements, arrangements or commitments to issue or sell any shares of
capital stock or other securities of Arch or any of its Significant
Subsidiaries or any securities or obligations convertible or exchangeable
into, or exercisable for, or giving any Person a right to subscribe for or
acquire, any securities of Arch or any of its Significant Subsidiaries, and
no securities or obligations evidencing such rights are authorized, issued
or outstanding. Arch does not have outstanding any bonds, debentures, notes
or other debt obligations, the holders of which have the right to vote (or
convertible into or exercisable for securities having the right to vote)
with the stockholders of Arch on any matter. No shares of Arch Common Stock
or Arch Preferred Shares are held by a Subsidiary of Arch. The authorized
capital stock of Merger Sub consists of 1,000 shares of Common Stock, par
value $0.01 per share, all of which are validly issued and outstanding. All
of the issued and outstanding capital stock of Merger Sub is, and at the
Effective Time will be, owned by Arch, and there are (i) no other shares of
capital stock or other voting securities of Merger Sub, (ii) no securities
of Merger Sub convertible into or exchangeable for shares of capital stock
or other voting securities of Merger Sub and (iii) no options or other
rights to acquire from Merger Sub, and no obligations of Merger Sub to
issue, any capital stock, other voting securities or securities convertible
into or exchangeable for capital stock or other voting securities of Merger
Sub. Merger Sub has not conducted any business prior to the date of this
Agreement and has no, and prior to the Effective Time will have no, assets,
liabilities or obligations of any nature other than those incident to its
formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
(c) Corporate Authority; Approval and Fairness.
(i) PageNet has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and, subject only to adoption
of this Agreement and approval of the Merger and the amendment to the
PageNet certificate of incorporation to increase the number of PageNet
Shares authorized to the amount sufficient to complete the transactions
contemplated by this Agreement by the holders of a majority of the PageNet
Shares in accordance with applicable law and PageNet's bylaws and charter
and to the receipt of PageNet Required Consents (as defined in Section
5.1(d)(i)), to consummate the Merger. This Agreement has been duly executed
and delivered by PageNet and is a valid and binding agreement of PageNet,
enforceable against PageNet in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles (the "Bankruptcy and Equity
Exception"). The Board of Directors of PageNet: (A) has unanimously
approved and declared advisable this Agreement and the other transactions
contemplated by this Agreement; and (B) has received the opinion of each of
its financial advisors, Houlihan Lokey Howard & Zukin Capital, Goldman,
Sachs & Co. and Morgan Stanley Dean Witter, in a customary form and to the
effect that the Merger Consideration and the Distributed Interests, taken
as a whole, to be received by the holders of PageNet Shares, on the date of
such opinion, is fair to such holders from a financial point of view. The
PageNet Shares when issued pursuant to the PageNet Exchange Offer (as
defined in Section 6.18(a)), will be validly issued, fully paid and
nonassessable, and no stockholder of PageNet will have any preemptive right
of subscription or purchase with respect thereto.
B-8
<PAGE> 375
(ii) Arch and Merger Sub each has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and, subject only
to adoption of the Certificate Amendments (or this Agreement and the
Alternative Merger if Arch is a party to the Alternative Merger) and the
other transactions contemplated by this Agreement pursuant to this
Agreement by a majority of the votes of the Arch Common Stock and Arch
Series C Preferred Shares voting together in accordance with applicable law
and Arch certificate of incorporation and bylaws (the "Arch Requisite
Vote"), and to the receipt of the Arch Required Consents (as defined in
Section 5.1(d)(i)), to consummate the Merger. This Agreement has been duly
executed and delivered by Arch and Merger Sub and is a valid and binding
agreement of Arch and Merger Sub, enforceable against Arch and Merger Sub
in accordance with its terms, subject to the Bankruptcy and Equity
Exception. The Board of Directors of Arch: (A) has unanimously approved and
declared advisable this Agreement and the other transactions contemplated
by this Agreement; and (B) has received the opinion of its financial
advisor, Bear, Stearns & Co. Inc., in a customary form and to the effect
that the Exchange Ratio, as of the date of such opinion, is fair to the
public stockholders of Arch from a financial point of view. The shares of
Arch Common Stock, when issued pursuant to this Agreement or the Arch
Exchange Offer, will be validly issued, fully paid and nonassessable, and
no stockholder of Arch will have any preemptive right of subscription or
purchase with respect thereto.
(d) Government Filings; No Violations.
(i) Other than the filings, notices and/or approvals: (A) pursuant to
Section 1.3 of this Agreement, or, in connection with the Bankruptcy Case
and the Prepackaged Plan, the Final Confirmation Order; (B) under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Exchange Act, and the Securities Act of 1933, as amended (the
"Securities Act"); (C) of the Federal Communications Commission (the "FCC")
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"), or the rules, regulations, and policies of the FCC (the "FCC
Regulations"); (D) of any state public utility commissions or similar state
regulatory bodies (each, a "PUC") identified in its respective Disclosure
Letter pursuant to applicable state laws (as defined in Section 5.1(i))
regulating the paging or other telecommunications business ("State Laws");
(E) to comply with state securities or "blue-sky" laws; and (F) of any
local, state or federal governmental authorities required for a change in
ownership of transmission sites (all of such filings and/or notices of Arch
being referred to as the "Arch Required Consents" and of PageNet being
referred to as the "PageNet Required Consents"), no notices, reports or
other filings are required to be made by it with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained
by it from, any governmental or regulatory authority, court, agency,
commission, body or other governmental entity ("Governmental Entity"), in
connection with the execution and delivery of this Agreement by it and the
consummation by it of the Merger and the other transactions contemplated by
this Agreement, except those that the failure to make or obtain are not,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it or prevent, materially delay or materially impair its
ability to (x) consummate the transactions contemplated by this Agreement
or (y) operate its business following the Effective Time.
The term "Governmental Regulations" includes the HSR Act, the
Communications Act, the FCC Regulations, State Laws, and any other antitrust,
competition, or telecommunications Law of the United States of America or any
other nation, province, territory or jurisdiction that must be satisfied or
complied with in order to consummate and make effective the Merger and the other
transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by it
do not, and the consummation by it of the Merger and the other transactions
contemplated by this Agreement will not, constitute or result in: (A) a
breach or violation of, or a default under, its certificate of
incorporation or bylaws or the comparable governing instruments of any of
its Significant Subsidiaries or any entity in which it has an equity
interest of 20% or more (collectively, with Significant Subsidiaries,
"Significant Investees"); (B) a breach or violation of, or a default under,
the
B-9
<PAGE> 376
acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on its assets or the assets of any of its
Significant Investees (with or without notice, lapse of time or both)
pursuant to, any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation ("Contracts") binding upon it or any of its
Significant Investees or any Law or governmental or non-governmental permit
or license to which it or any of its Significant Investees is subject or is
a party; or (C) any change in the rights or obligations of any party under
any Contracts to which it or any of its Significant Investees is subject or
is a party, except for such defaults, breaches, violations or accelerations
as may result from the Bankruptcy Case or the Prepackaged Plan, and except,
in the case of clauses (B) or (C) above for any breach, violation, default,
acceleration, creation or change that, individually or in the aggregate, is
not reasonably likely to have a Material Adverse Effect on it or prevent,
materially delay or materially impair its ability to (x) consummate the
transactions contemplated by this Agreement or (y) operate its business
following the Effective Time. The PageNet Disclosure Letter, with respect
to PageNet, and the Arch Disclosure Letter, with respect to Arch, sets
forth a correct and complete list of Contracts to which it or any of its
Significant Investees is a party, pursuant to which consents or waivers are
or may be required prior to consummation of the transactions contemplated
by this Agreement, other than as may be required in connection with the
Bankruptcy Case or the Prepackaged Plan, or those where the failure to
obtain such consents or waivers is not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on it or prevent or
materially impair its (x) ability to consummate the transactions
contemplated by this Agreement or (y) operate its business following the
Effective Time.
(e) Reports; Financial Statements. It has made available to the other
party each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1996, including without
limitation its Annual Report on Form 10-K for the years ended December 31,
1996, December 31, 1997 and December 31, 1998 in the form (including
exhibits, annexes and any amendments thereto) filed with the Securities and
Exchange Commission (the "SEC") (collectively, including any such reports
filed subsequent to the date of this Agreement, its "Reports"). As of their
respective dates, its Reports complied, as to form, with all applicable
requirements under the Securities Act, the Exchange Act, and the rules and
regulations thereunder, and (together with any amendments thereto filed
prior to the date hereof) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. Each of the
consolidated balance sheets included in, or incorporated by reference into,
its Reports (including the related notes and schedules) fairly presents the
consolidated financial position of it and its Subsidiaries as of its date
and each of the consolidated statements of income, stockholders' equity,
and of cash flows included in, or incorporated by reference into, its
Reports (including any related notes and schedules) fairly presents the
consolidated results of operations, retained earnings and cash flows, as
the case may be, of it and its Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect),
in each case in accordance with generally accepted accounting principles
("GAAP") consistently applied during the periods involved, except as may be
noted therein. It has made available to the other party all correspondence
since December 31, 1996 between it or its representatives, on the one hand,
and the SEC, on the other hand. To its knowledge, as of the date of this
Agreement, there are no pending or threatened SEC inquiries or
investigations relating to it or any of its Reports. To its knowledge and
except as disclosed in its Reports or in filings by its holders with the
SEC, as of the date of this Agreement, no Person or "group" "beneficially
owns" 5% or more of its outstanding voting securities, with the terms
"beneficially owns" and "group" having the meanings ascribed to them under
Rule 13d-3 and Rule 13d-5 under the Exchange Act.
(f) Absence of Certain Changes. Except as disclosed in its Reports
filed prior to the date of this Agreement or as expressly contemplated by
this Agreement, since December 31, 1998 (the "Audit Date"), it and its
Subsidiaries have conducted their respective businesses only in, and have
not engaged in any material transaction other than according to, the
ordinary and usual course of such businesses and there has not been: (i)
any change in the business, assets (including licenses,
B-10
<PAGE> 377
franchises and other intangible assets), financial condition and results of
operations of it and its Subsidiaries, except those changes that are not,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it; (ii) any damage, destruction or other casualty loss
with respect to any asset or property owned, leased or otherwise used by it
or any of its Subsidiaries, whether or not covered by insurance, which
damage, destruction or loss is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on it; (iii) any declaration,
setting aside or payment of any dividend or other distribution with respect
to its capital stock; or (iv) any change by it in accounting principles,
practices or methods, except as required by GAAP. Since the Audit Date,
except as provided for in this Agreement, in its respective Disclosure
Letter, or as disclosed in its Reports filed prior to the date of this
Agreement, there has not been any increase in the salary, wage, bonus,
grants, awards, benefits or other compensation payable or that could become
payable by it or any of its respective Subsidiaries, to directors, officers
or key employees as identified in the corresponding section of each party's
Disclosure Letter or any amendment of any of its Compensation and Benefit
Plans (as defined in Section 5.1(h)(i)), other than increases or amendments
in the ordinary and usual course of its business (which may include normal
periodic performance reviews and related compensation and benefit increases
and the provision of new individual compensation and benefits for promoted
or newly hired officers and employees on terms consistent with past
practice).
(g) Litigation and Liabilities. Except as disclosed in its Reports
filed prior to the date of this Agreement, there are no: (x) (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations
or proceedings pending or, to the actual knowledge of its executive
officers identified in the corresponding section of each party's Disclosure
Letter ("Knowledgeable Executives"), threatened against it or any of its
Affiliates (as defined in Rule 12b-2 under the Exchange Act); or (ii)
obligations or liabilities, whether or not accrued, contingent or
otherwise, and whether or not required to be disclosed, including those
relating to matters involving any Environmental Law, or (y) any other facts
or circumstances, in any such case, of which the Knowledgeable Executives
have actual knowledge and that are reasonably likely to result in any
claims against or obligations or liabilities of it or any of its
Affiliates, except, in the case of (x) or (y), those that are not,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it or prevent, materially delay or materially impair its
ability to consummate the transactions contemplated by this Agreement.
(h) Employee Benefits.
(i) Neither it nor any of its respective ERISA Affiliates (as
defined below) maintains, is a party to, participates in, or has any
liability or contingent liability with respect to, any employee benefit
plan (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any bonus,
deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, change-of-control, stock
purchase, restricted stock, stock option, employment, consulting,
termination, severance, compensation, medical, health or fringe benefit
plan, or other plan, program, agreement, policy or arrangement for any
of its agents, consultants, employees, directors, former employees or
former directors and/or any of its respective ERISA Affiliates which
does not constitute an employee benefit plan under ERISA (which employee
benefit plans and other plans, programs, agreements, policies and
arrangements are collectively referred to as the "Compensation and
Benefit Plans"). A true and correct copy of each Compensation and
Benefit Plan which have been reduced to writing and, to the extent
applicable, copies of the most recent annual report, actuarial report,
accountant's opinion of the plan's financial statements, summary plan
description and Internal Revenue Service determination letter with
respect to any Compensation and Benefit Plans and any trust agreements
or insurance contracts forming a part of such Compensation and Benefit
Plans has been made available by PageNet and Arch to the other party
prior to the date of this Agreement. In the case of any Compensation and
Benefit Plan which is not in written form, PageNet and Arch has supplied
to the other party an accurate description of such Compensation and
Benefit Plan as in effect on the date of this Agreement. For purposes of
this Agreement, the term "ERISA Affiliate" means any corporation or
trade or business which, together with
B-11
<PAGE> 378
PageNet or Arch, as applicable, is a member of a controlled group of
Persons or a group of trades or businesses under common control with
PageNet or Arch, as applicable, within the meaning of Sections 414(b),
(c), (m) or (o) of the Code.
(ii) All Compensation and Benefit Plans, other than a multiemployer
plan (as defined in Section 3(37) of ERISA), are in substantial
compliance with all requirements of applicable law, including the Code
and ERISA and no event has occurred which will or could cause any such
Compensation and Benefit Plan to fail to comply with such requirements
and no notice has been issued by any governmental authority questioning
or challenging such compliance. There have been no acts or omissions by
it or any of its respective ERISA Affiliates, which have given rise to
or may give rise to material fines, penalties, taxes or related charges
under Section 502 of ERISA or Chapters 43, 47, 68 or 100 of the Code for
which PageNet, Arch, as applicable, or any of its respective ERISA
Affiliates may be liable. Each of the Compensation and Benefit Plans
that is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA, other than a multiemployer plan (each a "Pension Plan"),
and that is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter from the Internal Revenue
Service (the "IRS") which covers all changes in law for which the
remedial amendment period (within the meaning of Section 401(b) of the
Code and applicable regulations) has expired and neither it, nor any of
its respective ERISA Affiliates is aware of any circumstances reasonably
likely to result in revocation of any such favorable determination
letter. There is no pending or, to the actual knowledge of PageNet's or
Arch', as applicable, Knowledgeable Executives, threatened material
litigation relating to its Compensation and Benefit Plans. Neither it,
nor any of its respective ERISA Affiliates, has engaged in a transaction
with respect to any of the Compensation and Benefit Plans that, assuming
the taxable period of such transaction expired as of the date of this
Agreement, would subject it or any of the ERISA Affiliates to a material
tax or penalty imposed by either Section 4975 of the Code or Section 502
of ERISA.
(iii) As of the date of this Agreement, no liability under Title IV
of ERISA (other than the payment of prospective premium amounts to the
Pension Benefit Guaranty Corporation in the normal course) has been or
is expected to be incurred by it or any of its respective ERISA
Affiliates with respect to any Compensation and Benefit Plan. No notice
of a "reportable event," within the meaning of Section 4043 of ERISA for
which the 30-day reporting requirement has not been waived, has been
required to be filed for any Pension Plans within the 12-month period
ending on the date of this Agreement or will be required to be filed in
connection with the transactions contemplated by this Agreement.
(iv) All contributions required to be made under the terms of any
of the Compensation and Benefit Plans as of the date of this Agreement
have been timely made or have been reflected on the most recent
consolidated balance sheet filed or incorporated by reference in its
Reports prior to the date of this Agreement. None of the Pension Plans
has an "accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
it, nor any of its respective ERISA Affiliates has provided, or is
required to provide, security to any Pension Plans pursuant to Section
401(a)(29) of the Code or to the PBGC pursuant to Title IV or ERISA.
(v) Under each of the Pension Plans as of the last day of the most
recent plan year ended prior to the date of this Agreement, the
actuarially determined present value of all "benefit liabilities,"
within the meaning of Section 4001(a)(16) of ERISA (as determined on the
basis of the actuarial assumptions contained in such Pension Plan's most
recent actuarial valuation), did not exceed the then current value of
the assets of such Pension Plan, and there has been no material change
in the financial condition of such Pension Plan since the last day of
the most recent plan year.
B-12
<PAGE> 379
(vi) Neither it, nor any of its respective ERISA Affiliates, have
any obligations for post-termination health and life benefits under any
of the Compensation and Benefit Plans, except as set forth in its
Reports filed prior to the date of this Agreement or as required by
applicable law.
(vii) The consummation of the Merger (or the approval thereof by
its respective stockholders) and the other transactions contemplated by
this Agreement, will not (except as may result from, or be contemplated
by, the Bankruptcy Case or the Prepackaged Plan): (x) entitle any of its
employees or directors or any employees of any of its ERISA Affiliates,
as applicable, to severance pay, directly or indirectly, upon
termination of employment or otherwise; (y) accelerate the time of
payment or vesting or trigger any payment of compensation or benefits
under, or increase the amount payable or trigger any other material
obligation pursuant to, any of the Compensation and Benefit Plans; or
(z) result in any breach or violation of, or a default under, any of the
Compensation and Benefit Plans.
(viii) None of the Compensation and Benefit Plans is a
multiemployer plan and neither it, nor any of its respective ERISA
Affiliates, have contributed or been obligated to contribute to a
multiemployer plan at any time.
(i) Compliance with Laws. Except as set forth in its Reports filed
prior to the date of this Agreement, the businesses of each of it and its
Subsidiaries have not been, and are not being, conducted in violation of
any law, statute, ordinance, regulation, judgment, order, decree,
injunction, arbitration award, license, authorization, opinion, agency
requirement or permit of any Governmental Entity or common law
(collectively, "Laws"), except for violations or possible violations that
are not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on it or prevent, materially delay or materially
impair its ability to consummate the transactions contemplated by this
Agreement. Except as set forth in its Reports filed prior to the date of
this Agreement, no investigation or review by any Governmental Entity with
respect to it or any of its Subsidiaries is pending or, to the actual
knowledge of the Knowledgeable Executives, threatened, nor has any
Governmental Entity indicated an intention to conduct the same, except for
those the outcome of which are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on it or prevent,
materially delay or materially impair its ability to consummate the
transactions contemplated by this Agreement. To the actual knowledge of the
Knowledgeable Executives, no material change is required in its or any of
its Subsidiaries' processes, properties or procedures in connection with
any such Laws, and it has not received any notice or communication of any
material noncompliance with any such Laws that has not been cured as of the
date of this Agreement, except for such changes and noncompliance that are
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it or prevent, materially delay or materially impair its
ability to consummate the transactions contemplated by this Agreement. Each
of it and its Subsidiaries has all permits, licenses, franchises,
variances, exemptions, orders, operating rights, and other governmental
authorizations, consents and approvals (collectively, "Permits"), necessary
to conduct their business as presently conducted, except for those the
absence of which are not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on it or prevent, materially delay
or materially impair its ability to consummate the transactions
contemplated by this Agreement.
(j) Takeover Statutes; Charter and Bylaw Provisions.
(i) The PageNet Board of Directors has taken all appropriate and
necessary actions to exempt the Merger, this Agreement and the other
transactions contemplated hereby from the restrictions of Section 203 of
the DGCL. No other "control share acquisition," "fair price,"
"moratorium" or other anti-takeover laws or regulations enacted under
U.S. stated or federal laws (each a "Takeover Statute") apply to the
Merger, this Agreement, or any of the other transactions contemplated
hereby. PageNet and the PageNet Board of Directors have taken all
appropriate and necessary actions to (A) render the PageNet Rights
Agreement inapplicable to the Merger and the other transactions
contemplated by this Agreement, (B) provide that (I) neither Arch nor
Merger Sub shall be deemed an Acquiring Person (as defined in the
PageNet Rights Agreement) as a result of this Agreement or the
transactions contemplated
B-13
<PAGE> 380
hereby and thereby, (II) no Distribution Date (as defined in the PageNet
Rights Agreement) shall be deemed to have occurred as a result of this
Agreement or the transactions contemplated hereby and (III) the rights
issuable pursuant to the PageNet Rights Agreement will not separate from
the shares of PageNet Common Stock, as a result of the approval,
execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby, and (C) render any anti-takeover or
other provision contained in the certificate of incorporation or by-laws
of PageNet inapplicable to the Merger, this Agreement and the other
transactions contemplated hereby.
(ii) The Arch Board of Directors has taken all appropriate and
necessary actions to exempt the Merger, this Agreement and the
transactions contemplated hereby from the restrictions of Section 203 of
the DGCL. No other Takeover Statute applies to this Agreement or any of
the transactions contemplated hereby. Arch and the Arch Board of
Directors have taken all appropriate and necessary actions to (A) amend
the Arch Rights Agreement as set forth in Exhibit B to this Agreement,
(B) provide that (I) PageNet shall not be deemed an Acquiring Person (as
defined in the Arch Rights Agreement) as a result of this Agreement or
the transactions contemplated thereby, (II) no Distribution Date (as
defined in the Arch Rights Agreement) shall be deemed to have occurred
as a result of this Agreement or the transactions contemplated thereby
unless the ownership threshold set forth in Exhibit B shall be exceeded,
and (III) the rights issuable pursuant to the Arch Rights Agreement will
not separate from the shares of Arch Common Stock, as a result of the
approval, execution or delivery of this Agreement or the consummation of
the transactions contemplated hereby unless the ownership threshold set
forth in Exhibit B shall be exceeded, and (C) render any anti-takeover
or other provision contained in the certificate of incorporation or by-
laws of Arch inapplicable to the Merger, this Agreement and the other
transactions contemplated hereby.
(k) Tax Matters. As of the date of this Agreement, neither it nor any
of its Subsidiaries has taken or agreed to take any action, nor do the
Knowledgeable Executives have any actual knowledge of any fact or
circumstance (excluding possible uncertainties regarding valuation of
securities to be issued in the Merger and Exchange Offers), that would
prevent the Merger and the other transactions contemplated by this
Agreement from qualifying as a "reorganization" within the meaning of
Section 368(a) of the Code.
(l) Taxes. It and each of its Subsidiaries have prepared in good
faith and duly and timely filed (taking into account any extension of time
within which to file) all material Tax Returns required to be filed by any
of them at or before the Effective Time and all such filed Tax Returns are
complete and accurate in all material respects. It and each of its
Subsidiaries as of the Effective Time: (x) will have paid all Taxes and
estimated Taxes (including all amounts shown to be due on all filed Tax
Returns) that they are required to pay prior to the Effective Time; and (y)
will have withheld or collected all federal, state and local income taxes,
FICA, FUTA and other Taxes, including, without limitation, similar foreign
Taxes, required to be withheld from amounts owing to any employee,
creditor, or third party, and to the extent required, will have paid such
amounts to the proper governmental authority. As of the date of this
Agreement, (i) there are not pending or threatened in writing, any audits,
examinations, investigations or other proceedings with respect to Taxes or
Tax matters, and (ii) there are not, to the actual knowledge of its
Knowledgeable Executives, any unresolved questions, claims or outstanding
proposed or assessed deficiencies concerning its or any of its
Subsidiaries' Tax liability which, if determined adversely would have a
Material Adverse Effect on it. Neither it nor any of its Subsidiaries has
any liability with respect to income, franchise or similar Taxes in excess
of the amounts accrued with respect to such Taxes that are reflected in the
financial statements included in its Reports. Neither it nor any of its
Subsidiaries has executed any waiver of any statute of limitations on, or
extended the period for the assessment or collection of, any Tax. There are
no tax liens (other than liens for current Taxes not yet due and payable)
upon its assets or the assets of any Subsidiary. There is no "Section 382
limitation," as defined in Section 382(b) of the Code, currently applicable
to its or its Subsidiaries' net operating loss, investment credit, or other
tax attribute carryforwards. Neither it nor any of its Subsidiaries: (A) is
a party to any tax sharing
B-14
<PAGE> 381
agreement; or (B) is liable for the Tax obligations of any person other
than it or one of its Subsidiaries.
The term "Tax" (including, with correlative meaning, the terms "Taxes," and
"Taxable") includes all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital stock,
severance, stamp, payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, value added, occupancy and other
taxes, duties, charges, fees, or assessments of any nature whatsoever, together
with all interest, penalties and additions imposed with respect to such amounts
and any interest with respect to such penalties and additions. The term "Tax
Return" includes all federal, state, local and foreign returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
(m) Labor Matters. Neither it nor any of its Subsidiaries is the
subject of any material proceeding asserting that it or any of its
Subsidiaries has committed an unfair labor practice or is seeking to compel
it to bargain with any labor union or labor organization, nor is there
pending or, to the actual knowledge of its Knowledgeable Executives,
threatened, nor has there been for the past five years, any labor strike,
dispute, walkout, work stoppage, slow-down or lockout involving it or any
of its Subsidiaries, except in each case as is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on it. None
of the employees of PageNet or Arch or any of their respective Subsidiaries
is subject to a collective bargaining agreement, no collective bargaining
agreement is currently being negotiated, and no attempt is currently being
made or during the past three (3) years has been made to organize any of
its employees to form or enter into any labor union or similar
organization.
(n) Environmental Matters. Except as disclosed in its Reports filed
prior to the date of this Agreement and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect on it: (i) each of it and its Subsidiaries has
complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by it or any of its Subsidiaries (including
soils, groundwater, surface water, buildings, or other structures) do not
contain any Hazardous Substances; (iii) the properties formerly owned or
operated by it or any of its Subsidiaries did not contain any Hazardous
Substances during the period of ownership or operation by it or any of its
Subsidiaries; (iv) neither it nor any of its Subsidiaries is subject to
liability for any Hazardous Substance disposal or contamination on any
third party property; (v) neither it nor any Subsidiary has been associated
with any release or threat of release of any Hazardous Substance; (vi)
neither it nor any Subsidiary has received any notice, demand, letter,
claim, or request for information alleging that it or any of its
Subsidiaries may be in violation of or liable under any Environmental Law;
(vii) neither it nor any of its Subsidiaries is subject to any orders,
decrees, injunctions, or other arrangements with any Governmental Entity or
is subject to any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances; and (viii) there are no circumstances or conditions involving
it or any of its Subsidiaries that could reasonably be expected to result
in any claims, liability, investigations, costs, or restrictions on the
ownership, use, or transfer of any of its properties pursuant to any
Environmental Law.
The term "Environmental Law" means any Law relating to: (A) the protection,
investigation or restoration of the environment, health, safety, or natural
resources; (B) the handling, use, presence, disposal, release, or threatened
release of any Hazardous Substance; or (C) noise, odor, wetlands, pollution,
contamination, or any injury or threat of injury to persons or property or
notifications to government agencies or the public in connection with any
Hazardous Substance.
The term "Hazardous Substance" means any substance that is listed,
classified, or regulated pursuant to any Environmental Law, including any
petroleum product or by-product, asbestos- containing material, lead-containing
paint or plumbing, polychlorinated biphenyls, electromagnetic fields, microwave
transmission, radioactive materials, or radon.
B-15
<PAGE> 382
(o) Brokers and Finders. Neither it nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in
connection with the Merger or the other transactions contemplated in this
Agreement, except that: (i) PageNet has employed Houlihan Lokey Howard &
Zukin Capital, Goldman, Sachs & Co. and Morgan Stanley Dean Witter as its
financial advisors, the arrangements with which have been disclosed to Arch
prior to the date of this Agreement; and (ii) Arch has employed Bear,
Stearns & Co. Inc. as its financial advisor, the arrangements with which
have been disclosed to PageNet prior to the date of this Agreement.
(p) Computer Systems. Except as set forth in its Reports: (i) its
computer system performs and shall perform properly all date-sensitive
functions with respect to dates prior to and after December 31, 1999; and
(ii) it has developed feasible contingency plans to ensure uninterrupted
and unimpaired business operation in the event of a failure of its own or a
third party's computer system or equipment on or about January 1, 2000
(including, those of vendors, customers, and suppliers, and a general
failure of, or interruption in, its communications and delivery
infrastructure).
(q) FCC Licenses. Each of Arch and PageNet, and each of its
respective Subsidiaries, is the authorized and legal holder of, or
otherwise has all rights to, all Permits issued under or pursuant to the
Communications Act, the FCC Regulations, and State Laws which are necessary
for the operation of their respective businesses as presently operated,
except as would not, individually or in aggregate, have a Materially
Adverse Effect on it. All such Permits and licenses are validly issued and
in full force and effect, except as would not, individually or in the
aggregate, have a Material Adverse Effect on it. Each of Arch and PageNet,
and each of its respective Subsidiaries, is in compliance in all respects
with the terms and conditions of each such Permit and with all applicable
Governmental Regulations, except where the failure to be in compliance
would not have a Material Adverse Effect on it. There is not pending, and
to the actual knowledge of the Knowledgeable Executives of Arch and
PageNet, as applicable, any threatened, action by or before the FCC or any
governmental or regulatory authority to revoke, suspend, cancel, rescind,
or modify in any material respect any of such party's Permits rights under
the Communications Act, the FCC Regulations or State Laws. Each party has
made all regulatory filings required, and paid all fees and assessments
imposed, by any Governmental Entity, and all such filings and the
calculation of such fees, are accurate in all material respects, except
where the failure to make such filing or pay such fees or assessments would
not have a Material Adverse Effect on such party.
ARTICLE VI.
COVENANTS
6.1. Interim Operations.
(a) PageNet covenants and agrees as to itself and its Subsidiaries that,
from and after the date of this Agreement and prior to the Effective Time
(unless Arch shall otherwise approve in writing, and except as otherwise
expressly contemplated by this Agreement, disclosed in the PageNet Disclosure
Letter, or required by applicable Law):
(i) Its business and the business of its Subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent
consistent therewith, it and its Subsidiaries shall use their reasonable
best efforts to preserve their respective business organizations intact and
maintain their respective existing relations and goodwill with customers,
suppliers, regulators, distributors, creditors, lessors, employees and
business associates;
(ii) It shall not: (A) amend its certificate of incorporation or
bylaws; (B) split, combine, subdivide or reclassify its outstanding shares
of capital stock; (C) declare, set aside or pay any dividend payable in
cash, stock or property with respect to any capital stock; or (D)
repurchase, redeem or otherwise acquire, except in connection with existing
commitments under PageNet Stock Plans but subject to PageNet's obligations
under subparagraph (iii) below, or permit any of its
B-16
<PAGE> 383
Subsidiaries to purchase or otherwise acquire, any shares of its capital
stock or any securities convertible into, or exchangeable or exercisable
for, any shares of its capital stock;
(iii) Neither it nor any of its Subsidiaries shall take any action
that would prevent the Merger from qualifying as a "reorganization" within
the meaning of Section 368(a) of the Code or that would cause any of its
representations and warranties in this Agreement to become untrue in any
material respect;
(iv) Neither it nor any of its ERISA Affiliates shall: (A) accelerate,
amend or change the period of exercisability of or terminate, establish,
adopt, enter into, make any new grants or awards of stock-based
compensation or other benefits under any Compensation and Benefit Plans;
(B) amend or otherwise modify any Compensation and Benefit Plan; or (C)
increase the salary, wage, bonus or other compensation of any directors,
officers or key employees, except: (x) for grants or awards to directors,
officers and employees of it or its Subsidiaries under existing
Compensation and Benefit Plans in such amounts and on such terms as are
consistent with past practice; (y) in the ordinary and usual course of its
business (which may include normal periodic performance reviews and related
compensation and benefit increases and the provision of individual PageNet
Compensation and Benefit Plans consistent with past practice for promoted
or newly hired officers and employees on terms consistent with past
practice);or (z) for actions necessary to satisfy existing contractual
obligations under Compensation and Benefit Plans existing as of the date of
this Agreement;
(v) Neither it nor any of its Subsidiaries shall incur, repay or
retire prior to maturity or refinance any indebtedness for borrowed money
or guarantee any such indebtedness or issue, sell, repurchase or redeem
prior to maturity any debt securities or warrants or rights to acquire any
debt securities or guarantee any debt securities of others, except (A) in
the ordinary and usual course of its business, (B) for any refinancing of
such indebtedness or debt securities on terms no less favorable in the
aggregate to PageNet and which would not prevent, materially delay or
materially impair PageNet's ability to consummate the transactions
contemplated by this Agreement, and (C) for any retirement in exchange for
PageNet Shares consistent with past practice;
(vi) Neither it nor any of its Subsidiaries shall make any capital
expenditures in an aggregate amount in excess of the aggregate amount
reflected in PageNet's capital expenditure budget for the fiscal years
ending December 31, 1999 and 2000, a copy of which has been provided to
Arch;
(vii) Neither it nor any of its Subsidiaries shall issue, deliver,
sell, pledge or encumber shares of any class of its capital stock or any
securities convertible or exchangeable into, or any rights, warrants or
options to acquire, or any bonds, debentures, notes, or other debt
obligations having the right to vote or that are convertible or exercisable
for, any such shares, except PageNet may issue PageNet Shares in exchange
for indebtedness or debt securities pursuant to clause (v) above;
(viii) Neither it nor any of its Subsidiaries shall authorize, propose
or announce an intention to authorize or propose, or enter into an
agreement with respect to, any merger, consolidation or business
combination (other than the Merger), or any purchase, sale, lease, license
or other acquisition or disposition of any business or of a material amount
of assets or securities, except for transactions entered into in the
ordinary and usual course of its business, except for any acquisition of
assets or any investment having a cash purchase price of $25,000,000 or
less in any single instance and $50,000,000 or less in the aggregate where
such acquisition or investment would not prevent, materially delay or
materially impair PageNet's ability to consummate the transactions
contemplated by this Agreement;
(ix) PageNet shall not make any material change in its accounting
policies or procedures, other than any such change that is required by
GAAP;
(x) PageNet shall not release, assign, settle or compromise any
material claims or litigation in excess of $300,000 or make any material
tax election or settle or compromise any material federal, state, local or
foreign tax liability; and
B-17
<PAGE> 384
(xi) Neither it nor any of its Subsidiaries shall authorize or enter
into any agreement to do any of the foregoing.
(b) Arch covenants and agrees as to itself and its Subsidiaries that, from
and after the date of this Agreement and prior to the Effective Time (unless
PageNet shall otherwise approve in writing and except as otherwise expressly
contemplated by this Agreement, disclosed in the Arch Disclosure Letter, or
required by applicable Law):
(i) Its business and the business of its Subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent
consistent therewith, it and its Subsidiaries shall use their reasonable
best efforts to preserve their respective business organizations intact and
maintain their respective existing relations and goodwill with customers,
suppliers, regulators, distributors, creditors, lessors, employees and
business associates;
(ii) It shall not: (A) amend its certificate of incorporation or
bylaws; (B) split, combine, subdivide or reclassify its outstanding shares
of capital stock; (C) declare, set aside or pay any dividend payable in
cash, stock or property with respect to any capital stock, except for a
dividend that would be received by holders of PageNet Shares on an
equivalent post-Merger basis per share of Arch Common Stock after the
Effective Time; or (D) repurchase, redeem or otherwise acquire, except in
connection with existing commitments under Arch Stock Plans but subject to
Arch' obligations under subparagraph (iii) below, or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares of its capital
stock or any securities convertible into, or exchangeable or exercisable
for, any shares of its capital stock;
(iii) Neither it nor any of its Subsidiaries shall take any action
that would prevent the Merger from qualifying as a "reorganization" within
the meaning of Section 368(a) of the Code or that would cause any of its
representations and warranties in this Agreement to become untrue in any
material respect;
(iv) Neither it nor any of its ERISA Affiliates shall: (A) accelerate,
amend or change the period of exercisability of or terminate, establish,
adopt, enter into, make any new grants or awards of stock-based
compensation or other benefits under any Compensation and Benefit Plans;
(B) amend or otherwise modify any Compensation and Benefit Plan; or (C)
increase the salary, wage, bonus or other compensation of any directors,
officers or key employees, except: (x) for grants or awards to directors,
officers and employees of it or its Subsidiaries under existing
Compensation and Benefit Plans in such amounts and on such terms as are
consistent with past practice; (y) in the ordinary and usual course of its
business (which may include normal periodic performance reviews and related
compensation and benefit increases and the provision of individual Arch
Compensation and Benefit Plans consistent with past practice for promoted
or newly hired officers and employees on terms consistent with past
practice); or (z) for actions necessary to satisfy existing contractual
obligations under its Compensation and Benefit Plans existing as of the
date of this Agreement;
(v) Neither it nor any of its Subsidiaries shall incur, repay or
retire prior to maturity or refinance any indebtedness for borrowed money
or guarantee any such indebtedness or issue, sell, repurchase or redeem
prior to maturity any debt securities or warrants or rights to acquire any
debt securities or guarantee any debt securities of others, except in (A)
the ordinary and usual course of its business, (B) for any refinancing of
such indebtedness or debt securities on terms no less favorable in the
aggregate to Arch and which would not prevent, materially delay or
materially impair Arch' or Merger Sub's ability to consummate the
transactions contemplated by this Agreement, and (C) for any retirement in
exchange for shares of Arch Common Stock consistent with past practice;
(vi) Neither it nor any of its Subsidiaries shall make any capital
expenditures in an aggregate amount in excess of the aggregate amount
reflected in Arch' capital expenditure budget for the fiscal years ending
December 31, 1999 and 2000, a copy of which has been provided to PageNet;
(vii) Neither it nor any of its Subsidiaries shall issue, deliver,
sell, pledge or encumber shares of any class of its capital stock or any
securities convertible or exchangeable into, or any rights, warrants
B-18
<PAGE> 385
or options to acquire, or any bonds, debentures, notes, or other debt
obligations having the right to vote or that are convertible or exercisable
for, any such shares, except Arch may issue shares of Arch Common Stock
issued in exchange for indebtedness or debt securities pursuant to clause
(v) above;
(viii) Neither it nor any of its Subsidiaries shall authorize, propose
or announce an intention to authorize or propose, or enter into an
agreement with respect to, any merger, consolidation or business
combination (other than the Merger), or any purchase, sale, lease, license
or other acquisition or disposition of any business or of a material amount
of assets or securities, except for transactions entered into in the
ordinary and usual course of its business, except for any acquisition of
assets or any investment having a cash purchase price of $25,000,000 or
less in any single instance and $50,000,000 or less in the aggregate where
such acquisition or investment would not prevent, materially delay or
materially impair Arch' or Merger Sub's ability to consummate the
transactions contemplated by this Agreement;
(ix) Arch shall not make any material change in its accounting
policies or procedures, other than any such change that is required by
GAAP;
(x) Arch shall not release, assign, settle or compromise any material
claims or litigation in excess of $300,000 or make any material tax
election or settle or compromise any material federal, state, local or
foreign tax liability; and
(xi) Neither it nor any of its Subsidiaries shall authorize or enter
into any agreement to do any of the foregoing.
(c) Arch and PageNet agree that any written approval obtained under this
Section 6.1 must be signed, if on behalf of Arch, by the Chief Executive Officer
or the Chief Financial Officer of Arch, or if on behalf of PageNet, by the
Chairman of the Board and Chief Executive Officer or President and Chief
Operating Officer of PageNet.
(d) Notwithstanding any other provision hereof to the contrary, PageNet
may, after the date hereof (i) issue, deliver, sell, pledge or encumber in
arms-length transactions with unaffiliated third parties shares of any class of
capital stock of the Distributed Subsidiary or any securities convertible or
exchangeable into, or any rights, warrants or options to acquire, or any bonds,
debentures, notes, or other debt obligations having the right to vote or that
are convertible or exercisable for, any such shares of the Distributed
Subsidiary, (ii) cause the Distributed Subsidiary to incur any indebtedness for
borrowed money, if all proceeds thereof are used solely by the Distributed
Subsidiary, (iii) transfer the assets set forth in the corresponding section of
the PageNet Disclosure Letter to the Distributed Subsidiary, (iv) determine the
form of security or securities representing the equity ownership of the
Distributed Subsidiary to be distributed to the holders of PageNet Shares or
PageNet Notes pursuant to Sections 6.18 and 6.22 of this Agreement and designate
the rights and restrictions applicable to such securities, (v) establish an
employee stock option, stock ownership or other similar plan and set aside
common equity (of the same type as the Distributed Interests or any securities
underlying such Distributed Interests) representing up to 20% of the equity
ownership of the Distributed Subsidiary for such purpose, or (vi) enter into
such transactions, arrangements or agreements with the Distributed Subsidiary on
terms and conditions approved by Arch or cause the Distributed Subsidiary to
enter into arms-length transactions, arrangements or agreements with third
parties, in each case, as are reasonably necessary and appropriate to permit the
Distributed Subsidiary to continue its business and operations in the ordinary
course following the Merger; provided, that the taking of such action shall not
cause Arch or the Surviving Corporation (other than through its ownership of
capital stock in the Distributed Subsidiary after the Effective Time) to incur
any liability or obligation which would not have been incurred by the Surviving
Corporation pursuant to the Merger or the other transactions contemplated
hereby. It is understood and agreed by the parties to this Agreement, that in
the event that, prior to or at the Effective Time, PageNet shall take any action
set forth in (i), (ii), (v) or (vi) above that reduces the aggregate amount of
Distributed Interests available to be distributed to the parties, the
distribution of the Distributed Interests will be ratably adjusted such that
holders of PageNet Shares at the Vast Distribution Record Date and holders of
PageNet Notes immediately prior to the Effective Time receive 80.5% of the
remaining interests
B-19
<PAGE> 386
in the Distributed Subsidiary and the Surviving Corporation receives 19.5% of
the remaining interests in the Distributed Subsidiary.
6.2. Acquisition Proposals.
(a) Except as set forth in Section 6.1(d) of this Agreement, PageNet and
Arch each agree that neither it nor any of its Subsidiaries nor any of the
officers and directors of it or its Subsidiaries shall, and that each shall
direct and use its best efforts to cause its and its Subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) (PageNet or Arch, as the
case may be, its respective Subsidiaries and their officers, directors,
employees, agents and representatives being referred to as its
"Representatives") not to, directly or indirectly, initiate, solicit, encourage
or otherwise facilitate any inquiries or the making of any proposal or offer
with respect to a merger, reorganization, acquisition, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving it, or any purchase or sale of the consolidated
assets (including without limitation stock of Subsidiaries) of it or any of its
Subsidiaries, taken as a whole, having an aggregate value equal to 10% or more
of its assets, or any purchase or sale of, or tender or exchange offer for, 15%
or more of its equity securities (any such proposal or offer being referred to
as an "Acquisition Proposal"). PageNet and Arch further agree that neither it
nor any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
its Representatives not to, directly or indirectly, have any discussion with, or
provide any confidential information or data to, any Person relating to, or in
contemplation of, an Acquisition Proposal or engage in any negotiations
concerning an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent PageNet, Arch or their
respective Board of Directors from: (A) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to an Acquisition Proposal; (B) engaging in
any discussions or negotiations with or providing any information to, any Person
in response to an unsolicited bona fide written Acquisition Proposal by any such
Person; or (C) subject to the obligation of (x) PageNet pursuant to Section
6.5(a) to duly convene a PageNet Stockholders Meeting at which a vote of the
stockholders of PageNet shall be taken regarding the adoption of this Agreement
and the approval of the Merger and the other transactions contemplated by this
Agreement, and (y) Arch pursuant to Section 6.5(b) to duly convene a Arch
Stockholders Meeting at which a vote of the stockholders of Arch shall be taken
with respect to the matters set forth in Section 6.5(b) of this Agreement,
recommending such an unsolicited bona fide written Acquisition Proposal to its
stockholders if, and only to the extent that, with respect to the actions
referred to in clauses (B) or (C): (i) its Board of Directors concludes in good
faith (after consultation with its outside legal counsel and its financial
advisor) that such Acquisition Proposal is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the proposal and the Person making the proposal, and would, if
consummated, result in a transaction more favorable to its stockholders from a
financial point of view than the transaction contemplated by this Agreement (any
such Acquisition Proposal being referred to herein as a "Superior Proposal");
(ii) its Board of Directors determines in good faith after consultation with
outside legal counsel that such action is necessary for the Board of Directors
to comply with its fiduciary duty to its stockholders under applicable Law; and
(iii) prior to providing any information or data to any Person in connection
with a Superior Proposal by any such Person, its Board of Directors shall
receive from such Person an executed confidentiality agreement on terms
substantially similar to those contained in the Confidentiality Agreement (as
defined in Section 6.15); provided, that such confidentiality agreement shall
contain terms that allow it to comply with its obligations under this Section
6.2.
(b) PageNet and Arch each agree that it will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal. PageNet
and Arch each agree that it will take the necessary steps to promptly inform
each of its Representatives of the obligations undertaken in Section 6.2(a).
PageNet and Arch each agree that it will notify the other party immediately if
any such inquiries, proposals or offers are received by, any such information is
requested from, or any such discussions or negotiations are sought to
B-20
<PAGE> 387
be initiated or continued with, any of its Representatives indicating, in
connection with such notice, the name of such Person making such inquiry,
proposal, offer or request and the substance of any such inquiries, proposals or
offers. Such party thereafter shall keep the other informed, on a current basis,
of the status and terms of any such inquiries, proposals or offers and the
status of any such discussions or negotiations. PageNet and Arch each also agree
that it will promptly request each Person that has heretofore executed a
confidentiality agreement in connection with its consideration of any
Acquisition Proposal to return all confidential information heretofore furnished
to such Person by, or on behalf of, it or any of its Subsidiaries.
6.3. The Certificate Amendments. Arch shall take all actions necessary
(subject to applicable law and any necessary stockholder approval) to adopt the
Certificate Amendments. The Certificate Amendments shall provide for an increase
in the authorized number of shares of Arch Common Stock to an amount sufficient
to effectuate the actions contemplated hereby and, if Arch so elects, may
provide for the conversion of each share of Arch Class B Common Stock into one
share of Arch Common Stock. Some or all of the Certificate Amendments may, in
the discretion of Arch, be made contingent upon the consummation of the Merger
or the Alternative Merger (as the case may be).
6.4. Information Supplied. PageNet and Arch each agrees, as to itself and
its Subsidiaries, that none of the information supplied or to be supplied by it
or its Subsidiaries for inclusion or incorporation by reference in: (i) the
Registration Statement on Form S-4 to be filed with the SEC by Arch in
connection with the issuance of shares of Arch Common Stock in the Merger
(including the joint proxy statement and prospectus (the "Prospectus/Proxy
Statement") constituting a part thereof) (the "S-4 Registration Statement")
will, at the time the S-4 Registration Statement becomes effective under the
Securities Act; and (ii) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the time
of each of the PageNet Stockholders Meeting and the Arch Stockholders Meeting to
be held in connection with the Merger, in any such case, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If at any time
prior to the Effective Time any information relating to Arch or PageNet, or any
of their respective affiliates (as defined in SEC Rule 12b-2), officers or
directors, is discovered by Arch or PageNet which should be set forth in an
amendment or supplement to any of the S-4 Registration Statement or the
Prospectus/Proxy Statement, so that any of such documents would not include any
misstatement of a material fact or would omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, the
party which discovers such information shall promptly notify the other parties
to this Agreement and an appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and, to the extent required by
law, disseminated to the stockholders of PageNet and Arch.
6.5. Stockholders Meetings.
(a) PageNet will take, in accordance with applicable Law and its
certificate of incorporation and bylaws, all action necessary to convene a
meeting of its stockholders (the "PageNet Stockholders Meeting") as promptly as
practicable after the S-4 Registration Statement is declared effective to
consider and vote upon the adoption of this Agreement, and to approve the
Merger, an amendment to the PageNet certificate of incorporation to increase the
number of PageNet Shares authorized to an amount sufficient to complete the
transactions contemplated by this Agreement and the other transactions
contemplated by this Agreement. PageNet will take all necessary action to obtain
the adoption of this Agreement, the approval of the Merger, the amendment to the
PageNet certificate of incorporation to increase the number of PageNet Shares
authorized to the amount sufficient to complete the transactions contemplated by
this Agreement and the other transactions contemplated by this Agreement by the
holders of the PageNet Shares (the "PageNet Stockholders Approval"). The Board
of Directors of PageNet shall: (i) recommend that the stockholders adopt this
Agreement and thereby approve the Merger and the other transactions contemplated
by this Agreement (including without limitation adoption of the Prepackaged Plan
and authorization of the Bankruptcy Case) and the amendment to the PageNet
certificate of incorporation to
B-21
<PAGE> 388
increase the number of PageNet Shares authorized to the amount sufficient to
complete the transactions contemplated by this Agreement; and (ii) take all
lawful action to solicit such adoption and approval; provided, however, that
PageNet's Board of Directors may, at any time prior to the Effective Time,
withdraw, modify or change any such recommendation to the extent that PageNet's
Board of Directors determines in good faith, after consultation with outside
legal counsel, that such withdrawal, modification or change of its
recommendation is required by its fiduciary duties to PageNet's stockholders
under applicable Law; provided, further, that, unless this Agreement is
terminated by Arch pursuant to Section 8.4, PageNet shall, as promptly as
practicable after the S-4 Registration Statement is declared effective, duly
convene and complete the PageNet Stockholders Meeting regarding the adoption of
this Agreement and the approval of the Merger, the amendment to the PageNet
certificate of incorporation set forth above and the other transactions
contemplated by this Agreement, regardless of whether PageNet's Board of
Directors has withdrawn, modified, or changed its recommendation to the
stockholders regarding the adoption of this Agreement or the approval of the
Merger, the amendment to the PageNet certificate of incorporation set forth
above or the other transactions contemplated by this Agreement prior to such
PageNet Stockholders Meeting. Notwithstanding the foregoing or any other
provision of this Agreement to the contrary, PageNet shall not be required to
convene a PageNet Stockholders Meeting after (x) the Bankruptcy Case has
commenced or (y) PageNet stipulates to bankruptcy relief after the occurrence of
an Involuntary Insolvency Event pursuant to Section 6.19(a)(v) hereof.
(b) Arch will take, in accordance with applicable Law and its certificate
of incorporation and bylaws, all action necessary to convene a meeting of its
stockholders (the "Arch Stockholders Meeting") as promptly as practicable after
the S-4 Registration Statement is declared effective to (i) consider and vote
upon (A) the Certificate Amendments and the issuance of shares of Arch Common
Stock pursuant to the Merger, the conversion of the Arch Class B Common Stock
(if Arch elects to have such shares converted pursuant to the Certificate
Amendments) and the Arch Exchange Offer or (B) if the Alternative Merger is
elected pursuant to Section 4.5 and Arch is a party to the Alternative Merger,
the adoption of this Agreement and the approval of the Alternative Merger and
the other transactions contemplated by this Agreement (including the actions
contemplated by the Certificate Amendments, which may be effectuated pursuant to
a certificate of merger filed in connection with such Alternative Merger); and
(ii) to approve any actions necessary pursuant to Section 3.1 hereof (with
respect to all matters other than the approval of the conversion of the Arch
Class B Common Stock pursuant to the Certificate Amendment, the "Arch
Stockholder Approval"). Arch will take all necessary action to obtain such
consents and approvals. The Board of Directors of Arch shall: (i) recommend that
the stockholders adopt the Certificate Amendments and approve the issuance of
Arch Common Stock pursuant to the Merger, the conversion of the Arch Class B
Common Stock (if Arch elects to have such shares converted pursuant to the
Certificate Amendments) and the Arch Exchange Offer (or this Agreement and the
Alternative Merger if Arch is a party to the Alternative Merger) and the other
transactions contemplated by this Agreement; and (ii) take all lawful action to
solicit such adoption; provided, however, that Arch' Board of Directors may, at
any time prior to the Effective Time, withdraw, modify or change any such
recommendation to the extent that Arch' Board of Directors determines in good
faith, after consultation with outside legal counsel, that such withdrawal,
modification or change of its recommendation is required by its fiduciary duties
to Arch' stockholders under applicable Law; provided, further, that, unless this
Agreement is terminated by PageNet pursuant to Section 8.3, Arch shall, as
promptly as practicable after the S-4 Registration Statement is declared
effective, duly convene and complete the Arch Stockholders Meeting regarding the
adoption of the Certificate Amendments and the issuance of shares of Arch Common
Stock pursuant to the Merger, the conversion of the Arch Class B Common Stock
(if Arch elects to have such shares converted pursuant to the Certificate
Amendments) and the Arch Exchange Offer (or this Agreement and the Alternative
Merger if Arch is a party to the Alternative Merger) and the other transactions
contemplated by this Agreement, regardless of whether Arch' Board of Directors
has withdrawn, modified, or changed its recommendation to the stockholders
regarding the adoption of the Certificate Amendments and the issuance of shares
of Arch Common Stock pursuant to the Merger, the conversion of the Arch Class B
Common Stock (if Arch elects to have such shares converted pursuant to the
Certificate Amendments) and the Arch Exchange Offer (or this Agreement and the
Alternative Merger if Arch is a
B-22
<PAGE> 389
party to the Alternative Merger) or the other transactions contemplated by this
Agreement prior to such Arch Stockholders Meeting.
6.6. Filings; Other Actions; Notification.
(a) Arch and PageNet shall promptly prepare and file with the SEC the
Prospectus/Proxy Statement, and Arch shall prepare and file with the SEC the S-4
Registration Statement as promptly as practicable. Arch and PageNet each shall
use its reasonable best efforts to have the S-4 Registration Statement declared
effective under the Securities Act as promptly as practicable and on the same
day as each of the Exchange Registration Statements, and promptly thereafter
mail the Prospectus/Proxy Statement to the stockholders of Arch and PageNet.
Arch shall also use its reasonable best efforts to obtain prior to the effective
date of the S-4 Registration Statement all necessary state securities law or
"blue sky" permits and approvals required in connection with the Merger and the
other transactions contemplated by this Agreement and will pay all expenses
incident thereto. Each party shall notify the other of the receipt of the
comments of the SEC and of any requests by the SEC for amendments or supplements
to the Prospectus/Proxy Statement or the S-4 Registration Statement or for
additional information and shall promptly supply one another with copies of all
correspondence between any of them (or their Representatives) and the SEC (or
its staff) with respect thereto. If, at any time prior to either of the Arch
Stockholders Meeting or the PageNet Stockholders Meeting, any event shall occur
relating to or affecting Arch, PageNet, or their respective officers or
directors, which event should be described in an amendment or supplement to the
Prospectus/Proxy Statement or the S-4 Registration Statement, the parties shall
promptly inform one another and shall cooperate in promptly preparing filing and
clearing with the SEC and, if required by applicable securities laws, mailing to
Arch' or PageNet's stockholders, as the case may be, such amendment or
supplement.
(b) PageNet and Arch each shall use its respective reasonable best efforts
to cause to be delivered to the other party and its directors a letter of its
independent auditors, dated: (i) the date on which the S-4 Registration
Statement and the Exchange Registration Statements shall become effective; and
(ii) the Closing Date, and addressed to the other party and its directors, in
form and substance customary for "comfort" letters delivered by independent
public accountants in connection with registration statements similar to the S-4
Registration Statement and the Exchange Registration Statements.
(c) PageNet and Arch shall cooperate with each other and use (and shall
cause their respective Subsidiaries to use) their respective reasonable best
efforts: (i) to take or cause to be taken all actions, and do or cause to be
done all things, necessary, proper or advisable on its part under this Agreement
and applicable Laws to consummate and make effective the Merger, the Exchange
Offers and the other transactions contemplated by this Agreement (including, if
necessary, the Prepackaged Plan) as soon as practicable, including: (A)
obtaining opinions of their respective attorneys referred to in Article VII
below; (B) preparing and filing as promptly as practicable all documentation to
effect all necessary applications, notices, petitions, filings and other
documents; and (C) instituting court actions or other proceedings necessary to
obtain the approvals required to consummate the Merger, the Exchange Offers or
the other transactions contemplated by this Agreement or defending or otherwise
opposing all court actions or other proceedings instituted by a Governmental
Entity or other Person under the Governmental Regulations for purposes of
preventing the consummation of the Merger, the Exchange Offers and the other
transactions contemplated by this Agreement; and (ii) to obtain as promptly as
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger, the Exchange Offers or
any of the other transactions contemplated by this Agreement; provided, however,
that nothing in this Section 6.5 shall require either Arch or PageNet to agree
to any divestitures or hold separate or similar arrangements if such
divestitures or arrangements would reasonably be expected to have a material
adverse effect on Arch or PageNet, or a material adverse effect on the expected
benefits of the Merger to it. Neither Arch nor PageNet will agree to any
divestitures or hold separate or similar arrangements without the prior written
approval of the other party. Subject to applicable laws relating to the exchange
of information, Arch and PageNet shall have the right to review in advance, and
to the extent practicable each will consult the other party on, all the
information relating to Arch or PageNet, as the case may be, and any of their
respective
B-23
<PAGE> 390
Subsidiaries, that appear in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement. In
exercising the foregoing right, each of PageNet and Arch shall act reasonably
and as promptly as practicable.
(d) PageNet and Arch each shall, upon request by the other party, furnish
the other party with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Prospectus/Proxy Statement, the
S-4 Registration Statement, the Exchange Registration Statements or any other
statement, filing, notice or application made by, or on behalf of, Arch, PageNet
or any of their respective Subsidiaries to any third party and/or any
Governmental Entity in connection with the Merger, the Exchange Offers and the
transactions contemplated by this Agreement.
(e) PageNet and Arch each shall keep the other party apprised of the status
of matters relating to completion of the transactions contemplated by this
Agreement, including promptly furnishing the other party with copies of notices
or other communications received by Arch or PageNet, as the case may be, or any
of its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger, the Exchange Offers and the other transactions
contemplated by this Agreement. Each of PageNet and Arch shall give prompt
notice to the other party of any change that is reasonably likely to result in a
Material Adverse Effect on it or of any failure of any conditions to the other
party's obligations to effect the Merger set forth in Article VII.
(f) Each of PageNet and Arch agrees that if a bona fide Acquisition
Proposal is made to acquire shares of the other party to this Agreement, then
upon the request of the party not receiving the Acquisition Proposal, the party
receiving the Acquisition Proposal will cooperate with the other party to this
Agreement to make such filings and take such other actions as may be permitted
or required under the FCC's Policy Statement in Tender Offers and Proxy
Contests, in order to allow the parties to this Agreement to take all steps as
are necessary to consummate the transactions contemplated hereby pending FCC
approval of the transaction.
6.7. Access; Consultation. Upon reasonable notice, and except as may be
prohibited by applicable Law, PageNet and Arch each shall (and shall cause its
Subsidiaries to) afford the other and its respective Representatives, reasonable
access, during normal business hours throughout the period prior to the
Effective Time, to its properties, books, contracts and records and, during such
period, each shall (and shall cause its Subsidiaries to) furnish promptly to the
other party all information concerning its business, properties and personnel as
may reasonably be requested; provided that no investigation pursuant to this
section shall affect or be deemed to modify any representation or warranty made
by PageNet or Arch under this Agreement; and provided, further, that the
foregoing shall not require PageNet or Arch to permit any inspection, or to
disclose any information, that in the reasonable judgment of PageNet or Arch, as
the case may be, would result in the disclosure of any trade secrets of it or
third parties, or violate any of its obligations with respect to confidentiality
if PageNet or Arch, as the case may be, shall have used all reasonable efforts
to obtain the consent of such third party to such inspection or disclosure. All
requests for information made pursuant to this section shall be directed to an
executive officer of PageNet or Arch, as the case may be, or such Person as may
be designated by any such executive officer, as the case may be.
6.8. Affiliates. PageNet shall deliver to Arch a letter identifying all
Persons whom PageNet believes to be, at the date of its Stockholders Meeting,
affiliates of PageNet for purposes of Rule 145 under the Securities Act ("Rule
145 Affiliates"). PageNet shall use all reasonable efforts to cause each Person
who is identified as a Rule 145 Affiliate in the letter referred to above to
deliver to Arch on or prior to the date of such party's respective Stockholders
Meeting a written agreement, in the form attached as Exhibit C (the "PageNet
Affiliates Agreement"). Prior to the Effective Time, PageNet shall use all
reasonable efforts to cause each additional Person who is identified as a Rule
145 Affiliate after the date of its Stockholders Meeting to execute the
applicable written agreement as set forth in this Section 6.8, as soon as
practicable after such Person is identified.
B-24
<PAGE> 391
6.9. Stock Exchange Listing. Arch shall use its reasonable best efforts
to file a notification for listing of additional shares with respect to the
shares of Arch Common Stock to be issued pursuant to the Merger, Arch Exchange
Offer and pursuant to the Certificate Amendments with the Nasdaq Stock Market
("NASDAQ") on or prior to the Closing Date.
6.10. Publicity. The initial press release with respect to the Merger
shall be a joint press release. Thereafter PageNet and Arch shall consult with
each other prior to issuing any press releases or otherwise making public
announcements with respect to the Merger, the Exchange Offers and the other
transactions contemplated by this Agreement and prior to making any filings with
any third party and/or any Governmental Entity (including any securities
exchange) with respect thereto, except as may be required by Law or by
obligations pursuant to any listing agreement with, or rules of, any securities
exchange.
6.11. Benefits.
(a) Stock Options.
(i) At the Effective Time, each outstanding option to purchase PageNet
Shares (a "PageNet Option") under PageNet Stock Plans, and which has not
vested prior to the Effective Time, shall become fully exercisable and
vested as of the Effective Time. At the Effective Time, each PageNet Option
shall be converted to an option to acquire, on the same terms and
conditions as were applicable under such PageNet Option, the same number of
shares of Arch Common Stock as the holder of such PageNet Option would have
been entitled to receive pursuant to the Merger had such holder exercised
such PageNet Option in full immediately prior to the Effective Time
(rounded down to the nearest whole number) (a "Substitute Option"), at an
exercise price per share (rounded to the nearest whole cent) equal to: (y)
the aggregate exercise price for PageNet Shares otherwise purchasable by
such holder pursuant to such PageNet Option; divided by (z) the number of
full shares of Arch Common Stock deemed purchasable pursuant to such
PageNet Option in accordance with the foregoing.
(ii) Notwithstanding the foregoing provisions, in the case of any
option to which Code Section 421 applies, the option price, the number of
shares subject to such option, and the terms and conditions of exercise of
such option shall be determined in order to comply with Code Section
424(a). As promptly as practicable after the Effective Time, Arch shall
deliver to the participants in PageNet Stock Plans appropriate notices
setting forth such participants' rights pursuant to the Substitute Options.
(iii) With respect to each of the directors and officers of PageNet
identified in Section 6.11(a)(iii) of the PageNet Disclosure Letter (each,
a "Section 16 Person"), the full Board of Directors of PageNet shall
approve the disposition by each such Section 16 Person of the PageNet
equity securities (including derivative securities) set forth next to such
Section 16 Person's name in Section 6.11(a)(iii) of the PageNet Disclosure
Letter and the full Board of Directors of Arch shall approve the
acquisition by each such Section 16 Person of the Arch equity securities
(including derivative securities) set forth next to such Section 16
Person's name in Section 6.11(a)(iii) of the PageNet Disclosure Letter.
Each such approval shall specify, in the form set forth in Section
6.11(a)(iii) of the PageNet Disclosure Letter, the material terms of the
derivative securities and each such approval shall specify that the
approval is granted for purposes of exempting the transaction under Rule
16b-3 under the Exchange Act.
(b) Conversion and Registration. At or prior to the Effective Time,
PageNet shall make all necessary arrangements with respect to PageNet Stock
Plans to permit the conversion of the unexercised PageNet Options into
Substitute Options pursuant to this section and, as soon as practicable after
the Effective Time, Arch shall use its reasonable best efforts to register under
the Securities Act on Form S-8 or other appropriate form (and use its best
efforts to maintain the effectiveness thereof) shares of Arch Common Stock
issuable pursuant to all Substitute Options.
(c) Amendment to 401(k) Plan. Prior to the Effective Time, PageNet shall
(i) amend the PageNet Employees Savings Plan and the related trust to prohibit
the investment of Employer Salary Reduction
B-25
<PAGE> 392
Contributions in equity securities of PageNet (ii) deregister interests under
such plan and any registered but unsold equity securities of PageNet under the
Securities Act of 1933 and the Exchange Act.
6.12. Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the Merger, the Exchange
Offers and the other transactions contemplated by this Agreement shall be paid
by the party incurring such cost and expense, except that costs and expenses
incurred in connection with the filing fee for the S-4 Registration Statement
and the Exchange Registration Statements, printing and mailing the
Prospectus/Proxy Statement, the S-4 Registration Statement and the Exchange
Registration Statements, and the filing fees under the HSR Act, any other
filings fees under any Governmental Regulations, and any filings fees in
connection with obtaining approvals under the Communications Act, FCC
Regulations and State Laws shall be shared equally by Arch and PageNet.
6.13. Indemnification; Directors' and Officers' Insurance.
(a) For six years from and after the Effective Time, Arch will indemnify
and hold harmless each present and former director and officer of PageNet
(solely when acting in such capacity) determined as of the Effective Time (the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at,
or prior to, the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that PageNet would have been
permitted under Delaware law and its certificate of incorporation or bylaws in
effect on the date of this Agreement to indemnify such Person (and the Surviving
Corporation shall also advance expenses as incurred to the fullest extent
permitted under applicable law, provided the Person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such Person is not entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 6.13 shall promptly notify Arch, upon learning of any such
claim, action, suit, proceeding or investigation, but the failure to so notify
shall not relieve Arch of any liability it may have to such Indemnified Party if
such failure does not materially prejudice the ability of Arch to defend such
claims. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) Arch
shall have the right to assume the defense thereof and Arch shall not be liable
to such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Arch elects not to assume such defense or
counsel for the Indemnified Parties advises that there are actual conflicts of
interest between Arch and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and Arch shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that Arch shall be obligated pursuant
to this paragraph (b) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction (unless there is such an actual conflict of
interest), (ii) the Indemnified Parties will cooperate in the defense of any
such matter and (iii) Arch shall not be liable for any settlement effected
without its prior written consent.
(c) Arch shall maintain a policy of officers' and directors' liability
insurance for acts and omissions occurring prior to the Effective Time ("D&O
Insurance") with coverage in amount and scope at least as favorable as PageNet's
existing directors' and officers' liability insurance coverage for a period of
six years after the Effective Time; provided, however, if the existing D&O
Insurance expires, is terminated or canceled, or if the annual premium therefor
is increased to an amount in excess of 200% of the last annual premium paid
prior to the date of this Agreement (the "Current Premium"), in each case during
such six year period, Arch will use its best efforts to obtain D&O Insurance in
an amount and scope as great as can be obtained for the remainder of such period
for a premium not in excess (on an annualized basis) of 200% of the Current
Premium. The provisions of this Section 6.13(c) shall be deemed to have been
satisfied if prepaid policies shall have been obtained by PageNet prior to the
Closing, which policies
B-26
<PAGE> 393
provide such directors and officers with coverage for an aggregate period of six
years with respect to claims arising from facts or events that occurred on, or
prior to, the Effective Time, including, without limitation, with respect to the
transactions contemplated by this Agreement. If such prepaid policies shall have
been obtained by PageNet prior to the Closing, then Arch shall maintain such
policies in full force and effect and shall continue to honor PageNet's
obligations thereunder.
(d) If Arch or any of its successors or assigns: (i) shall consolidate
with, or merge into, any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger;
or (ii) shall transfer all or substantially all of its properties and assets to
any individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of Arch shall assume
all of the obligations set forth in this section. At the Effective Time, Arch
shall assume and be bound by all of PageNet's indemnity obligations with respect
to officers, directors and employees of corporations it previously acquired that
are identified in the corresponding section of the PageNet Disclosure Letter.
(e) The provisions of this section are intended to be for the benefit of,
and shall be enforceable by, each of the Indemnified Parties, their heirs and
their representatives.
6.14. Takeover Statute. If any Takeover Statute or similar statute or
regulation is or may become applicable to this Agreement or to the other
transactions contemplated hereby or thereby, each of the parties and its Board
of Directors shall grant such approvals and take all such actions as are legally
permissible so that the transactions contemplated under such agreements may be
consummated as promptly as practicable on the terms contemplated under such
agreements and otherwise act to eliminate or minimize the effects of any such
statute or regulation on the transactions contemplated under such agreements.
6.15. Confidentiality. PageNet and Arch each acknowledges and confirms
that it has entered into a Confidentiality Agreement, dated as of August 26,
1999 (the "Confidentiality Agreement"), and that the Confidentiality Agreement
shall remain in full force and effect in accordance with its terms.
6.16. Tax-Free Reorganization. Arch, Merger Sub and PageNet shall each
use its best efforts to cause the Merger to be treated as a reorganization with
the meaning of Section 368(a) of the Code and to obtain an opinion of its
respective counsel as contemplated by Sections 7.2(d) and 7.3(d), respectively.
6.17. Senior Credit Facilities. PageNet and Arch shall use their
reasonable best efforts to secure, through the amendment or restatement of their
respective current credit facilities, through a new credit facility or through
the operation of the Prepackaged Plan, or any combination of the foregoing,
senior secured debt financing in an amount not less than $1.3 billion on terms
reasonably acceptable to the parties to this Agreement. Simultaneously with the
Exchange Offers, PageNet shall solicit the consent of the holders of PageNet's
senior credit facilities (the "PageNet Secured Creditors") to the Prepackaged
Plan. The solicitation of the PageNet Secured Creditors shall be made in
accordance with the standards and requirements set forth in Section 6.18(e).
6.18. The Exchange Offers.
(a) Provided that nothing shall have occurred that would result in a
failure to satisfy any other conditions set forth in Section 6.18(b) of this
Agreement, Arch and PageNet shall, as promptly as practicable, commence separate
exchange offers (the "Arch Exchange Offer" and the "PageNet Exchange Offer" and
together, the "Exchange Offers") to issue an aggregate of up to: (i) 29,651,984
shares of Arch Common Stock in exchange for the $448.4 million in aggregate
principal amount of Arch' 10 7/8% Senior Discount Notes due March 15, 2008
issued under and pursuant to an Indenture, dated as of March 12, 1996, between
Arch and IBJ Schroder Bank & Trust Company, as Trustee (the "Arch Notes"); and
(ii) in the case of PageNet, 616,830,757 PageNet Shares and, subject to Section
6.1(d) of this Agreement, Distributed Interests representing 68.9% of the equity
ownership in the Distributed Subsidiary in exchange for the $1.2 billion in
aggregate principal amount, together with all accrued interest thereon, of: (x)
10% Senior Subordinated Notes Due October 15, 2008 issued under and pursuant to
an Indenture, dated as of July 15, 1995, between PageNet and Shawmut Bank, N.A.,
as Trustee, as supplemented by a
B-27
<PAGE> 394
Second Supplemental Indenture, dated as of October 15, 1996, between PageNet and
Fleet National Bank; (y) 10.125% Senior Subordinated Notes Due August 1, 2007
issued under and pursuant to an Indenture, dated as of July 15, 1995, between
PageNet and Shawmut Bank, N.A., as Trustee, as supplemented by a First
Supplemental Indenture, dated as of July 15, 1995, between PageNet and Shawmut
Bank, N.A.; and (z) 8.875% Senior Subordinated Notes Due February 1, 2006 issued
under and pursuant to an Indenture, dated as of January 15, 1994, between
PageNet and Shawmut Bank, N.A., as Trustee, as supplemented by a First
Supplemental Indenture, dated as of January 15, 1994, between PageNet and
Shawmut Bank, N.A. (collectively, the "PageNet Notes" and together with the Arch
Notes, the "Notes"). In the Exchange Offers, (i) Arch will offer to exchange
66.1318 shares of Arch Common Stock for each $1,000 principal amount, together
with all accreted or accrued interest thereon, of outstanding Arch Notes and
(ii) PageNet will offer to exchange a pro rata portion of 616,830,757 PageNet
Shares and, subject to Section 6.1(d) of this Agreement, Distributed Interests
representing the portion of such equity ownership in the Distributed Subsidiary
equal to 68.9% of the total equity ownership of the Distributed Subsidiary for
each PageNet Note (such pro rata portion to be computed immediately prior to the
Effective Time by dividing the principal amount, together with all accrued
interest thereon, of each PageNet Note by the principal amount, together with
all accrued interest thereon, of all PageNet Notes). Calculations of share
amounts for such purpose will be rounded down to the nearest whole share and no
fractional shares of Arch Common Stock or PageNet Shares will be issued for
Notes.
(b) The obligations of PageNet under the PageNet Exchange Offer shall be
subject to the satisfaction of the conditions to the consummation of the Merger
set forth in Article VII of this Agreement and shall be subject to the further
condition that not less than 97.5% of the aggregate outstanding principal amount
of PageNet Notes and not less than a majority of the outstanding principal
amount of each series of PageNet Notes shall have been validly tendered in
accordance with the terms of the PageNet Exchange Offer prior to the expiration
date of the PageNet Exchange Offer and not withdrawn (such 97.5% of the
outstanding principal amount of the PageNet Notes and not less than a majority
of the outstanding principal amount of each series of PageNet Notes tendered and
not withdrawn being herein referred to as the "PageNet Minimum Condition").
Except as otherwise provided in this Agreement, no term or condition of the
Exchange Offers may be amended or modified without the written consent of the
parties hereto, which consent shall not be unreasonably withheld.
(c) Holders of Notes who tender into the Exchange Offers will be required,
as a condition to a valid tender, to give their consent (the "Note Consents")
with respect to all Notes tendered by them to, with respect to the PageNet
Notes, the Prepackaged Plan and, with respect to all Notes (including the Arch
Notes), the following amendments to the respective indenture or supplemental
indentures, together with such additional amendments thereto or waivers thereof
as shall be determined and consented to by each of Arch and PageNet to be
necessary or desirable (the "Indenture Amendments"): (i) amendment of each such
indenture to the extent necessary, if any, to permit the completion of the
Merger, the Prepackaged Plan and the other transactions contemplated by this
Agreement; and (ii) amendments to eliminate (A) any covenants which may be
modified or eliminated by majority vote of the Notes, including without
limitation any covenants which restrict (s) the sale of assets, (t) any change
of control, (u) the incurrence of indebtedness, (v) the making of restricted
payments, (w) the existence of limitations on distributions by subsidiaries, (x)
the existence of liens, (y) transactions with affiliates or related persons or
(z) the issuance and sale of stock of subsidiaries, (B) any events of default
which relate to (x) the non-payment or acceleration of other indebtedness (or
notification of foreclosure proceedings with respect to property secured by
other indebtedness), (y) the failure to discharge judgments for the payment of
money, or (z) the bankruptcy or insolvency of subsidiaries, and (C) any
provisions which condition mergers or consolidations on compliance with any
financial criteria. Such holders will also be required, as a condition to a
valid tender, to waive (the "Note Waivers") any and all existing defaults on or
with respect to the Notes and any and all rights to rescind their acceptance of
the Exchange Offer after the Exchange Offers Expiration Date (as defined in
Section 6.18(h) hereof), such waiver of rescission rights to be subject,
however, to their withdrawal rights under applicable law and regulations, or to
claim any payments relating to the Notes tendered under applicable law and
regulations, and for any other relief, legal or equitable,
B-28
<PAGE> 395
based on any possible future judicial, administrative or other governmental or
legal determination that the Note Consents or the adoption of any of the
Indenture Amendments are invalid or unenforceable. Notwithstanding anything to
the contrary herein, the Note Waivers shall not be deemed to cover claims for
violations of federal or state securities laws relating to the Exchange Offers.
(d) PageNet and Arch each agrees, as to itself and its Subsidiaries, that
none of the information supplied or to be supplied by it or its Subsidiaries for
inclusion or incorporation by reference in: (i) (x) the Registration Statement
on Form S-4 to be filed with the SEC by Arch in connection with the issuance of
shares of Arch Common Stock in the Arch Exchange Offer (including the consent
solicitation and prospectus (the "Arch Exchange Prospectus" constituting a part
thereof) (the "Arch Exchange Registration Statement")) and (y) the Registration
Statement on Form S-4 to be filed with the SEC by PageNet in connection with the
issuance of PageNet Shares and Distributed Interests in the PageNet Exchange
Offer (including the consent solicitation and prospectus (the "PageNet Exchange
Prospectus" and, together with the Arch Exchange Statement, the "Exchange
Prospectuses" constituting a part thereof) (the "PageNet Exchange Registration
Statement" and, together with the Arch Exchange Registration Statement, the
"Exchange Registration Statements")) will, at the time the Exchange Registration
Statements become effective under the Securities Act; and (ii) the Exchange
Prospectuses and any amendment or supplement thereto will, at the date of
mailing to noteholders contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. If at any time prior to the Effective Time any
information relating to Arch or PageNet, or any of their respective affiliates
(as defined in SEC Rule 12b-2), officers or directors, is discovered by Arch or
PageNet which should be set forth in an amendment or supplement to any of the
Exchange Registration Statements or the Exchange Prospectuses, so that any of
such documents would not include any misstatement of a material fact or would
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, the party which discovers such information shall
promptly notify the other parties to this Agreement and an appropriate amendment
or supplement describing such information shall be promptly filed with the SEC
and, to the extent required by law, disseminated to the noteholders.
(e) The PageNet Exchange Prospectus sent to the holders of the PageNet
Notes in connection with the PageNet Exchange Offer will also constitute a
disclosure statement for the purpose of soliciting the acceptances of such
holders for the Prepackaged Plan (as defined in Section 6.19). PageNet and Arch
shall consult with each other prior to sending the PageNet Exchange Prospectus
to the holders of the PageNet Notes for purposes of ensuring that such materials
comply with the disclosure requirements of the Bankruptcy Code and other
applicable law insofar as they relate to prepackaged plans.
(f) Arch and PageNet shall promptly prepare Exchange Prospectuses, and
shall prepare and file with the SEC the Exchange Registration Statements as
promptly as practicable. Arch and PageNet each shall use its reasonable best
efforts to have each of the Exchange Registration Statements declared effective
under the Securities Act as promptly as practicable and on the same day as the
S-4 Registration Statement, and promptly thereafter mail the Exchange
Prospectuses to the noteholders of Arch and PageNet. Each party shall notify the
other of the receipt of the comments of the SEC and of any requests by the SEC
for amendments or supplements to the Exchange Prospectuses or the Exchange
Registration Statements or for additional information and shall promptly supply
one another with copies of all correspondence between any of them (or their
Representatives) and the SEC (or its staff) with respect thereto. If, at any
time prior to the expiration date of the Exchange Offers, any event shall occur
relating to or affecting Arch, PageNet, or their respective officers or
directors, which event should be described in an amendment or supplement to the
Exchange Prospectuses or the Exchange Registration Statements, the parties shall
promptly inform one another and shall cooperate in promptly preparing, filing
and clearing with the SEC and, if required by applicable securities laws,
mailing to Arch' or PageNet's noteholders, as the case may be, such amendment or
supplement.
(g) Provided the conditions to the Exchange Offers referred to in Section
6.18(b) above have been satisfied or waived and Arch or PageNet, as the case may
be, has accepted for exchange Notes properly
B-29
<PAGE> 396
tendered and not withdrawn, Notes that are not tendered into or accepted in the
Exchange Offers will remain outstanding as obligations of Arch or the Surviving
Corporation, as the case may be, after consummation of the Merger and Arch or
the Surviving Corporation, as the case may be, alone shall be obligated to
comply with the terms thereof, except as may otherwise be provided in the
Prepackaged Plan or the Final Confirmation Order (as defined in Section 6.19) if
the Bankruptcy Case (as defined in Section 6.19) is commenced. Such Notes shall
be modified only to the extent provided in the Indenture Amendments and the Note
Consents.
(h) The Exchange Offers will expire at 12:00 midnight, New York City time,
on the thirty-fifth calendar day after such commencement, or, consistent with
this Agreement and the provisions of Section 6.19, at such later time and date
as PageNet and Arch shall select consistent with applicable law and regulations
(the "Exchange Offers Expiration Date").
(i) The Arch Common Stock or PageNet Shares and Distributed Interests, as
the case may be, to be issued in exchange for the Notes tendered and accepted in
the Exchange Offers will be so issued only after timely receipt by the exchange
agent selected jointly by Arch and PageNet (the "Notes Exchange Agent") of: (i)
certificates for all physically delivered Notes in proper form for transfer, or
timely confirmation of book-entry transfer of such Notes for such purposes; (ii)
a properly completed and duly executed letter of transmittal in the form
provided on behalf of Arch or the Surviving Corporation, as the case may be, for
such purpose; (iii) a duly executed form of Note Consent and Note Waiver; and
(iv) any other documents required by the letter of transmittal.
(j) For purposes of the Exchange Offers, Arch or PageNet, as the case may
be, shall be deemed to have accepted for exchange the tendered Notes as, if and
when Arch or PageNet, as the case may be, gives oral or written notice to the
Notes Exchange Agent of such party's acceptance of such Notes for exchange. Each
of Arch and PageNet agree to simultaneously accept for exchange the Notes
pursuant to their respective Exchange Offers. The Notes Exchange Agent will act
as agent for the tendering holders for the purpose of receiving the Notes and
transmitting the Arch Common Stock, PageNet Shares or Distributed Interests, as
the case may be, in exchange therefor.
(k) Arch and PageNet shall jointly establish such additional procedures and
requirements with respect to the conduct of the Exchange Offers and shall cause
the same to be communicated to holders of the Notes in such manner as they shall
determine to be necessary or appropriate, including procedures and requirements
as may be necessary to obtain confirmation of the Prepackaged Plan if the
Bankruptcy Case is commenced. All questions concerning the timeliness, validity,
form, eligibility, and acceptance for exchange or withdrawal of any tender of
the Notes pursuant to any of the procedures described herein or any additional
procedures established by the parties shall be determined jointly by the
parties, whose determinations shall be final and binding. Arch and PageNet, as
the case may be, also reserve in connection with their respective Exchange
Offers, the absolute right to: (i) waive any defect or irregularity in any
tender with respect to any particular Note or any particular holder; (ii) permit
a defect or irregularity to be corrected within such time as it may determine;
or (iii) reject the purported tender of any Note and interest coupons
appertaining thereto. Tenders shall not be deemed to have been received or
accepted until all defects and irregularities have been cured or waived within
such time as Arch or PageNet, as the case may be, may determine in its sole
discretion. None of Arch, PageNet or the Notes Exchange Agent or any other
person shall be under any duty to give notification of any defects or
irregularities relating to tenders or incur any liability for failure to give
such notification.
(l) Each of PageNet and Arch shall accept the Notes tendered in their
respective Exchange Offer as of immediately prior to the Effective Time.
(m) Promptly upon receipt of the consents of the holders of at least a
majority of the outstanding principal amount of a series of Notes, Arch or
PageNet, as the case may be, shall execute the applicable supplemental indenture
to be effective as of the Effective Time.
B-30
<PAGE> 397
6.19. Bankruptcy Provisions. As used in this Agreement, the term:
"Bankruptcy Case" shall mean the bankruptcy case filed or stipulated to by
PageNet and its Subsidiaries under Chapter 11 of the Bankruptcy Code pursuant to
the terms hereof;
"Bankruptcy Code" shall mean Title 11 of the United States Code, 11
U.S.C.sec.101 et seq., as now in effect or hereafter amended;
"Bankruptcy Court" shall mean the court in which the Bankruptcy Case may be
filed or otherwise administered, including any court to which the Bankruptcy
Case may be transferred at any time under applicable law. PageNet and Arch
hereby agree that the U.S. Bankruptcy Court for the District of Delaware is the
appropriate venue for the Bankruptcy Case and that if the Bankruptcy Case is
filed by PageNet it will be filed in the District of Delaware;
"Exit Financing" shall mean the senior secured debt financing referred to
in Section 6.17 hereof;
"Final Confirmation Order" shall mean an order of the Bankruptcy Court
confirming the Prepackaged Plan in form and substance reasonably acceptable to
PageNet and Arch, which has not been amended, modified and added to without the
express consent of PageNet and Arch and as to which order as of the Effective
Time there is no stay or injunction;
"Initial Determination Date" shall mean the date which is 35 calendar days
after the date upon which the S-4 Registration Statement and the PageNet
Exchange Registration Statement are declared effective by the SEC;
"Interim Financing" shall mean debt financing in an amount and on terms
reasonably acceptable to Arch and appropriate to permit PageNet to continue its
business and operations in the ordinary course following the filing of the
Bankruptcy Case;
"Prepackaged Plan" shall mean the "prepackaged" plan of reorganization for
PageNet and its Subsidiaries that (1) is prepared by PageNet and its
Subsidiaries in accordance with, and intended by PageNet and its Subsidiaries to
be confirmed under, the provisions of Chapter 11 of the Bankruptcy Code
(including the confirmation requirements set forth in Section 1129 thereof), (2)
consists of terms, conditions and provisions that are mutually acceptable to
Arch and PageNet (it being understood and agreed by PageNet and Arch that
neither party will unreasonably withhold its consent to proposed amendments to
non-material provisions of the Prepackaged Plan) and are not inconsistent with
the terms, conditions and provisions of this Agreement, (3) is included in the
SEC disclosure materials sent to holders of the PageNet Notes in connection with
the Exchange Offers pursuant to Sections 6.18(a) and (e) of this Agreement and
(4) which contains terms intended to implement this Agreement and other terms
which are not inconsistent with this Agreement, together with any and all
changes, amendments or modifications to, or restatements of, such prepackaged
plan which with respect to material provisions have been agreed to by Arch and
PageNet, without regard to whether such changes, amendments, modifications and
restatements are made to the Prepackaged Plan before or after the commencement
of the Bankruptcy Case;
"PageNet Conditions to the Prepackaged Plan" shall mean (i) the Requisite
Bankruptcy Vote of the PageNet Notes, (ii) the Requisite Bankruptcy Vote of the
PageNet Secured Creditors and (iii) the Interim Financing;
"Requisite Bankruptcy Vote of the PageNet Notes" shall mean a vote in favor
of the Prepackaged Plan by the holders of at least two-thirds of the outstanding
principal amount of the PageNet Notes that are actually voted, and a vote in
favor of the Prepackaged Plan by a majority in number of the holders of the
PageNet Notes that actually vote;
"Requisite Bankruptcy Vote of the PageNet Secured Creditors" shall mean a
vote in favor of the Prepackaged Plan by the holders of at least two-thirds of
the outstanding indebtedness owed under the PageNet senior credit facilities
that are actually voted, and a vote in favor of the Prepackaged Plan by a
B-31
<PAGE> 398
majority in number of the holders of the indebtedness under the PageNet senior
credit facilities that actually vote;
"Requisite Conditions to the Prepackaged Plan" shall mean (i) the PageNet
Conditions to the Prepackaged Plan, (ii) the Arch Stockholders Approval, and
(iii) that either the Exit Financing has been obtained or upon entry of the
Final Order will be obtained.
(a) Notwithstanding any other provision of this Agreement to the contrary,
in the event that:
(i) prior to or at the Initial Determination Date the PageNet Minimum
Condition is satisfied, and the PageNet Stockholders Approval and the Arch
Stockholders Approvals are obtained, then the Exchange Offers shall be
consummated pursuant to the terms hereof, the Bankruptcy Case shall not be
filed and the Prepackaged Plan shall be abandoned, unless PageNet and Arch
agree that the filing of the Bankruptcy Case and the confirmation of the
Prepackaged Plan are in the best interests of PageNet and Arch,
notwithstanding satisfaction of the PageNet Minimum Condition;
(ii) at the Initial Determination Date, the PageNet Minimum Condition
is not satisfied or the PageNet Stockholders Approval is not obtained but
the Requisite Conditions to the Prepackaged Plan are satisfied, then either
(x) (1) PageNet shall file the Bankruptcy Case (in the U.S. Bankruptcy
Court for the District of Delaware or such other bankruptcy court as
PageNet and Arch mutually agree) and seek confirmation of the Prepackaged
Plan by the Bankruptcy Court, and (2) Arch shall be bound by all of the
terms hereof, and shall consummate the Merger through the Prepackaged Plan
if such plan is confirmed by the Bankruptcy Court by a Final Confirmation
Order within 120 days of the commencement of the Bankruptcy Case, or such
later date as is mutually agreed to in writing by Arch and PageNet, and if
the other conditions to the Merger set forth in Article VII hereof (other
than Section 7.1(a)(2) and 7.1(g)(ii), which shall have been satisfied by
entry of the Final Confirmation Order) are satisfied after entry of the
Final Confirmation Order but prior to the Termination Date, as such date
may be extended in accordance with Section 8.2, or (y) PageNet shall
terminate this Agreement and simultaneously pay to Arch the Arch
Termination Fee pursuant to Section 8.5(c) hereof. In the event the
Bankruptcy Case is commenced, Arch shall:
(w) support assumption of this Agreement by PageNet as a
debtor-in-possession pursuant to 11 U.S.C. sec.365;
(x) enter into a new agreement identical to the terms of this
Agreement with PageNet as a debtor-in-possession after commencement of
the Bankruptcy Case, in the event PageNet and Arch agree (upon the
advice of counsel) or the Bankruptcy Court determines that applicable
law prohibits assumption of this Agreement by PageNet as a
debtor-in-possession pursuant to 11 U.S.C. sec.365(c)(2);
(y) support confirmation of the Prepackaged Plan and all actions
and pleadings reasonably undertaken by PageNet in the Bankruptcy Case to
achieve confirmation thereof; and
(z) oppose any effort by any party to (1) dismiss the Bankruptcy
Case or convert the Bankruptcy Case to a case under chapter 7 of the
Bankruptcy Code, or (2) defeat confirmation of the Prepackaged Plan;
(iii) at the Initial Determination Date, the PageNet Minimum Condition
is not satisfied or the PageNet Stockholders Approval is not obtained and
the Requisite Conditions to the Prepackaged Plan are not satisfied, then
the Initial Determination Date shall be extended to the earlier of (x) the
date upon which the PageNet Minimum Condition is satisfied, and the PageNet
Stockholders Approval and the Arch Stockholders Approval are obtained, (y)
the date upon which the Requisite Conditions to the Prepackaged Plan are
satisfied and (z) September 30, 2000 (the "Extended Determination Date").
If the PageNet Minimum Condition is satisfied and the PageNet Stockholders
Approval and the Arch Stockholders Approval are obtained prior to September
30, 2000, then the provisions of Section 6.19(a)(i) of this Agreement shall
apply. If the Requisite Conditions to the Prepackaged
B-32
<PAGE> 399
Plan are satisfied prior to September 30, 2000, then the provisions of
Section 6.19(a)(ii) of this Agreement shall apply;
(iv) at any time after the date of this Agreement, the Board of
Directors of PageNet determines that the filing of the Bankruptcy Case is
in the best interests of PageNet, then (1) PageNet may file the Bankruptcy
Case and shall seek, to the extent not already satisfied, to satisfy the
PageNet Conditions to the Prepackaged Plan and otherwise seek confirmation
of the Prepackaged Plan by the Bankruptcy Court, and (2) Arch shall (x)
seek, to the extent not already satisfied, to satisfy the Arch Stockholders
Approval and (y) be bound by all of the terms hereof, and shall consummate
the Merger through the Prepackaged Plan if such plan is confirmed by the
Bankruptcy Court by a Final Confirmation Order (provided that such Final
Confirmation Order shall be entered by no later than December 31, 2000, or
such later date as is mutually agreed to by Arch and PageNet) and if the
other conditions to the Merger set forth in Article VII hereof (other than
Section 7.1(a)(2) and 7.1(g)(ii), which shall have been satisfied by entry
of the Final Confirmation Order) are satisfied after entry of the Final
Confirmation Order but prior to the Termination Date, as such date may be
extended in accordance with Section 8.2;
(v) an Involuntary Insolvency Event occurs prior to a voluntary
commencement of the Bankruptcy Case pursuant to Sections 6.19(a)(ii), (iii)
or (iv), (1) (A) if the date of the Insolvency Event (the "Involuntary
Insolvency Event Date") is prior to the Initial Determination Date, PageNet
shall have up to 120 days after such Involuntary Insolvency Event Date to
obtain from the appropriate court an order which dismisses such Involuntary
Insolvency Event (including, with respect to an involuntary petition filed
in any bankruptcy court, an order which holds or requires that the court
abstain from adjudicating the petition pursuant to 11 U.S.C. sec.305) and
which order is not subject to a stay or injunction and is not subject to an
appeal and all periods for taking an appeal shall have expired (the
"Dismissal Order"), so that the Exchange Offers may be completed, and this
Agreement shall remain in full force and effect and Arch shall be bound by
all of the terms hereof or (B) if an Involuntary Insolvency Event occurs
after the Initial Determination Date, and as of the Involuntary Insolvency
Event Date the PageNet Minimum Condition has been satisfied and the PageNet
Stockholders Approval and Arch Stockholders Approval have been obtained,
then (x) PageNet shall have up to 120 days after such Involuntary
Insolvency Event Date to obtain entry of the Dismissal Order, and (y) this
Agreement shall remain in full force and effect and Arch shall consummate
the Merger (outside of bankruptcy, unless PageNet and Arch mutually consent
to file the Bankruptcy Case as contemplated by Section 6.19(a)(i) hereof)
pursuant to the terms hereof provided that such Dismissal Order has been
obtained before the expiration of such 120-day period, (2) if on the
Involuntary Insolvency Event Date the PageNet Minimum Condition has not
been satisfied or PageNet Stockholders Approval has not been obtained but
the Requisite Conditions to the Prepackaged Plan have been satisfied, then
PageNet shall stipulate to bankruptcy relief under Chapter 11 of the
Bankruptcy Code and the provisions of Section 6.19(a)(ii)(x)(1) of this
Agreement shall apply (including the provisions therein requiring Arch to
be obligated to consummate the Merger pursuant to the Prepackaged Plan);
and (3) if on the Involuntary Insolvency Event Date the PageNet Minimum
Condition has not been satisfied or PageNet Stockholders Approval or Arch
Stockholders Approval has not been obtained and the Requisite Conditions to
the Prepackaged Bankruptcy have not been obtained, then PageNet may (but
shall not be obligated to) stipulate to bankruptcy relief under Chapter 11
of the Bankruptcy Code and the provisions of Section 6.19(a)(iv) of this
Agreement shall apply (including the provisions therein requiring Arch to
be obligated for a period of time to consummate the Merger pursuant to the
Prepackaged Plan). For purposes hereof, an "Involuntary Insolvency Event"
shall mean any filing of an involuntary bankruptcy petition against PageNet
or any of its Subsidiaries by any party, or the appointment under other
applicable state or federal law of a liquidator or a trustee for PageNet or
any of its Subsidiaries.
(b) As soon as practicable after entering into this Agreement, PageNet and
Arch shall jointly prepare the Prepackaged Plan in form and substance
satisfactory to PageNet and Arch. PageNet shall include the Prepackaged Plan and
related solicitation materials (including a ballot) in the PageNet Exchange
B-33
<PAGE> 400
Prospectus, the solicitation materials sent to the PageNet Secured Creditors,
and (to the extent PageNet and Arch deem necessary) in any materials sent to the
holders of PageNet Shares. PageNet and Arch shall cooperate to ensure that the
Exchange Offers, including the disclosures to holders of PageNet Notes made in
connection therewith, and the solicitation of PageNet Secured Creditors comply
with the disclosure requirements of the Bankruptcy Code and applicable law. The
Prepackaged Plan may not be amended, modified or added to in any material
respect without the written consent of PageNet and Arch.
(c) Notwithstanding any other provision hereof to the contrary, (i) the
filing of the Bankruptcy Case, the operation of PageNet's business in accordance
with the Bankruptcy Code or the pendency of the Bankruptcy Case, or (ii) the
occurrence of an Involuntary Insolvency Event with respect to PageNet shall not
be considered in and of itself a Material Adverse Effect for purposes of this
Agreement.
(d) On the same day that the Bankruptcy Case is filed, an order for relief
is consented to under Section 6.19(a)(v) of this Agreement or an order for
relief is entered, as applicable, PageNet shall file a motion (the "Initial
Merger Motion") for expedited determination of approval of Section 6.2 hereof
concerning Acquisition Proposals (the "Exclusivity Provision"), Section 8.5(c)
concerning the Arch Termination Fee and Section 8.5(b) concerning the PageNet
Termination Fee in form and substance acceptable to Arch, PageNet shall use its
best efforts to obtain an order approving the Initial Merger Motion (the
"Initial Merger Order") within 15 days of the commencement of the Bankruptcy
Case, but in no event not later than 30 days after the commencement thereof,
which order shall be in form and substance acceptable to Arch.
(e) PageNet shall promptly provide to Arch with drafts of all documents,
motions, orders, filings or pleadings that PageNet proposes to file with the
Bankruptcy Court and will provide Arch with reasonable opportunity prior to the
filing thereof to review such filings to the extent reasonably practicable.
PageNet shall consult and cooperate with Arch with respect to all such filings.
(f) PageNet and Arch shall use their best efforts to cause the transactions
contemplated by this Agreement and the Prepackaged Plan to be consummated in
accordance with the terms hereof and thereof, and without limiting the
generality of the foregoing shall use their best efforts to obtain all necessary
approvals, waivers, consents, permits, licenses, registrations and other
authorizations required in connection with this Agreement and the Prepackaged
Plan and the transactions contemplated hereby and thereby, including without
limitation, entry of the Final Confirmation Order.
(g) PageNet shall cause its Subsidiaries to take all actions and to execute
all agreements and documents which are necessary or useful in the preparation of
and commencement of the Bankruptcy Case, the preparation, filing and prosecution
of the Prepackaged Plan and the entry of the Final Confirmation Order.
(h) Concurrent with the commencement of the Exchange Offers, PageNet shall
send solicitation and disclosure materials to its creditors as would bind such
creditors to the Prepackaged Plan under the provisions of the Bankruptcy Code.
PageNet shall make such solicitations of its creditors (in addition to
solicitations of holders of the PageNet Notes) as PageNet and Arch determine is
necessary to facilitate and expedite the confirmation of the Prepackaged Plan in
the event of any potential Bankruptcy Case.
(i) If the Bankruptcy Case is commenced pursuant to Section 6.19(a)(iv) or
(v), then Arch shall not be subject to the restrictions set forth in Section 6.2
or the restrictions on the conduct of its business set forth in Section
6.1(b)(viii) with respect to merger or acquisition transactions or the other
restrictions set forth in Section 6.1(b), to the extent such restrictions would
impede or prohibit Arch from entering into another merger or acquisition
transaction; provided, however, that Arch may not enter into another merger or
acquisition transaction that would prevent, materially impair or materially
delay its ability to consummate the Merger or the other transactions
contemplated hereby; provided, further, that if Arch enters into a merger or
acquisition transaction following the commencement of the Bankruptcy Case
pursuant to Section 6.19(a)(iv) or (v) and as a result of such event PageNet is
required to amend its disclosure statement and resolicit the votes of its
creditors, then the time within which the Final Confirmation Order must be
obtained shall be extended for an additional 90 days.
B-34
<PAGE> 401
6.20. Rights Agreement. At or prior to the Effective Time, the Arch Board
of Directors shall take all action required to render inapplicable the Arch
Rights Agreement to the Merger and the transactions contemplated by this
Agreement. At or prior to the Effective Time, the Arch Board of Directors shall
take all action required by Section 5.1(j)(ii) of this Agreement and the PageNet
Board of Directors shall take all action required by Section 5.1(j)(i) of this
Agreement.
6.21. Payment of Dissenters' Rights. Following the Effective Time, any
payment made with respect to a holder of Dissenting Shares entitled to payment
under the DGCL will be made solely from the assets of the Surviving Corporation.
Arch shall not make any payments to holders of Dissenting Shares and shall not
directly or indirectly reimburse the Surviving Corporation for the payments made
with respect to Dissenting Shares.
6.22. Distribution of Interests in Vast to PageNet Shareholders. Prior to
the Closing, the Board of Directors of PageNet will set aside for distribution,
solely to those holders of PageNet Shares immediately prior to the acceptance of
PageNet Notes in the PageNet Exchange Offer (the "Vast Distribution Record
Date"), with respect to each PageNet Share issued and outstanding at such date,
interests (the "Distributed Interests") representing the portion of such equity
ownership in Vast Solutions, Inc. (the "Distributed Subsidiary") equal to (x)
subject to Section 6.1(d), 11.6% of the total equity ownership of the
Distributed Subsidiary divided by (y) the number of PageNet Shares issued and
outstanding at the Vast Distribution Record Date (the distribution of the
Distributed Interests shall be referred to herein as the "Vast Distribution").
The distribution of the Distributed Interests shall be conditioned upon the
occurrence of (i) either (A) the satisfaction of the PageNet Minimum Condition
and the acceptance of the PageNet Notes or (B) the filing of the Final
Confirmation Order and (ii) the consummation of the Merger. PageNet and the
Distributed Subsidiary shall take such action reasonably necessary (including
filings with and no-action requests of the SEC and communications with
stockholders) to effectuate the Vast Distribution. Upon satisfaction of the
conditions to the Vast Distribution, Arch shall, in accordance with Section 4.2
of this Agreement and in connection with the exchange of PageNet certificates,
use its reasonable best efforts to consummate, or cause to be consummated the
Vast Distribution as promptly as practicable after the Effective Time.
ARTICLE VII.
CONDITIONS
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver, if applicable, at or prior to the Effective Time of each
of the following conditions:
(a) Stockholder Approval. The Arch Stockholders Approval shall have
been obtained, and PageNet shall have obtained either (1) the PageNet
Stockholders Approval or (2) entry of the Final Confirmation Order
confirming the Prepackaged Plan, such that this Agreement and the
transactions contemplated hereby can be accomplished without the approval
of the holders of the PageNet Shares.
(b) NASDAQ Listing. The notification for listing of additional shares
with respect to all shares of Arch Common Stock issuable pursuant to this
Agreement shall have been filed with NASDAQ.
(c) Governmental Regulations. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, and all other consents, permits, licenses, and approvals for
the Merger and the other transactions contemplated by this Agreement
required by the Governmental Regulations, as well as all other material
PageNet Required Consents and Arch Required Consents, shall have been
obtained and shall have become Final Orders. For purposes of this
agreement, a "Final Order" shall mean an action taken or order issued by
the applicable Governmental Entity as to which (i) no request for stay by
such Governmental Entity of the action or order is pending, no such stay is
in effect, and, if any deadline for filing any such request is designated
by statute or regulation, it is passed; (ii) no petition for rehearing or
reconsideration of the action or order is pending before the Governmental
Entity and the time for filing any such
B-35
<PAGE> 402
petition is passed; (iii) the Governmental Entity does not have the action
or order under reconsideration on its own motion and the time for such
reconsideration has passed; (iv) the action or order is not then under
active judicial review, there is no notice of appeal or other application
for judicial review pending, and the deadline for filing such notice of
appeal or other application for judicial review has passed; and (v) with
respect to an action taken or order issued by the Governmental Entity
granting consent to the Merger, such consent shall be without material
adverse conditions, other than conditions that have been agreed to by
PageNet and Arch or that are routine conditions with respect to transfer of
this nature.
(d) Laws and Orders. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any Law
(whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger, the
PageNet Exchange Offer, the Vast Distribution or the other transactions
contemplated by this Agreement (collectively, an "Order"), and no
Governmental Entity shall have instituted any proceeding or threatened to
institute any proceeding seeking any such Order.
(e) S-4. The S-4 Registration Statement and the PageNet Exchange
Registration Statement shall have become effective under the Securities
Act. No stop order suspending the effectiveness of the S-4 Registration
Statement or the PageNet Exchange Registration Statement shall have been
issued, and no proceedings for that purpose shall have been initiated or be
threatened by the SEC.
(f) Senior Credit Facilities. Arch and its subsidiaries, including
PageNet after giving effect to the Merger, will have senior credit
facilities in an amount not less than $1.3 billion.
(g) Exchange Offers/Bankruptcy. Either (i) the PageNet Minimum
Condition shall have been satisfied or (ii) if the PageNet Minimum
Condition has not been satisfied, the Final Confirmation Order shall have
been entered confirming the Prepackaged Plan and all conditions to the
Effective Time occurring under the Prepackaged Plan shall have been
satisfied.
(h) Blue Sky Approvals. Arch shall have received all state securities
and "blue sky" permits and approvals necessary to consummate the
transactions contemplated by this Agreement.
(i) Expected Out-of-Pocket Income Tax Liability. PageNet, Arch,
Merger Sub and their respective subsidiaries shall not be reasonably
expected to incur out-of-pocket income tax liability in their respective
taxable periods which include the Effective Time resulting directly from
the consummation of the Merger, the Exchange Offers and the Vast
Distribution in excess of $25 million in the aggregate. In making this
determination the following shall be taken into account: (1) the amount of
cancellation of indebtedness income, if any, includible in gross income,
(2) gain, if any, incurred as a result of the distribution or transfer of
appreciated assets, and (3) the amount of losses, credits or deductions,
including both available net operating loss or credit carryforwards and
losses, deductions or credits expected to be generated in the taxable
periods which include the Effective Time, but excluding any expected
carrybacks from subsequent taxable periods.
7.2. Conditions to Obligations of Arch and Merger Sub. The obligations of
Arch and Merger Sub to effect the Merger are also subject to the satisfaction or
waiver by Arch at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of PageNet set forth in this Agreement (other than those
representations and warranties which would be breached as a result of the
filing or conduct of the Bankruptcy Case or the occurrence of an
Involuntary Insolvency Event with respect to PageNet): (i) to the extent
qualified by materiality, shall be true and correct; and (ii) to the extent
not qualified by materiality, shall be true and correct (except that this
clause (ii) shall be deemed satisfied so long as any failures of such
representations and warranties to be true and correct, taken together,
would not reasonably be expected to have a Material Adverse Effect on
PageNet and would not reasonably be expected to have a material adverse
effect on the expected benefits of the Merger to Arch), in the case of each
of clauses (i) and (ii), as of the date of this Agreement and (except to
the extent such representations and warranties speak as of an earlier date)
B-36
<PAGE> 403
as of the Closing Date as though made on and as of the Closing Date, and
Arch shall have received a certificate signed on behalf of PageNet by an
executive officer of PageNet to such effect.
(b) Performance of Obligations of PageNet. PageNet shall have
performed in all material respects all of its covenants, agreements and
obligations set forth in this Agreement at or prior to the Closing Date,
and Arch shall have received a certificate signed on behalf of PageNet by
an executive officer of PageNet to such effect.
(c) Consents Under Agreements. PageNet shall have obtained the
consent or approval of each Person whose consent or approval shall be
required in order to consummate the transactions contemplated by this
Agreement under any Contract to which PageNet or any of its Subsidiaries is
a party (other than consents or waivers relating to the Bankruptcy Case or
the occurrence of an Involuntary Insolvency Event), except those for which
the failure to obtain such consent or approval, individually or in the
aggregate, is not reasonably likely to have, a Material Adverse Effect on
PageNet or a material adverse effect on the expected benefits of the Merger
to Arch.
(d) Tax Opinion. Arch shall have received the opinion of Hale and
Dorr LLP, counsel to Arch, dated the Closing Date, to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of Arch,
Merger Sub and PageNet will be a party to that reorganization within the
meaning of Section 368(b) of the Code. Such opinion shall be based on
certain assumptions concerning the fair market value of stock and
securities to be surrendered and issued in the Merger, the Exchange Offers
and the Vast Distribution, which PageNet, Arch and, with respect to
PageNet, Houlihan Lokey Howard & Zukin Financial Advisors, Inc., and, with
respect to Arch, Bear, Stearns & Co. Inc. will certify as being reasonable.
In addition, in rendering such opinions, counsel may rely upon
representations and certificates given for this purpose by responsible
officers of PageNet, Arch and Merger Sub.
(e) Certificate. PageNet shall have delivered to Arch a certificate
(without qualification as to knowledge or materiality or otherwise) to the
effect that each of the conditions specified in Section 7.2 is satisfied in
all respects, that the PageNet Stockholders Meeting has been convened
(unless the Bankruptcy Case precedes the scheduled date of such meeting),
and that the actions set forth in Section 6.5(a) of this Agreement have
been adopted and approved in accordance with such section (except to the
extent such approval is not required by reason of the entry of the Final
Confirmation Order).
7.3. Conditions to Obligation of PageNet. The obligation of PageNet to
effect the Merger is also subject to the satisfaction or waiver by PageNet at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Arch and Merger Sub set forth in this Agreement: (i) to the
extent qualified by materiality, shall be true and correct; and (ii) to the
extent not qualified by materiality, shall be true and correct (except that
this clause (ii) shall be deemed satisfied so long as any failures of such
representations and warranties to be true and correct, taken together,
would not reasonably be expected to have a Material Adverse Effect and
would not reasonably be expected to have a material adverse effect on the
expected benefits of the Merger to PageNet), in the case of each of clauses
(i) and (ii), as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, and PageNet
shall have received a certificate signed on behalf of Arch and Merger Sub
by an executive officer of Arch to such effect.
(b) Performance of Obligations of Arch. Each of Arch and Merger Sub
shall have performed in all material respects all of its covenants,
agreements and obligations set forth in this Agreement at or prior to the
Closing Date, and PageNet shall have received a certificate signed on
behalf of Arch and Merger Sub by an executive officer of Arch to such
effect.
(c) Consents Under Agreements. Arch shall have obtained the consent
or approval of each Person whose consent or approval shall be required in
order to consummate the transactions
B-37
<PAGE> 404
contemplated by this Agreement under any Contract to which Arch or any of
its Subsidiaries is a party, except those for which the failure to obtain
such consent or approval, individually or in the aggregate, is not
reasonably likely to have, a Material Adverse Effect on Arch or a material
adverse effect on the expected benefits of the Merger to PageNet.
(d) Tax Opinion. PageNet shall have received the opinion of Mayer,
Brown & Platt, counsel to PageNet, dated the Closing Date, to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
each of Arch, Merger Sub and PageNet will be a party to that reorganization
within the meaning of Section 368(b) of the Code. Such opinion shall be
based on certain assumptions concerning the fair market value of stock and
securities to be surrendered and issued in the Merger, the Exchange Offers
and the Vast Distribution, which PageNet, Arch and, with respect to
PageNet, Houlihan Lokey Howard & Zukin Financial Advisors, Inc., and, with
respect to Arch, Bear, Stearns & Co. Inc. will certify as being reasonable.
In addition, in rendering such opinions, counsel may rely upon
representations and certificates given for this purpose by responsible
officers of PageNet and Arch.
(e) Certificate. Arch shall have delivered to PageNet a certificate
(without qualification as to knowledge or materiality or otherwise) to the
effect that each of the conditions specified in Section 7.3 (a)-(d) is
satisfied in all respects, that the Arch Stockholders Meeting has been
convened, and that the actions set forth in Section 6.5(b) have been
adopted and approved in accordance with such section.
(f) [Intentionally Omitted]
(g) Vast Distribution. The Board of Directors of PageNet shall have
set aside Distributed Interests pursuant to Section 6.22 of this Agreement
or the Final Confirmation Order shall have been entered confirming the
Prepackaged Plan.
ARTICLE VIII.
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of PageNet or Arch referred to in
Section 7.1(a), by mutual written consent of PageNet and Arch, through action of
their respective Boards of Directors.
8.2. Termination by Either Arch or PageNet. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Arch or PageNet if: (i) the
Merger shall not have been consummated by September 30, 2000 if no Bankruptcy
Case has been filed by that date or 30 days following the date by which the
Final Confirmation Order must be entered under Section 6.19(a) (the "Termination
Date"); provided, however, that either party shall have the option, in its sole
discretion, to extend the Termination Date for an additional period of time not
to exceed 90 days if the sole reason that the Merger has not been consummated by
such date is that the condition set forth in Section 7.1(c) has not been
satisfied due to the failure to obtain the necessary consents and approvals
under applicable Governmental Regulations and Arch or PageNet are still
attempting to obtain such necessary consents and approvals under applicable
Governmental Regulations or are contesting the refusal of the relevant
Government Entities to give such consents or approvals in court or through other
applicable proceedings; (ii) the PageNet Stockholders Meeting and the Arch
Stockholders Meeting shall have been held and completed, but the PageNet
Stockholders Approval or the Arch Stockholders Approval, to the extent required
by Section 7.1(a), shall not have occurred; or (iii) any Order permanently
restraining, enjoining or otherwise prohibiting consummation of the Merger shall
become final and non-appealable (whether before or after the PageNet
Stockholders Approval or the Arch Stockholders Approval); provided, further,
that the right to terminate this Agreement pursuant to clause (i) above shall
not be available to any party that has breached in any
B-38
<PAGE> 405
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the failure of the Merger to be consummated.
8.3. Termination by PageNet. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the PageNet Stockholder Approval referred to in Section 7.1(a), by action of the
Board of Directors of PageNet if:
(a) the Board of Directors of Arch shall have withdrawn or adversely
modified its approval or recommendation of this Agreement;
(b) there has been a breach by Arch or Merger Sub of any
representation, warranty, covenant or agreement contained in this Agreement
which both: (i) would result in a failure of a condition set forth in
Section 7.3(a) or 7.3(b); and (ii) cannot be or is not cured prior to the
Termination Date;
(c) PageNet has received a Superior Proposal, has otherwise complied
with the requirements of Section 6.2, provides Arch with all of the
material terms of Superior Proposal at least two business days prior to
termination and simultaneously with such termination pays to Arch the Arch
Termination Fee required by Section 8.5(c); or
(d) pursuant to Section 6.19(a)(ii), PageNet shall not file the
Bankruptcy Case and seek confirmation of the Prepackaged Plan by the
Bankruptcy Court and simultaneously pays to Arch the Arch Termination Fee.
8.4. Termination by Arch. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
Arch Stockholder Approval referred to in Section 7.1(a), by action of the Board
of Directors of Arch if:
(a) the Board of Directors of PageNet shall have withdrawn or
adversely modified its approval or recommendation of this Agreement to do
so;
(b) there has been a breach by PageNet of any representation,
warranty, covenant or agreement contained in this Agreement which both: (i)
would result in a failure of a condition set forth in Section 7.2(a) or
7.2(b); and (ii) cannot be or is not cured prior to the Termination Date,
other than a breach that results solely from the filing or conduct of the
Bankruptcy Case consistent with the terms of this Agreement or solely from
the occurrence of an Involuntary Insolvency Event with respect to PageNet;
(c) the Initial Merger Order has not been entered within 30 days of
the commencement of the Bankruptcy Case;
(d) the Final Confirmation Order is not entered within the time
permitted by Section 6.19(a);
(e) the Prepackaged Plan is amended, modified or added to in violation
of Section 6.19(b); or
(f) Arch has received a Superior Proposal, has otherwise complied with
the requirements of Section 6.2, provides PageNet with all of the material
terms of the Superior Proposal at least two business days prior to such
termination and simultaneously pays to PageNet the PageNet Termination Fee
required by Section 8.5(b).
8.5. Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article VIII, this Agreement (other than as
set forth in Section 9.1) shall become void and of no effect with no
liability (other than as set forth in Section 8.5(b) or (c), or in the
proviso at the end of this sentence) on the part of any party to this
Agreement or of any of its directors, officers, employees, agents, legal or
financial advisors or other representatives; provided, however, no such
termination shall relieve any party to this Agreement from any liability
for damages resulting from any breach of this Agreement.
(b) In the event that: (i) an Acquisition Proposal shall have been
made to Arch or have been made directly to Arch' stockholders or
noteholders generally or any Person shall have publicly announced an
intention (whether or not conditional) to make an Acquisition Proposal and
thereafter: (A) Arch' stockholders do not adopt this Agreement or the other
transactions contemplated hereby at
B-39
<PAGE> 406
the Arch Stockholders Meeting; (B) this Agreement is terminated by either
Arch or PageNet pursuant to the terms of this Agreement and (C) Arch enters
into an agreement with a third party with respect to an Acquisition
Proposal within 12 months of the termination of this Agreement; (ii) this
Agreement is terminated by PageNet pursuant to Section 8.3(a) or (b)
provided that, with respect to Section 8.3(b), it is terminated solely with
respect to a breach of (A) Section 6.2 or (B) Section 6.5 (but, only with
respect to Arch' obligation in accordance with such Section to duly convene
and complete the Arch Stockholders Meeting regarding the adoption of this
Agreement and the matters set forth in Section 6.5(b) of this Agreement);
or (iii) this Agreement is terminated by Arch pursuant to Section 8.4(f),
then Arch and its Subsidiaries (jointly and severally) shall pay PageNet a
fee equal to $40.0 million (the "PageNet Termination Fee"), which amount
shall be in addition to any expenses to be paid pursuant to Section 6.12,
payable by wire transfer of same day funds. A PageNet Termination Fee
payable pursuant to Section 8.5(b)(i), or (ii) shall be paid no later than
two days after the date of termination and a PageNet Termination Fee
payable pursuant to Section 8.5(b)(iii) shall be paid simultaneously with
(and such payment shall be a condition of) termination pursuant to Section
8.4(f). Arch acknowledges that the agreements contained in this Section
8.5(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, PageNet would not enter into
this Agreement. Accordingly, if Arch fails to pay promptly the amount due
pursuant to this Section 8.5(b), and, in order to obtain such payment,
PageNet commences a suit which results in a judgment against Arch for the
fee set forth in this paragraph (b), Arch shall pay to PageNet its costs
and expenses (including attorneys' fees) in connection with such suit,
together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
(c) In the event that: (i) an Acquisition Proposal shall have been
made to PageNet or have been made directly to PageNet's stockholders or
noteholders generally or any Person shall have publicly announced an
intention (whether or not conditional) to make an Acquisition Proposal and
thereafter: (A) PageNet's stockholders do not adopt this Agreement or the
other transactions contemplated hereby at the PageNet Stockholders Meeting
or PageNet's noteholders do not satisfy the PageNet Minimum Condition with
respect to the PageNet Notes, and the Bankruptcy Court fails to enter the
Final Confirmation Order which would otherwise enable the transactions set
forth in this Agreement to occur without approval by the holders of PageNet
Shares; (B) this Agreement is terminated by either Arch or PageNet pursuant
to the terms of this Agreement and (C) either (x) PageNet executes and
delivers an agreement with respect to an Acquisition Proposal or (y) an
Acquisition Proposal with respect to PageNet is consummated, in either
case, within 12 months of the date this Agreement is terminated; (ii) this
Agreement is terminated by Arch pursuant to Section 8.4(a) or (b) provided
that, with respect to Section 8.4(b), it is terminated solely with respect
to a breach of (A) Section 6.2 or (B) Section 6.5 (but, only with respect
to PageNet's obligation in accordance with such Section to duly convene and
complete the PageNet Stockholders Meeting (unless the Bankruptcy Case has
commenced or PageNet has stipulated to bankruptcy relief after the
occurrence of an Involuntary Insolvency Event pursuant to Section
6.19(a)(iv) hereof) regarding the adoption of this Agreement and the
approval of the matters set forth in Section 6.5(a) of this Agreement);
(iii) the Prepackaged Plan is withdrawn without the prior written consent
of Arch, or PageNet files any other plan of reorganization or amends,
modifies or adds to any material provision of the Prepackaged Plan in each
case without the prior written consent of Arch; (iv) any other plan of
reorganization filed by a person other than PageNet is confirmed by the
Bankruptcy Court; (v) PageNet files a motion to sell or otherwise transfer
all or a substantial portion of its assets as part of a sale pursuant to
Section 363 of the Bankruptcy Code without the prior written consent of
Arch; or (vi) this Agreement is terminated by PageNet pursuant to Section
8.3(c) or (d), then PageNet and its Subsidiaries (jointly and severally)
shall pay Arch a fee equal to $40.0 million (the "Arch Termination Fee"),
which amount shall be in addition to any expenses to be paid pursuant to
Section 6.12, payable by wire transfer of same day funds. A Arch
Termination Fee payable pursuant to Section 8.5(c)(i), (ii), (iii), (iv) or
(v) shall be paid no later than two days after the date of termination and
a Arch Termination Fee payable pursuant to Section 8.5(c)(vi) shall be paid
B-40
<PAGE> 407
simultaneously with (and such payment shall be a condition of) termination
pursuant to Section 8.3(c) or (d). PageNet acknowledges that the agreements
contained in this Section 8.5(c) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Arch
and Merger Sub would not enter into this Agreement. Accordingly, if PageNet
fails to pay promptly the amount due pursuant to this Section 8.5(c) (and
in any case in which the Bankruptcy Case has been commenced, the Initial
Merger Order approves this provision), and, in order to obtain such
payment, Arch commences a suit which results in a judgment against PageNet
for the fee set forth in this paragraph (c), PageNet shall pay to Arch its
costs and expenses (including attorneys' fees) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
ARTICLE IX.
MISCELLANEOUS AND GENERAL
9.1. Survival. Article II, Article III, Article IV and this Article IX
(other than Section 9.4 (Counterparts)), and the agreements of PageNet, Arch and
Merger Sub contained in Sections 6.8 (Affiliates), 6.11 (Benefits), 6.12
(Expenses) and 6.13 (Indemnification; Directors' and Officers' Insurance) shall
survive the consummation of the Merger. This Article IX (other than Section 9.2
(Modification or Amendment), Section 9.3 (Waiver of Conditions) and Section 9.13
(Assignment)) and the agreements of PageNet, Arch and Merger Sub contained in
Section 6.12 (Expenses), Section 6.14 (Takeover Statute), Section 6.15
(Confidentiality) and Section 8.5 (Effect of Termination and Abandonment) shall
survive the termination of this Agreement. All other representations,
warranties, covenants and agreements in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
9.2. Modification or Amendment. Subject to the provisions of the
applicable law, at any time prior to the Effective Time, the parties to this
Agreement may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties.
9.3. Waiver of Conditions.
(a) Any provision of this Agreement may be waived prior to the
Effective Time if, and only if, such waiver is in writing and signed by an
authorized representative or the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
Except as otherwise provided in this Agreement, the rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. Governing Law and Venue; Waiver of Jury Trial.
(a) This Agreement shall be deemed to be made in and in all respects
shall be interpreted, construed, and governed by, and in accordance with,
the substantive laws of the State of Delaware, without regard to the
conflict of law principles thereof. The parties hereby irrevocably and
unconditionally consent to submit to the exclusive jurisdiction of the
courts of the State of Delaware and of the United States of America located
in Wilmington, Delaware, including the U.S. Bankruptcy Court for the
District of Delaware (the "Delaware Courts"), for any litigation arising
out of or relating to this Agreement or the Prepackaged Plan and the
transactions contemplated by this Agreement (and agree not to commence any
litigation relating thereto except in such Delaware Courts), waive any
objection to the laying of venue of any such litigation in the Delaware
Courts and
B-41
<PAGE> 408
agree not to plead or claim in any Delaware Court that such litigation
brought therein has been brought in an inconvenient forum.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, OR
RELATING TO, THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER; (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY; AND (iv) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices. Notices, requests, instructions or other documents to be
given under this Agreement shall be in writing and shall be deemed given: (i)
when sent if sent by facsimile, provided that receipt of the fax is promptly
confirmed by telephone; (ii) when delivered, if delivered personally to the
intended recipient; and (iii) one business day later, if sent by overnight
delivery via a national courier service, and in each case, addressed to a party
at the following address for such party:
If to Arch or Merger Sub:
Arch Communications Group, Inc.
1800 West Park Drive, Suite 250
Westborough, Massachusetts 01581
Attention: Chief Executive Officer
Fax: (508) 870-6076
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Jay E. Bothwick
Fax: (617) 526-5000
and if to PageNet:
Paging Network, Inc.
14911 Quorum Drive
Dallas, Texas 75240
Attention: Chief Executive Officer
Fax: (972) 801-8950
and
Paging Network, Inc.
14911 Quorum Drive
Dallas, Texas 75240
Attention: Senior Vice President and General Counsel
Fax: (972) 801-8978
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603-3441
Attention: John R. Schmidt
Fax: (312) 701-7711
B-42
<PAGE> 409
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement. This Agreement (including any exhibits and annexes
to this Agreement), the Confidentiality Agreement, the PageNet Disclosure
Letter, and the Arch Disclosure Letter constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties, both written and oral, among the parties with respect to the subject
matter of this Agreement. EACH PARTY TO THIS AGREEMENT AGREES THAT, EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER ARCH AND
MERGER SUB NOR PAGENET MAKES ANY REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY
DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER
REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, NOTWITHSTANDING THE DELIVERY OR
DISCLOSURE TO THE OTHER PARTY OR THE OTHER PARTY'S REPRESENTATIVES OF ANY
DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE
FOREGOING.
9.8. No Third Party Beneficiaries. Except as provided in Section 6.11
(Benefits), and Section 6.13 (Indemnification; Directors' and Officers'
Insurance), this Agreement is not intended to confer upon any Person other than
the parties to this Agreement any rights or remedies under this Agreement.
9.9. Obligations of Arch and of PageNet. Whenever this Agreement requires
a Subsidiary of Arch to take any action, such requirement shall be deemed to
include an undertaking on the part of Arch to cause such Subsidiary to take such
action. Whenever this Agreement requires a Subsidiary of PageNet to take any
action, such requirement shall be deemed to include an undertaking on the part
of PageNet to cause such Subsidiary to take such action and, after the Effective
Time, on the part of the Surviving Corporation to cause such Subsidiary to take
such action.
9.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions of this Agreement.
If any provision of this Agreement, or the application thereof to any Person or
any circumstance, is invalid or unenforceable: (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision; and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.11. Interpretation. Where a reference in this Agreement is made to a
section or exhibit, such reference shall be to a section of, or exhibit or annex
to this Agreement unless otherwise indicated. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
9.12. Captions. The table of contents, article, section, and paragraph
captions in this Agreement are for convenience of reference only, do not
constitute part of this Agreement and shall not be deemed to limit or otherwise
affect any of the provisions of this Agreement.
9.13. Assignment. This Agreement shall not be assignable by operation of
law or otherwise, provided, that the parties agree that this Agreement may be
assumed by PageNet as a debtor-in-possession in the Bankruptcy Case and may be
assumed by Arch should Arch become a debtor in any bankruptcy case under the
Bankruptcy Code. Any assignment in contravention of the preceding sentence shall
be null and void.
* * * * *
B-43
<PAGE> 410
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties to this Agreement as of the date
first written above.
PAGING NETWORK, INC.
By: /s/ JOHN P. FRAZEE, JR.
----------------------------------
Name: John P. Frazee, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ARCH COMMUNICATIONS GROUP, INC.
By: /s/ C.E. BAKER, JR.
----------------------------------
Name: C.E. Baker, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ST. LOUIS ACQUISITION CORP.
By: /s/ C.E. BAKER, JR.
----------------------------------
Name: C.E. Baker, Jr.
Title: Chief Executive Officer
B-44
<PAGE> 411
ANNEX C
THE PREPACKAGED PLAN OF REORGANIZATION
[Important: A Bankruptcy Case Has Not Been
Commenced as of the Date of the Distribution of this Document]
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
IN RE:
PAGING NETWORK, INC., ET AL., CHAPTER 11
DEBTORS.
CASE NOS. 00 ( - )
</TABLE>
- --------------------------------------------------------------------------------
JOINT PLAN OF REORGANIZATION
OF PAGING NETWORK, INC. AND CERTAIN SUBSIDIARIES
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
- --------------------------------------------------------------------------------
C-1
<PAGE> 412
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. Defined Terms, Rules of Interpretation, Computation of
Time and Governing Law......................................... C-4
A. Rules of Interpretation, Computation of Time and Governing
Law......................................................... C-4
B. Defined Terms............................................... C-4
ARTICLE II. Treatment of Unclassified Claims..................... C-12
A. Summary..................................................... C-12
B. Administrative Expense Claims............................... C-12
C. Priority Tax Claims......................................... C-12
D. DIP Facility Claims......................................... C-12
ARTICLE III. Classification and Treatment of Classified Claims
and Interests.................................................. C-13
A. Summary..................................................... C-13
B. Classification and Treatment................................ C-13
C. Special Provision Governing Unimpaired Claims............... C-15
ARTICLE IV. Non-Consensual Confirmation.......................... C-16
ARTICLE V. Means for Implementation of the Plan.................. C-16
A. Continued Corporate Existence............................... C-16
B. Vesting of Assets and Consummation of Mergers............... C-16
C. Cancellation of Instruments and Securities.................. C-16
D. Issuance of New Securities; Execution of Related
Documents................................................... C-17
E. Corporate Governance, Directors and Officers, and Corporate
Action...................................................... C-17
ARTICLE VI. Treatment of Executory Contracts and Unexpired
Leases......................................................... C-18
A. Assumption of Executory, Contracts and Unexpired Leases..... C-18
B. Claims Based on Rejection of Executory Contracts or
Unexpired Leases............................................ C-18
C. Cure of Defaults for Executory Contracts and Unexpired
Leases Assumed.............................................. C-18
D. Indemnification of Directors, Officers and Employees........ C-19
E. Stock Options............................................... C-19
ARTICLE VII. Provisions Governing Distributions.................. C-19
A. Timing of Distributions..................................... C-19
B. Methods of Distribution..................................... C-19
C. Undeliverable and Unclaimed Distributions................... C-22
D. Compliance with Tax Requirements............................ C-23
E. Compensation and Reimbursement for Services Related to
Balloting and Distributions................................. C-23
F. Setoffs..................................................... C-23
ARTICLE VIII. Procedures for Resolving Disputed Claims........... C-23
A. Prosecution of Objections to Claims and Interests........... C-23
B. Estimation of Claims........................................ C-24
C. Payments and Distributions on Disputed Claims............... C-24
</TABLE>
C-2
<PAGE> 413
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX. Conditions Precedent to Consummation of the Plan..... C-24
A. Conditions Precedent to Consummation........................ C-24
B. Waiver of Conditions........................................ C-24
C. Effect of Vacation of Confirmation Order.................... C-24
ARTICLE X. Release, Injunction and Related Provisions............ C-25
A. Subordination............................................... C-25
B. Limited Releases by the Debtors............................. C-25
C. Preservation of Rights of Action............................ C-25
D. Exculpation................................................. C-26
E. Injunction.................................................. C-26
ARTICLE XI. Retention of Jurisdiction............................ C-26
ARTICLE XII. Miscellaneous Provisions............................ C-27
A. Dissolution of Committee(s)................................. C-27
B. Payment of Statutory Fees................................... C-27
C. Discharge of Debtors........................................ C-27
D. Modification of Plan........................................ C-28
E. Revocation of Plan.......................................... C-28
F. Successors and Assigns...................................... C-28
G. Reservation of Rights....................................... C-28
H. Section 1146 Exemption...................................... C-28
I. Further Assurances.......................................... C-28
J. Service of Documents........................................ C-29
K. Filing of Additional Documents.............................. C-30
</TABLE>
C-3
<PAGE> 414
- --------------------------------------------------------------------------------
JOINT PLAN OF REORGANIZATION
OF PAGING NETWORK, INC. AND CERTAIN SUBSIDIARIES
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
- --------------------------------------------------------------------------------
Pursuant to title 11 of the United States Code, 11 U.S.C. sec.sec. 101 et
seq., Paging Network, Inc., PageNet, Inc., Paging Network Finance Corp., Paging
Network of America, Inc., Paging Network of Colorado, Inc., Paging Network of
Michigan, Inc., Paging Network of Northern California, Inc., and Paging Network
of San Francisco, Inc., each a debtor and debtor in possession, propose the
following Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code:
ARTICLE I.
DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW
A. RULES OF INTERPRETATION, COMPUTATION OF TIME AND GOVERNING LAW
1. For purposes of the Plan: (a) whenever from the context is appropriate,
each term, whether stated in singular or the plural, shall include both the
singular and the plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, feminine and the neuter gender; (b)
any reference in the Plan to a contract, instrument, release, indenture or other
agreement or document being in a particular form or on particular terms and
conditions means that such document shall be substantially in such form or
substantially on such terms and conditions; (c) any reference in the Plan to an
existing document or exhibit Filed, or to be Filed, shall mean such document or
exhibit, as it may have been or may be amended, modified or supplemented; (d)
unless otherwise specified, all references in the Plan to Sections, Articles and
Exhibits are references to Sections, Articles and Exhibits of or to the Plan;
(e) the words "herein" and "hereto" refer to the Plan in its entirety rather
than to a particular portion of the Plan; (f) captions and headings to Articles
and Sections are inserted for convenience of reference only and are not intended
to be a part of or to affect the interpretation of the Plan; (g) the rules of
construction set forth in section 102 of the Bankruptcy Code shall apply; and
(h) any term used in capitalized form in the Plan that is not defined herein but
that is used in the Bankruptcy Code or the Bankruptcy Rules shall have the
meaning assigned to such term in the Bankruptcy Code or the Bankruptcy Rules, as
the case may be.
2. In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
3. The rights and obligations arising under the Plan shall be interpreted,
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware (without regard to the conflict of law principles thereof),
the Bankruptcy Code and the Bankruptcy Rules.
B. DEFINED TERMS
Unless the context otherwise requires, the following terms shall have the
following meanings when used in capitalized form in the Plan:
1. "Administrative Agent Bank" means one or more lenders performing
the function of "Administrative Agent" under the Credit Agreement.
2. "Administrative Expense Claim" means a Claim to the extent that it
is entitled to priority under section 507(a)(1) of the Bankruptcy Code.
3. "Agent Bank" means one or more lenders performing the functions of
"Administrative Agent," "Co-Syndication Agent," "Documentation Agent,"
"Managing Agent," "Co-Agent," or
C-4
<PAGE> 415
"Lead Manager" under the Credit Agreement or otherwise designated as an
agent for the lenders under the Credit Agreement.
4. "Agent Bank Charges" means any lien, right or other priority in
payment or right to indemnification or reimbursement to which an Agent Bank
is entitled, pursuant to the Credit Agreement, against distributions to be
made to or payment to be made by Holders of Allowed Claims under the Credit
Agreement, including such liens, rights or priorities in payment with
respect to an Agent Bank's out-of-pocket costs and expenses for attorneys,
financial advisors and other professionals that are incurred or authorized
by an Agent Bank acting in such capacity.
5. "Allowed" means, with respect to any Claim: (a) a Claim that has
been listed by the Debtors in their Schedules as other than disputed,
contingent or unliquidated and as to which the Debtors or other parties in
interest have not Filed an objection by the Effective Date; (b) a Claim
that has been timely filed on or before any applicable Bar Date set by the
Bankruptcy Court and either is not a Disputed Claim or has been allowed by
Final Order; (c) a Claim that is allowed: (i) in any stipulation of amount
and nature of Claim executed prior to the Confirmation Date and approved by
the Bankruptcy Court; (ii) in any stipulation with the Debtors of amount
and nature of Claim executed or agreed to by the Debtors or the Reorganized
Debtors on or after the Confirmation Date; or (iii) in any contract,
instrument, indenture or other agreement entered into or assumed in
connection with the Plan; (d) a Claim that has been Filed by the Bar Date
or has otherwise been deemed timely Filed under applicable law relating to
a rejected executory contract or unexpired lease that either (i) is not a
Disputed Claim or (ii) has been allowed by a Final Order; or (e) any Claim
that is allowed pursuant to the terms of the Plan. The term "Allowed," when
used to modify a reference in the Plan to any Claim or Class of Claims
means a Claim (or any Claim in any such Class) that is so allowed.
6. "Allowed" means, with respect to any Interest, an Interest that is
listed in the respective transfer books and records for the Debtors as of
the applicable record date. The term "Allowed," when used to modify a
reference in the Plan to any Interest or Class of Interests means an
Interest (or any Interest in any such Class) that is so allowed.
7. "Arch" means Arch Communications Group, Inc., a Delaware
corporation.
8. "Arch Common Stock" means the common stock of Arch, par value $0.01
per share, which is issued and outstanding plus additional stock which will
be authorized and issued as and when contemplated by the Merger Agreement.
9. "Arch Companies" means, collectively, Arch, Merger Sub and any
direct or indirect, wholly owned subsidiary of Arch or Merger Sub.
10. "Arch Credit Facility" means the Third Amended and Restated Credit
Facility among Arch Paging, Inc., The Bank of New York, Royal Bank of
Canada, Barclays Bank plc, Fleet National Bank and Toronto Dominion
(Texas), Inc., as Managing Agents, Royal Bank of Canada, Fleet National
Bank and Barclays Bank plc, as Co-Documentation Agents, Toronto Dominion
(Texas), Inc., as Syndication Agent and The Bank of New York, as
Administrative Agent with BNY Capital Markets, Inc. and TD Securities (USA)
Inc., as Lead Arrangers and Book Runners, dated March 23, 2000, as it may
be amended, supplemented or otherwise modified from time to time. The terms
and conditions of the Arch Credit Facility are set forth in the Arch Credit
Facility Summary of Terms.
11. "Arch Credit Facility Summary of Terms" means the Summary of
Principal Terms and Conditions for the Arch Credit Facility setting forth
the terms and conditions for the Arch Credit Facility, a copy of which is
attached as Annex D to the Disclosure Statement.
12. "Avoidance Action" means any avoidance or recovery action under
sections 510, 542, 544, 545, 547, 548, 549, 550, 551 and 553 of the
Bankruptcy Code.
13. "Ballot Date" means the date stated in the Voting Instructions by
which all Ballots must be received.
C-5
<PAGE> 416
14. "Ballots" means the ballots accompanying the Disclosure Statement
upon which Holders of Impaired Claims or Impaired Interests shall indicate
their acceptance or rejection of the Plan in accordance with the Plan and
the Voting Instructions.
15. "Bank Secured Claims" means all Claims arising from or relating to
the Credit Agreement, including the Designated Loans and Adequate
Protection Claims as defined in the DIP Facility Term Sheet.
16. "Bankruptcy Code" means title 11 of the United States Code, as now
in effect or hereafter amended.
17. "Bankruptcy Court" means the United States District Court for the
District of Delaware with jurisdiction over the Chapter 11 Cases and, to
the extent of any reference made pursuant to section 157 of title 28 of the
United States Code and/or the General Order of such District Court pursuant
to section 151 of title 28 of the United States Code, the bankruptcy unit
of such District Court.
18. "Bankruptcy Rules" means, collectively, the Federal Rules of
Bankruptcy Procedure and the local rules of the Bankruptcy Court, as now in
effect or hereafter amended.
19. "Bar Date" means the date set pursuant to Article VI.B of the Plan
for the Filing of proofs of claim with respect to executory contracts and
unexpired leases which are rejected pursuant to this Plan or otherwise
pursuant to section 365 of the Bankruptcy Code.
20. "Beneficial Holder" means the Person or Entity holding the
beneficial interest in a Claim or Interest.
21. "Business Day" means any day, other than a Saturday, Sunday or
"legal holiday" (as defined in Bankruptcy Rule 9006(a)).
22. "Cash" means cash and cash equivalents.
23. "Causes of Action" means all actions, causes of action, suits,
debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialities, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages or judgments.
24. "Chapter 11 Cases" means the cases under chapter 11 of the
Bankruptcy Code, commenced by the Debtors in the Bankruptcy Court.
25. "Claim" means a "claim" as defined in section 101(5) of the
Bankruptcy Code, as supplemented by section 102(2) of the Bankruptcy Code,
against one or more of the Debtors or the property of one or more of the
Debtors.
26. "Claim Holder" or "Claimant" means the Holder of a Claim.
27. "Class" means a class of Holders of Claims or Interests as set
forth in Article III of the Plan.
28. "Committee" or "Committees" means a statutory official committee
(or committees, if more than one) appointed in the Chapter 11 Cases
pursuant to section 1102 of the Bankruptcy Code, if any.
29. "Compensation and Benefit Plans" means all employment and
severance policies, and all compensation and benefit plans, policies, and
programs of the Debtors applicable to their employees, retirees and
non-employee directors and the employees and retirees of their
subsidiaries, including, without limitation, all savings plans, retirement
plans, health care plans, disability plans, severance benefit plans,
incentive plans, and life, accidental death, and dismemberment insurance.
30. "Confirmation" means the entry of the Confirmation Order.
C-6
<PAGE> 417
31. "Confirmation Date" means the date upon which the Confirmation
Order is entered by the Bankruptcy Court in its docket, within the meaning
of the Bankruptcy Rules 5003 and 9021.
32. "Confirmation Order" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code, which
order shall be in form and substance reasonably satisfactory to Arch.
33. "Consummation" means the occurrence of the Effective Date.
34. "Credit Agreement" means that certain Second Amended and Restated
Credit Agreement dated as of June 5, 1996 among the Parent Corporation and
certain of the subsidiaries of the Parent Corporation designated therein,
the Agent Banks, and the Lenders designated therein, together with all
related notes, certificates, security agreements, mortgages, pledges,
indemnities, collateral assignments, undertakings, guaranties, and other
instruments and documents, as each may have been amended or modified from
time to time.
35. "Creditor" means any Holder of a Claim.
36. "D&O Releasees" means all officers, directors, employees,
attorneys, financial advisors, accountants, investment bankers, agents and
representatives of the Debtors and their subsidiaries who served in such
capacity on or after April 30, 1999, in each case in their capacity as
such.
37. "Debtors" mean, collectively, the Parent Corporation and the
Operating Subsidiaries.
38. "Debtors in Possession" mean the Debtors, as debtors in possession
in the Chapter 11 Cases.
39. "Delaware General Corporation Law" means title 8 of the Delaware
Code, as now in effect or hereafter amended.
40. "DIP Facility" means the debtor in possession financing facility
between the DIP Lenders and the Debtors, as approved by the Bankruptcy
Court in accordance with the DIP Financing Order.
41. "DIP Facility Claims" mean all Claims arising from or relating to
the DIP Loan Documents except for Designated Loan Claims and Adequate
Protection Claims as defined in the DIP Facility Term Sheet.
42. "DIP Facility Term Sheet" means the term sheet between the DIP
Lenders and the Debtors dated May , 2000, setting forth the terms and
conditions of the DIP Facility, subject to approval of the Bankruptcy
Court, a copy of which is attached hereto as Exhibit .
43. "DIP Financing Order" means the order or orders of the Bankruptcy
Court approving and authorizing the terms of debtor in possession financing
arrangements in the Chapter 11 Cases in accordance with the DIP Loan
Documents.
44. "DIP Lenders" means the lender or lenders under the DIP Loan
Documents.
45. "DIP Loan Documents" mean all documents and instruments
evidencing, setting forth the terms, and implementing the terms of, the DIP
Facility executed in the Chapter 11 Cases and as approved by the DIP
Financing Order.
46. "Disclosure Statement" means the Prospectus accompanying the
Registration Statement on Form S-4 (Registration No. 333-94403) filed by
PageNet with the Securities and Exchange Commission on , 2000
amended, supplemented, or modified from time to time, describing the Plan.
47. "Disputed" means, with respect to any Claim or Interest, any Claim
or Interest: (a) listed on the Schedules as disputed, contingent or
unliquidated; or (b) as to which the Debtors or any other parties in
interest have interposed a timely objection or request for estimation, or
have sought to subordinate or otherwise limit recovery, in accordance with
the Bankruptcy Code and the Bankruptcy Rules, or which is otherwise
disputed by the Debtors in accordance with applicable law, which
C-7
<PAGE> 418
objection, request for estimation, action to limit recovery or dispute has
not been withdrawn or determined by a Final Order.
48. "Distribution Record Date" means the close of business on the
Business Day immediately preceding the Effective Date.
49. "Effective Date" means the date selected by the Debtors and Arch
which is a Business Day not later than five (5) Business Days after the
date on which all of the following conditions are satisfied: (a) the
Confirmation Date has occurred and the Confirmation Order has not been
amended, modified, supplemented, reversed or stayed (without the express
written consent of the Parent Corporation and Arch) and (b) all conditions
specified in Article IX.A of the Plan have been (i) satisfied or (ii)
waived pursuant to Article IX.B.
50. "Entity" means an entity as defined in section 101(15) of the
Bankruptcy Code.
51. "Estates" means the estates of the Debtors created by section 541
of the Bankruptcy Code upon the commencement of the Chapter 11 Cases.
52. "Exchange Agent" means Arch's transfer agent or other exchange
agent selected by Arch with the Parent Corporation's prior approval.
53. "File" or "Filed" means file or filed with the Bankruptcy Court in
the Chapter 11 Cases.
54. "Final Confirmation Order" means the Confirmation Order which, as
of the Effective Date, has not been amended, modified, supplemented,
reversed or stayed.
55. "Final Decree" means the decree contemplated under Bankruptcy Rule
3022.
56. "Final Order" means an order or judgment of the Bankruptcy Court,
or other court of competent jurisdiction, other than the Final Confirmation
Order, with respect to the subject matter, which has not been reversed,
stayed, modified, amended, or supplemented and with respect to which the
time for appeal has passed and no appeal has been filed and remains
pending.
57. "General Unsecured Claims" means, collectively, all Unsecured
Claims against a Debtor held by any Person or Entity, other than Claims
classified in Class 5 or 7.
58. "Holder" means a Person or Entity holding an Interest or Claim,
and with respect to a vote on the Plan, means the Beneficial Holder as of
the Voting Record Date or any authorized signatory who has completed and
executed a Ballot or on whose behalf a Ballot has been completed and
executed in accordance with the Voting Instructions.
59. "Impaired Claim" means a Claim classified in an Impaired Class.
60. "Impaired Class" means each of Classes 2, 5, 6, 7 and 8 as set
forth in Article III of the Plan.
61. "Indenture Trustee" means the trustee(s) under the Senior
Subordinated Note Indentures.
62. "Indenture Trustee Charging Lien" means any lien or other priority
in payment arising prior to the Effective Date to which the Indenture
Trustee is entitled, pursuant to the applicable Senior Subordinated Note
Indentures, against distributions to be made to holders of Allowed Senior
Subordinated Note Claims for payment of any fees, costs or disbursements
incurred by such Indenture Trustee.
63. "Insider" means "insider" as defined in section 101(31) of the
Bankruptcy Code.
64. "Interest" means any equity interest in the Parent Corporation and
the Parent Corporation's or any Operating Subsidiary's equity interest in
any Operating Subsidiary including, but not limited to, all issued,
unissued, authorized or outstanding shares or stock, together with any
warrants, options or contract rights to purchase or acquire such interests
at any time.
C-8
<PAGE> 419
65. "Investor Releasees" means the Arch Companies and each of their
respective officers, directors, stockholders, employees, attorneys,
accountants, and agents.
66. "Joinder Agreement" means an agreement in form and substance
reasonably satisfactory to the lender parties to the Arch Credit Facility
pursuant to which a Holder of an Allowed Class 2 Claim agrees to join and
be bound by the terms of the Arch Credit Facility, as the same may be
amended or modified.
67. "Lender Releasees" means each Holder of an Allowed Bank Secured
Claim that timely votes to accept the Plan and their respective officers,
directors, stockholders, employees, attorneys, accountants, and agents.
68. "License Agreements" means the various licenses and similar
agreements obtained by any Debtor by grant from the Federal Communications
Commission (the "FCC"), by acquisition from competitors or by spectrum
auctions conducted by the FCC and providing rights to the Debtors to
construct, own and operate radio transmission facilities utilizing the
public airways including, but not limited to, local, regional and national
900 MHz licenses, Nationwide NPCS licenses and National Specialized Mobile
Radio Licenses and any other licenses or similar agreements representing or
constituting the Debtors' right to provide paging service and conduct its
paging business.
69. "Merger" means the merger of Merger Sub with and into the
Reorganized Parent Corporation upon the terms and subject to the conditions
set forth in the Merger Agreement.
70. "Merger Agreement" means that certain Agreement and Plan of Merger
dated as of November 7, 1999 among the Parent Corporation, Arch and Merger
Sub (as amended and supplemented from time to time), a copy of which is
attached as an exhibit to the Disclosure Statement.
71. "Merger Sub" means St. Louis Acquisition Corp., a Delaware
corporation that is a wholly owned subsidiary of Arch.
72. "Nominee" means any broker, dealer, commercial bank, trust
company, savings and loan, or other nominee who is the record owner of a
Claim or Interest for the benefit of a Beneficial Holder.
73. "Noteholder Merger Consideration" means 76,918,795 shares of Arch
Common Stock, subject to adjustment as provided in section 4.4 of the
Merger Agreement.
74. "Noteholder Vast Stock" means 13,780,000 shares of Class B Common
Stock of Vast, subject to Section 6.1(d) of the Merger Agreement.
75. "Old Common Stock" means the common stock, par value $0.01 per
share, of the Parent Corporation issued and outstanding immediately prior
to the Effective Date.
76. "Old Stock Interests" means all rights and interests with respect
to, on account of, or arising from or in connection with all equity
interests in the Parent Corporation represented by the Old Common Stock.
77. "Old Stock Options" means each option to purchase common stock of
the Parent Corporation under the Parent Corporation's stock plans that is
outstanding immediately prior to the Effective Date.
78. "Operating Subsidiaries" means Paging Network Finance, Inc.,
PageNet, Inc., Paging Network of America, Inc., Paging Network of Colorado,
Inc., Paging Network of Michigan, Inc., Paging Network of Northern
California, Inc., and Paging Network of San Francisco, Inc.
79. "Operating Subsidiary Debtors" means the Operating Subsidiaries in
their capacities as debtors in the Chapter 11 cases.
80. "Other Claims" means, collectively, all Claims against a Debtor
held by any Person or Entity, other than Claims classified in Classes 2, 5
and 7.
C-9
<PAGE> 420
81. "Other Secured Claims" means, collectively, all Secured Claims
against a Debtor held by any Person or Entity, other than Claims classified
in Class 2.
82. "Parent Corporation" means Paging Network, Inc., a Delaware
Corporation.
83. "Person" means a person as defined in section 101(41) of the
Bankruptcy Code.
84. "Petition Date" means the date on which the Debtors filed their
petitions for relief commencing the Chapter 11 Cases.
85. "Plan" or "Joint Plan" means this Chapter 11 Joint Plan of
Reorganization, either in its present form or as it may be altered,
amended, modified or supplemented from time to time in accordance with the
Plan, the Merger Agreement, the Bankruptcy Code, and the Bankruptcy Rules.
86. "Priority Claims" means any Claim accorded priority in right of
payment under section 507(a) of the Bankruptcy Code, other than an
Administrative Expense Claim, a Priority Tax Claim, or a DIP Facility
Claim.
87. "Priority Tax Claim" means a Claim of a governmental unit of the
kind specified in section 507(a)(8) of the Bankruptcy Code.
88. "Professionals" means a Person or Entity (a) employed pursuant to
a Final Order in accordance with sections 327 and 1103 of the Bankruptcy
Code and to be compensated for services rendered prior to the Effective
Date, pursuant to sections 327, 328, 329, 330 and 331 of the Bankruptcy
Code, or (b) for which compensation and reimbursement has been allowed by
the Bankruptcy Court pursuant to section 503(b) of the Bankruptcy Code.
89. "Pro Rata" means proportionately so that with respect to an
Allowed Claim and/or Allowed Interest, the ratio of (a)(i) the amount of
property distributed on account of a particular Allowed Claim or Allowed
Interest to (ii) the amount of the Allowed Claim or Allowed Interest, is
the same as the ratio of (b)(i) the amount of property distributed on
account of all Allowed Claims and Allowed Interests of the Class in which
the particular Allowed Claim and/or Allowed Interest are/is included to
(ii) the amount of all Allowed Claims and/or Allowed Interests in that
Class.
90. "Reorganized Debtors" means, collectively, Reorganized Parent
Corporation and Reorganized Operating Subsidiaries.
91. "Reorganized Operating Subsidiary" means any Operating Subsidiary
and any successors thereto, by merger, consolidation, or otherwise, on and
after the Effective Date.
92. "Reorganized Parent Corporation" means the Parent Corporation and
any successors thereto, by merger, consolidation, or otherwise, on and
after the Effective Date.
93. "Schedules" means the schedules of assets and liabilities, the
list of holders of interests, and the statement of financial affairs filed
by the Debtors under section 521 of the Bankruptcy Code and Bankruptcy Rule
1007, as such schedules, lists, and statements may be supplemented or
amended from time to time.
94. "Secured Claim" means (a) a Claim that is secured by a lien on
property in which any Estate has an interest, which lien is valid,
perfected and enforceable under applicable law or by reason of a Final
Order, or that is subject to setoff under section 553 of the Bankruptcy
Code, to the extent of the value of the Claim Holder's interest in an
Estate's interest in such property or to the extent of the amount subject
to setoff, as applicable, as determined pursuant to section 506(a) of the
Bankruptcy Code, or (b) a Claim Allowed under this Plan as a Secured Claim.
95. "Senior Subordinated Notes" means, collectively, (i) the 10%
Senior Subordinated Notes Due October 15, 2008 issued under and pursuant to
an Indenture, dated as of July 15, 1995, between the Parent Corporation and
Shawmut Bank, N.A., as Trustee, as supplemented by a Second Supplemental
Indenture, dated as of October 15, 1996, between the Parent Corporation and
Fleet National Bank, (ii) the 10.125% Senior Subordinated Notes Due August
1, 2007 issued under and
C-10
<PAGE> 421
pursuant to an Indenture, dated as of July 15, 1995, between the Parent
Corporation and Shawmut Bank, N.A., as Trustee, as supplemented by a First
Supplemental Indenture, dated as of July 15, 1995, between the Parent
Corporation and Shawmut Bank, N.A., and (iii) the 8.875% Senior
Subordinated Notes Due February 1, 2006 issued under and pursuant to an
Indenture, dated as of January 15, 1994, between the Parent Corporation and
Shawmut Bank, N.A., as Trustee, as supplemented by a First Supplemental
Indenture, dated as of January 15, 1994, between the Parent Corporation and
Shawmut Bank, N.A.
96. "Senior Subordinated Note Claims" means all Claims under with
respect to, on account of, or arising from or in connection with the Senior
Subordinated Notes or the Senior Subordinated Note Indentures (including,
to the extent provided herein, unpaid principal, accrued and unpaid
interest and the reasonable expenses and related charges of the Indenture
Trustee).
97. "Senior Subordinated Note Indentures" means, collectively, the
indentures and supplemental indentures, as each may have been amended or
modified from time to time, pursuant to which the Parent Corporation issued
the Senior Subordinated Notes.
98. "Stockholder Merger Consideration" means a number of shares of
Arch Common Stock equal to the product of (y) the number of shares of Old
Common Stock issued and outstanding immediately prior to the Effective Date
and (z) 0.1247, subject to adjustment to prevent dilution as provided in
section 4.4 of the Merger Agreement.
99. "Stockholder Vast Stock" means 2,320,000 shares of Class B Common
Stock of Vast.
100. "Subsidiary Claims" means all Claims by a Debtor against another
Debtor.
101. "Subsidiary Stock" means the common stock of, and all equity
interests in, any Operating Subsidiary Debtor, issued and outstanding
immediately prior to the Effective Date.
102. "Subsidiary Stock Interests" means all equity interests held by
Parent Corporation in any Operating Subsidiary or by any Operating
Subsidiary in any other Operating Subsidiary.
103. "Substitute Option" means an option to acquire, on the same terms
and conditions as were applicable under an Old Stock Option, the same
number of shares of Arch Common Stock as the holder of such Old Stock
Option would have been entitled to receive pursuant to the Merger Agreement
had such holder exercised such Old Stock Option in full immediately prior
to the Effective Date (rounded down to the nearest whole number), at an
exercise price per share (rounded to the nearest whole cent) equal to: (y)
the aggregate exercise price for Old Common Stock otherwise purchasable by
such holder pursuant to such Old Stock Option; divided by (z) the number of
full shares of Arch Common Stock deemed purchasable pursuant to such Old
Stock Option in accordance with the foregoing.
104. "Tranche B-1 Arch Credit Facility Notes" means Tranche B-1 Notes
issued pursuant to the Arch Credit Facility, containing the terms and being
entitled to the benefits described in the Arch Credit Facility Summary of
Terms.
105. "Tranche B-2 Arch Credit Facility Notes" means Tranche B-2 Notes
issued pursuant to the Arch Credit Facility, containing the terms and being
entitled to the benefits described in the Arch Credit Facility Summary of
Terms.
106. "Unimpaired Claim" means an unimpaired Claim within the meaning
of section 1124 of the Bankruptcy Code.
107. "Unimpaired Class" means an unimpaired Class within the meaning
of section 1124 of the Bankruptcy Code.
108. "Unsecured Claim" means any Claim against a Debtor that is not a
Secured Claim, Administrative Expense Claim, Priority Tax Claim, DIP
Facility Claim, or Priority Claim.
C-11
<PAGE> 422
109. "Vast" means Vast Solutions, Inc., a Delaware corporation that is
a wholly owned subsidiary of the Parent Corporation.
110. "Vast Class B Common Stock" means the Class B common stock to be
issued by Vast and distributed pursuant to this Plan and the Merger
Agreement.
111. "Voting Instructions" means the instructions and related
procedures for voting to accept or reject the Plan, as contained in the
section of the Disclosure Statement entitled "Voting Instructions and
Procedures." and in the Ballots.
112. "Voting Record Date" means the date set in the Disclosure
Statement for determining Holders of Claims and Interests entitled to vote
to accept or reject the Plan.
ARTICLE II.
TREATMENT OF UNCLASSIFIED CLAIMS
A. SUMMARY
Pursuant to section 1123(a)(1) of the Bankruptcy Code, Administrative
Expense Claims, Priority Tax Claims, and DIP Facility Claims against the Debtors
are not classified for purposes of voting on, or receiving distributions under,
the Plan. Holders of such Claims are not entitled to vote on the Plan. All such
Claims are instead treated separately in accordance with this Article II and in
accordance with the requirements set forth in Section 1129(a)(9)(A) of the
Bankruptcy Code.
B. ADMINISTRATIVE EXPENSE CLAIMS
Subject to the provisions of section 330(a) and 331 of the Bankruptcy Code,
each Holder of an Allowed Administrative Expense Claim will be paid the full
unpaid amount of such Allowed Administrative Expense Claim in Cash on the later
of (i) the Effective Date or (ii) the date such Claim becomes an Allowed
Administrative Expense Claim, or upon such other terms as may be agreed upon by
such Holder and the Reorganized Debtors or otherwise upon order of the
Bankruptcy Court; provided, however, that Allowed Administrative Expense Claims
representing obligations incurred in the ordinary course of business or
otherwise assumed by the Debtors on the Effective Date pursuant to the Plan will
be paid or performed by the Reorganized Debtors when due in accordance with the
terms and conditions of the particular agreements governing such obligations.
C. PRIORITY TAX CLAIMS
Each Holder of an Allowed Priority Tax Claim due and payable on or prior to
the Effective Date will be paid the full unpaid amount of such Allowed Priority
Tax Claim in Cash on the Effective Date, or upon such other terms as may be
agreed upon by such Holder and the Reorganized Debtors or otherwise upon order
of the Bankruptcy Court. The amount of any Priority Tax Claim that is not an
Allowed Claim or that is not otherwise due and payable on or prior to the
Effective Date, and the rights of the Holder of such Claim, if any, to payment
in respect thereof shall (i) be determined in the manner in which the amount of
such Claim and the rights of the Holder of such Claim would have been resolved
or adjudicated if the Chapter 11 Cases had not been commenced, (ii) survive the
Effective Date and Consummation of the Plan as if the Chapter 11 Cases had not
been commenced, and (iii) not be discharged pursuant to section 1141 of the
Bankruptcy Code. In accordance with section 1124 of the Bankruptcy Code, the
Plan leaves unaltered the legal, equitable, and contractual rights of each
Holder of a Priority Tax Claim.
D. DIP FACILITY CLAIMS
Each Holder of an Allowed DIP Facility Claim will be paid the full unpaid
amount of such Allowed DIP Facility Claim either in Cash or through the receipt
of Tranche B-2 Arch Facility Notes on the later
C-12
<PAGE> 423
of (i) the Effective Date or (ii) the date such Claim becomes pursuant to, and
in accordance with, the DIP Facility Term Sheet and the Arch Credit Facility
Summary of Terms, or upon such other terms as may be agreed upon by such Holder
and the Reorganized Debtors or otherwise upon order of the Bankruptcy Court.
ARTICLE III.
CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS
A. SUMMARY
The categories of Claims and Interests listed below classify Claims and
Interests for all purposes. A Claim or Interest shall be deemed classified in a
particular Class only to the extent that the Claim or Interest qualifies within
the description of that Class and shall be deemed classified in a different
Class to the extent that any remainder of such Claim or Interest qualifies
within the description of such different Class. A Claim or Interest is in a
particular Class only to the extent that such Claim or Interest is Allowed in
that Class and has not been paid or otherwise settled prior to the Effective
Date. Claims against the Parent Corporation and the Operating Subsidiaries,
respectively, are classified in a single class regardless of whether such Claims
are assertable against the Parent Corporation, an Operating Subsidiary, or both.
The Debtors do not believe that such classification adversely impacts upon the
rights of any Creditor or Holder of any Interest. The Debtors do not intend, by
so classifying Claims, to effect a substantive consolidation of the Parent
Corporation and any Operating Subsidiary. Rather, the separate corporate
existence of the Parent Corporation and each Operating Subsidiary is preserved
under the Plan in accordance with Sections III. B. 7 and V. A. of the Plan.
The classification of Claims and Interests pursuant to this Plan is as
follows:
<TABLE>
<CAPTION>
CLASS STATUS VOTING RIGHTS
----- ------ -------------
<S> <C> <C>
Class 1 -- Priority Claims Unimpaired -- not entitled to
vote
Class 2 -- Bank Secured Claims Impaired -- entitled to vote
Class 3 -- Other Secured Claims Unimpaired -- not entitled to
vote
Class 4 -- General Unsecured Claims Unimpaired -- not entitled to
vote
Class 5 -- Senior Subordinated Note Claims Impaired -- entitled to vote
Class 6 -- Old Stock Interests Impaired -- entitled to vote
Class 7 -- Subsidiary Claims and Subsidiary Impaired -- entitled to vote
Stock Interests
</TABLE>
B. CLASSIFICATION AND TREATMENT
1. Class 1 -- Priority Claims
(a) Classification: Class 1 consists of all Priority Claims.
(b) Treatment: The legal, equitable and contractual rights of the Holders
of Class 1 Claims are unaltered by the Plan. Unless the Holder of such Claim and
the Debtors agree to a different treatment, each Holder of an Allowed Class 1
Claim shall receive one of the following alternative treatments, at the election
of the Debtors and Arch:
(i) to the extent then due and owing on the Effective Date, such Claim
will be paid in full in Cash by the Reorganized Debtors on the Effective
Date;
(ii) to the extent not due and owing on the Effective Date, such Claim
will be paid in full in Cash by the Reorganized Debtors when and as such
Claim becomes due and owing in the ordinary course of business; or
C-13
<PAGE> 424
(iii) such Claim will be otherwise treated in any other manner so that
such Claims shall otherwise be rendered unimpaired pursuant to section 1124
of the Bankruptcy Code.
Any default with respect to any Class 1 Claim that occurred before or after the
commencement of the Chapter 11 Cases shall be deemed cured upon the Effective
Date.
(c) Voting: Class 1 is not impaired and the Holders of Class 1 Claims are
conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, the Holders of Claims in Class 1 are not entitled to
vote to accept or reject the Plan.
2. Class 2 -- Bank Secured Claims
(a) Classification: Class 2 consists of all Bank Secured Claims.
(b) Treatment: On the later of (i) the Effective Date or (ii) the date on
which such Claim becomes an Allowed Bank Secured Claim, and upon the execution
and delivery of a Joinder Agreement, each Holder of an Allowed Class 2 Claim
will receive, in accordance with the terms of the Arch Credit Facility Summary
of Terms and in full satisfaction of its Claim, Tranche B-1 Arch Credit Facility
Notes in a principal amount equal to such Holder's Allowed Bank Secured Claim.
(c) Voting: Class 2 is impaired and the Holders of Allowed Class 2 Claims
are entitled to vote to accept or reject the Plan.
3. Class 3 -- Other Secured Claims
(a) Classification: Class 3 consists of all Other Secured Claims.
(b) Treatment: The legal, equitable and contractual rights of the Holders
of Class 3 Claims are unaltered by the Plan. Unless the Holder of such Claim,
the Debtors, and Arch agree to a different treatment, each Holder of an Allowed
Class 3 Claim shall receive one of the following alternative treatments, at the
election of the Debtors and Arch:
(i) the legal, equitable and contractual rights to which such Claim
entitles the Holder thereof shall be reinstated and the Holder paid in
accordance with such legal, equitable and contractual rights;
(ii) the Debtors shall surrender all collateral securing such Claim to
the Holder thereof, in full satisfaction of such Holder's Allowed Class 3
Claim, without representation or warranty by or recourse against the
Debtors or the Reorganized Debtors; or
(iii) such Claim will be otherwise treated in any other manner so that
such Claims shall otherwise be rendered unimpaired pursuant to section 1124
of the Bankruptcy Code.
Any default with respect to any Class 3 Claim that occurred before or after the
commencement of the Chapter 11 Cases shall be deemed cured upon the Effective
Date.
(c) Voting: Class 3 is not impaired and the Holders of Class 3 Claims are
conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, the Holders of Claims in Class 3 are not entitled to
vote to accept or reject the Plan.
4. Class 4 -- General Unsecured Claims
(a) Classification: Class 4 consists of all General Unsecured Claims.
(b) Treatment: The legal, equitable and contractual rights of the Holders
of Class 4 Claims are unaltered by the Plan. Unless the Holder of such Claim,
the Debtors, and Arch agree to a different
C-14
<PAGE> 425
treatment, each Holder of an Allowed Class 4 Claim shall receive one of the
following alternative treatments, at the election of the Debtors and Arch:
(i) to the extent then due and owing on the Effective Date, such Claim
will be paid in full in Cash by the Reorganized Debtors on the Effective
Date;
(ii) to the extent not due and owing on the Effective Date, such Claim
will be paid in full in Cash by the Reorganized Debtors (x) when and as
such Claim becomes due and owing in the ordinary course of business (y) or,
to the extent such Claim arises as a result of the rejection of an
executory contract or unexpired lease pursuant to Article VI hereof, on the
date such Claim becomes an Allowed Claim; or
(iii) such Claim will be otherwise treated in any other manner so that
such Claims shall otherwise be rendered unimpaired pursuant to section 1124
of the Bankruptcy Code.
Any default with respect to any Class 4 Claim that occurred before or after the
commencement of the Chapter 11 Cases shall be deemed cured upon the Effective
Date.
(c) Voting: Class 4 is not impaired and the Holders of Class 4 Claims are
conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, the Holders of Claims in Class 4 are not entitled to
vote to accept or reject the Plan.
5. Class 5 -- Senior Subordinated Note Claims
(a) Classification: Class 5 consists of all Senior Subordinated Note
Claims.
(b) Treatment: On the Effective Date, each Holder (excluding the Arch
Companies) of an Allowed Class 5 Claim will receive a Pro Rata share of (i) the
Noteholder Merger Consideration and (ii) the Noteholder Vast Stock.
(c) Voting: Class 5 is impaired and the Holders of Allowed Class 5 Claims
are entitled to vote to accept or reject the Plan.
6. Class 6 -- Old Stock Interests
(a) Classification: Class 7 consists of all Old Stock Interests.
(b) Treatment: On the Effective Date, each Holder (excluding the Arch
Companies) of an Allowed Class 6 Interest will receive a Pro Rata share of (i)
the Stockholder Merger Consideration and (ii) the Stockholder Vast Stock.
(c) Voting: Class 6 is impaired and the Holders of Allowed Class 6
Interests are entitled to vote to accept or reject the Plan.
7. Class 7 -- Subsidiary Claims and Subsidiary Stock Interests
(a) Classification: Class 7 consists of all Subsidiary Claims and
Subsidiary Stock Interests
(b) Treatment: On the Effective Date, the Holders of Class 7 Claims shall
not receive any distributions or retain any property under the Plan. On the
Effective Date, Reorganized Parent Corporation shall retain its Interest in each
Reorganized Operating Subsidiary and each Reorganized Operating Subsidiary shall
retain its Interest (if any) in any other Reorganized Operating Subsidiary.
(c) Voting: Class 7 is impaired and the Holders of Allowed Class 7 Claims
and Interests are entitled to vote to accept or reject the Plan.
C. SPECIAL PROVISION GOVERNING UNIMPAIRED CLAIMS
Except as otherwise provided in the Plan, including as provided in Article
X, nothing under the Plan shall affect the Debtors' or the Reorganized Debtors'
rights in respect of any Unimpaired Claims,
C-15
<PAGE> 426
including, but not limited to, all rights in respect of legal and equitable
defenses to or setoffs or recoupments against such Unimpaired Claims.
ARTICLE IV.
NON-CONSENSUAL CONFIRMATION
In the event that any Impaired Class of Claims or Interests fails to accept
the Plan in accordance with section 1129(a)(8) of the Bankruptcy Code, the
Debtors reserve the right (a) to request that the Bankruptcy Court confirm the
Plan in accordance with section 1129(b) of the Bankruptcy Code and/or (b) to
modify the Plan in accordance with Article XII.D of the Plan.
ARTICLE V.
MEANS FOR IMPLEMENTATION OF THE PLAN
A. CONTINUED CORPORATE EXISTENCE
Except as otherwise provided in the Plan or the Confirmation Order, the
Debtors shall, as Reorganized Debtors, continue to exist after the Effective
Date as separate corporate entities, each with all the powers of a corporation
under the laws of the respective state of incorporation and without prejudice to
any right to alter or terminate such existence (whether by merger or otherwise)
under such applicable state law. On and after the Effective Date, the
Reorganized Debtors may operate their business and may use, acquire or dispose
of their property and compromise or settle any Claims or Interests, without
supervision or approval by the Bankruptcy Court and free of any restrictions of
the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly
imposed by the Plan or the Confirmation Order.
B. VESTING OF ASSETS AND CONSUMMATION OF MERGER
On the Effective Date, each of the following transactions shall occur in
the order listed: (i) except as otherwise provided in the Plan or the
Confirmation Order, all property of the Estates, and any property acquired by
the Debtors or the Reorganized Debtors under the Plan, shall vest in the
Reorganized Debtors, free and clear of all Claims, liens, charges, or other
encumbrances and Interests except as provided in the Plan, the Confirmation
Order and the Arch Credit Facility; (ii) Merger Sub shall merge, upon the terms
and conditions set forth in the Merger Agreement, with and into the Reorganized
Parent Corporation and the separate corporate existence of Merger Sub shall
thereupon cease; and (iii) each share of common stock of Merger Sub issued and
outstanding immediately prior to the Effective Date shall be converted into one
share of common stock of the Reorganized Parent Corporation, and the Reorganized
Parent Corporation shall thereby become a wholly owned subsidiary of Arch. On
the Effective Date, the Reorganized Debtors, Arch and Merger Sub shall take all
such actions as may be necessary or appropriate to effect the Merger, the
issuance of Arch Common Stock and the distribution of Vast Class B Common Stock
on the terms and conditions set forth in the Plan and the Merger Agreement. The
Reorganized Debtors and Merger Sub shall cause certificates of merger to be
executed, acknowledged, and filed as may otherwise be required under the laws of
their respective states of incorporation and will take or cause to be taken all
other actions, including making appropriate filings or recordings, that may be
required by the laws of their respective states of incorporation or other
applicable law in connection with the Merger.
C. CANCELLATION OF INSTRUMENTS AND SECURITIES
Subject to the provisions of Article VII.B(1) and (2) of the Plan, on the
Effective Date, except to the extent provided otherwise in the Plan, the Senior
Subordinated Notes, the Old Common Stock and the Old Stock Options, together
with all related notes, certificates, security agreements, mortgages, pledges,
indemnities, collateral assignments, undertakings, guaranties, and other
instruments and documents, shall no longer be outstanding, shall be canceled,
retired, and deemed terminated, and shall cease to exist. On
C-16
<PAGE> 427
the Effective Date, except to the extent provided otherwise in the Plan, any
indenture relating to any of the foregoing, including, without limitation, the
Senior Subordinated Note Indentures, shall be deemed to be canceled, as
permitted by section 1123(a)(5)(F) of the Bankruptcy Code.
D. ISSUANCE OF NEW SECURITIES; EXECUTION OF RELATED DOCUMENTS
On the Effective Date, the Reorganized Debtors or Arch, as the case may be,
shall issue or cause to be issued (i) all securities, instruments, certificates,
and other documents required to be issued pursuant to the Plan, including,
without limitation, the Arch Common Stock and the Vast Class B Common Stock,
each of which shall be distributed as provided in the Plan and (ii) the
Substitute Options, in accordance with Section 6.11(a) of the Merger Agreement.
The Reorganized Debtors shall execute and deliver such other agreements,
documents and instruments as are required to be executed pursuant to the terms
of the Plan or the Merger Agreement.
E. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS, AND CORPORATE ACTION
1. Certificate of Incorporation and Bylaws
On the Effective Date, upon consummation of the Merger, (i) the certificate
of incorporation of the Parent Corporation, as amended and restated in its
entirety as set forth in Exhibit A to the Merger Agreement, shall be the
certificate of incorporation of the Reorganized Parent Corporation and (ii) the
bylaws of Merger Sub, as in effect immediately prior to the Effective Date,
shall be the bylaws of the Reorganized Parent Corporation. On the Effective
Date, the Reorganized Parent Corporation will file its certificate of
incorporation with the Secretary of the State of Delaware in accordance with
sections 102 and 103 of the Delaware General Corporation Law. Notwithstanding
any other provision of the Plan, the certificates of incorporation of the
Reorganized Debtors will, among other things, prohibit the issuance of nonvoting
equity securities to the extent required by section 1123(a) of the Bankruptcy
Code. Before the Effective Date each of the Reorganized Operating Subsidiaries
shall amend its certificate of incorporation and bylaws to the extent required
to comply with the requirements of the Bankruptcy Code. After the Effective
Date, the Reorganized Debtors may amend and restate their certificates of
incorporation and bylaws as provided therein or by applicable law.
2. Directors and Officers
Subject to any requirement of Bankruptcy Court approval pursuant to section
1129(a)(5) of the Bankruptcy Code, on the Effective Date, upon consummation of
the Merger, (i) the directors of Merger Sub immediately prior to the Effective
Date shall be the initial directors of the Reorganized Parent Corporation and
(ii) the officers of the Parent Corporation immediately prior to the Effective
Date shall be the initial officers of the Reorganized Parent Corporation.
Pursuant to section 1129(a)(5), the Debtors will disclose, on or prior to the
Confirmation Date, the identity and affiliations of any other Person proposed to
serve on the initial board of directors of the Reorganized Debtors or as an
initial officer of the Reorganized Debtors, and, to the extent such Person is an
Insider, the nature of any compensation for such Person. The classification and
composition of the board of directors shall be consistent with the certificates
of incorporation. Each such director and officer shall serve from and after the
Effective Date pursuant to the terms of certificates of incorporation and bylaws
of the Reorganized Debtors and the Delaware General Corporation Law.
3. Corporate Action
On the Effective Date, as provided in the Plan and the Merger Agreement,
the adoption of the certificate of incorporation and the bylaws, the selection
of directors and officers for the Reorganized Debtors, and all actions
contemplated by the Plan and the Merger Agreement shall be deemed, without
further action of any kind or nature, to be authorized and approved in all
respects (subject to the provisions of the Plan). All matters provided for in
the Plan and the Merger Agreement involving the corporate structure of the
Debtors or the Reorganized Debtors, and any corporate action required by the
Debtors or the Reorganized Debtors in connection with the Plan and the Merger
Agreement, shall be
C-17
<PAGE> 428
deemed to have occurred and shall be in effect, without any requirement of
further action by the security holders or directors of the Debtors or the
Reorganized Debtors. On the Effective Date, the appropriate officers of the
Reorganized Debtors and members of the boards of directors of the Reorganized
Debtors are authorized and directed to issue, execute and deliver the
agreements, documents, securities and instruments contemplated by the Plan or
the Merger Agreement in the name of and on behalf of the Reorganized Debtors.
ARTICLE VI.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
On the Effective Date, all executory contracts, including all Compensation
and Benefit Plans and License Agreements, and unexpired leases of the
Reorganized Debtors will be deemed assumed in accordance with the provisions and
requirements of sections 365 and 1123 of the Bankruptcy Code except those
executory contracts and unexpired leases that (1) have been rejected by order of
the Bankruptcy Court, (2) are the subject of a motion to reject pending on the
Effective Date, (3) are identified on a list to be filed by the Debtors with the
Bankruptcy Court on or before the Confirmation Date as to be rejected, or (4)
are rejected pursuant to the terms of the Plan. Entry of the Confirmation Order
by the Bankruptcy Court shall constitute approval of such assumptions and
rejections pursuant to sections 365(a) and 1123 of the Bankruptcy Code (i) and
(ii) the consent of any non-Debtor party to any executory contract or unexpired
lease that may otherwise be required, under the terms of such executory contract
or unexpired lease, to the consummation of the merger provided for under the
Merger Agreement and the Plan.
Notwithstanding anything to the contrary contained herein, on the
Confirmation Date, the Parent Corporation will be deemed to have assumed the
Merger Agreement, pursuant to sections 365 and 1123 of the Bankruptcy Code,
unless the Merger Agreement is assumed by the Parent Corporation prior to the
Confirmation Date pursuant to an order of the Bankruptcy Court.
B. CLAIMS BASED ON REJECTION OF EXECUTORY CONTRACTS OR UNEXPIRED LEASES
All proofs of claim with respect to Claims arising from the rejection of
executory contracts or unexpired leases, if any, must be Filed with the
Bankruptcy Court within thirty (30) days after the date of entry of an order of
the Bankruptcy Court approving such rejection. Any Claims arising from the
rejection of executory contracts or unexpired leases that become Allowed Claims
are classified and shall be treated as Class 4 General Unsecured Claims. Any
Claims arising from the rejection of an executory contract or unexpired lease
not Filed within such times will be forever barred from assertion against the
Debtor or Reorganized Debtors, their Estates and property unless otherwise
ordered by the Bankruptcy Court or provided in this Plan. All such Claims for
which proofs of claim are required to be Filed will be, and will be treated as,
General Unsecured Claims subject to the provisions of Article VIII hereof,
provided such Claims are timely Filed.
C. CURE OF DEFAULTS FOR EXECUTORY CONTRACTS AND UNEXPIRED LEASES ASSUMED
Any monetary amounts by which each executory contract and unexpired lease
to be assumed pursuant to the Plan is in default shall be satisfied, pursuant to
section 365(b)(1) of the Bankruptcy Code, by payment of the default amount in
Cash on the Effective Date or on such other terms as the parties to such
executory contracts or unexpired leases may otherwise agree. In the event of a
dispute regarding: (1) the existence of any default or the amount of any cure
payments, (2) the ability of the Reorganized Debtors or any assignee to provide
"adequate assurance of future performance" (within the meaning of section 365 of
the Bankruptcy Code) under the contract or lease to be assumed, or (3) any other
matter pertaining to assumption, the cure payments required by section 365(b)(1)
of the Bankruptcy Code shall be made following the entry of a Final Order
resolving the dispute and approving the assumption.
C-18
<PAGE> 429
D. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The obligations of the Debtors to indemnify any Person or Entity serving at
any time on or prior to the Effective Date as one of its directors, officers or
employees by reason of such Person's or Entity's service in such capacity, or as
a director, officer or employee of any other corporation or legal entity, to the
extent provided in the Debtors' constituent documents or by a written agreement
with the Debtors or the Delaware General Corporation Law, shall be deemed and
treated as executory contracts that are assumed by the Debtors pursuant to the
Plan and section 365 of the Bankruptcy Code as of the Effective Date, subject to
the limitations set forth in Section 6.13 of the Merger Agreement. Any such
indemnification obligations shall survive unimpaired and unaffected by entry of
the Confirmation Order, irrespective of whether such indemnification is owed for
an act or event occurring before or after the Petition Date, subject to the
limitations set forth in Section 6.13 of the Merger Agreement.
E. STOCK OPTIONS
On the Effective Date, each outstanding Old Stock Option, which has not
vested prior to the Effective Date, shall (i) become fully exercisable and
vested as of the Effective Date and (ii) be converted to a Substitute Option, in
accordance with Section 6.11(a) of the Merger Agreement.
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS
A. TIMING OF DISTRIBUTIONS
1. Except as otherwise provided in this Article VII, distributions to be
made on the Effective Date on account of Claims and Interests that are Allowed
as of the Effective Date and are entitled to receive distributions under the
Plan shall be made on the Effective Date or as promptly thereafter as
practicable.
2. Distributions on account of Disputed Claims that become Allowed Claims
after the Effective Date shall be made quarterly pursuant to Article VIII.C
below beginning on the date that is 20 calendar days after the end of the
calendar quarter in which such Claim was Allowed. Such quarterly distributions
shall be in the full amount that the Plan provides for Allowed Claims in the
applicable Class.
B. METHODS OF DISTRIBUTION
1. Distributions to Holders of Bank Secured Claims
All Tranche B-1 and Tranche B-2 Arch Credit Facility Notes and other
distributions provided for in the Plan on account of Allowed Bank Secured Claims
and Allowed DIP Facility Claims shall be made or delivered by Arch or the
Reorganized Debtors to the Administrative Agent Bank for delivery by the
Administrative Agent Bank to individual Holders of such Claims in accordance
with the provisions of the Credit Agreement, or as otherwise agreed between the
Administrative Agent Bank and any holder of an Allowed Bank Secured Claim,
subject to any Agent Bank Charges as provided in the Credit Agreement.
Notwithstanding the foregoing, Holders of Allowed Bank Secured Claims or Allowed
DIP Facility Claims shall not receive, or be entitled to receive any Tranche B-1
or Tranche B-2 Arch Credit Facility Notes or other distributions provided for in
the Plan prior to executing a Joinder Agreement as contemplated by the Arch
Credit Facility Summary of Terms. Neither Arch nor the Reorganized Debtors shall
have liability for any act or omission of the Administrative Agent Bank.
2. Distributions to Holders of Senior Subordinated Note Claims and Old Stock
Interests
(a) Distributions from Arch and the Reorganized Debtors. All distributions
provided for in the Plan on account of Allowed Senior Subordinated Note Claims
and Allowed Old Stock Interests shall be made by Arch and the Reorganized
Debtors to the Exchange Agent for delivery by the Exchange Agent to individual
holders of such Claims and Interests as provided in the Plan. Notwithstanding
the provisions of
C-19
<PAGE> 430
Article V.C above regarding cancellation of the Senior Subordinated Note
Indentures, the distribution provisions of the Senior Subordinated Note
Indentures shall continue in effect to the extent necessary to authorize the
Exchange Agent to receive and distribute to Holders of Allowed Senior
Subordinated Note Claims distributions received by the Exchange Agent pursuant
to the Plan on account of Allowed Senior Subordinated Note Claims and shall
terminate completely upon completion of all distributions. Neither Arch nor the
Reorganized Debtors shall have liability for any act or omission of the Exchange
Agent. The Exchange Agent will serve without bond and may employ or contract
with other entities to assist in or make the distributions required by the Plan.
(b) Distributions from the Exchange Agent. As soon as practicable after
the Effective Date, Arch shall cause the Exchange Agent to send a letter of
transmittal to each Holder of an Allowed Senior Subordinated Note Claim or an
Allowed Old Stock Interest advising such Holder of the effectiveness of the
Mergers and the Plan and the instructions for delivering to the Exchange Agent
any Senior Subordinated Notes and Old Common Stock in exchange for the Arch
Common Stock and the Vast Class B Common Stock issuable or distributable
pursuant to the Plan. Such letter of transmittal shall specify that delivery of
any Senior Subordinated Notes and Old Common Stock will be effected, and that
risk of loss and title thereto shall pass, only upon delivery of such Senior
Subordinated Notes and Old Common Stock to the Exchange Agent in accordance with
the terms and conditions of such letter of transmittal, such letter of
transmittal to be in such form and have such other provisions as Arch and the
Reorganized Debtors may reasonably agree.
(c) Lost or Stolen Notes or Stock. In addition to any requirements under
the Senior Subordinated Note Indentures, or any related agreement, in the event
any Senior Subordinated Notes or Old Common Stock shall have been lost, stolen
or destroyed, then upon the delivery to the Exchange Agent of an affidavit
attesting to the fact by the Holder of the Senior Subordinated Note Claim or Old
Common Stock Interest relating to such Note or Stock, and the posting by such
Holder of a bond as may be required by Arch and the Reorganized Debtors as
indemnity against any claim that may be made against either of them with respect
to such Note or Stock, the Exchange Agent shall issue the shares of Arch Common
Stock and Vast Class B Common Stock, and any dividends and other distributions
with respect thereto, issuable or payable in exchange for such lost, stolen, or
destroyed Note or Stock pursuant to the provisions of the Plan. Upon compliance
with this Article VII.B.1(b) by a Holder of a Claim or Interest evidenced by a
Senior Subordinated Note or Old Common Stock, such Holder shall, for all
purposes under the Plan, be deemed to have surrendered such Note or Stock.
(d) Failure to Surrender Canceled Notes and Stock. Any Holder of a Senior
Subordinated Note Claim or Old Stock Interest that fails to surrender or is
deemed to have failed to surrender any applicable Senior Subordinated Note or
Old Common Stock required to be delivered hereunder, or fails to comply with the
provisions of Article VII.B.2(c), (i) within 180 days after the Effective Date,
shall thereafter be entitled to look only to the Reorganized Debtors for their
distributions under the Plan, or (ii) within three (3) years after the Effective
Date, shall have its Claim or Interest for a distribution pursuant to the Plan
on account of such Senior Subordinated Note or Old Common Stock discharged and
shall be forever barred from asserting any such Claim or Interest against or in
the Reorganized Debtors or its property and, in such case, any Arch Common Stock
or Vast Class B Common Stock held for distribution on account of such Claim or
Interest shall be disposed of pursuant to the provisions of Article VII.C below.
(e) Distribution Record Date. As of the close of business on the
Distribution Record Date, the respective transfer books and records for the
Senior Subordinated Notes and the Old Common Stock as maintained by the
pertinent Indenture Trustee (in the case of a Senior Subordinated Note) or the
Parent Corporation (in the case of Old Common Stock), or their respective
agents, shall be closed and any transfer of a Senior Subordinated Note or Old
Common Stock or any interest therein shall be prohibited. The Reorganized
Debtors, Arch, the Exchange Agent and their respective agents will have no
obligation to recognize the transfer of any Senior Subordinated Note or Old
Common Stock occurring after the Distribution Record Date, and shall be entitled
for all purposes herein to recognize and deal only with those Holders of record
as of the close of business on the Distribution Record Date.
C-20
<PAGE> 431
(f) Unregistered Transfers. In the event of a transfer of ownership of a
Senior Subordinated Note or Old Common Stock that is not registered in the
respective transfer books and records of the pertinent Indenture Trustee (in the
case of a Senior Subordinated Note) or the Parent Corporation (in the case of
Old Common Stock), the property to be distributed to the Holder of the Senior
Subordinated Note Claim or Old Common Stock Interest with respect to such Claim
or Interest shall be delivered to the Holder of record on the Distribution
Record Date unless the transferee of such Holder delivers an executed letter of
transmittal to the Exchange Agent, in form satisfactory to the Exchange Agent,
accompanied by such documents as are required to evidence and effect such
transfer and to evidence that all applicable transfer taxes have been paid.
(g) Stock Issued in Different Name. If any Arch Common Stock or Vast Class
B Common Stock is to be issued or distributed in a name other than that in which
the Senior Subordinated Note or Old Common Stock surrendered in exchange
therefor is registered, it shall be a condition of such exchange that (i) the
Senior Subordinated Note or Old Common Stock so surrendered shall be
transferable, and shall be properly assigned and endorsed, (ii) such transfer
shall otherwise be proper, and (iii) the Holder requesting such transfer shall
pay all transfer or other taxes payable by reason of the foregoing and establish
to the satisfaction of the Exchange Agent that such taxes have been paid.
(h) Dividends With Respect to Unexchanged Notes and Stock. Whenever a
dividend or other distribution is declared by Arch with respect to Arch Common
Stock, or Vast with respect to Vast Class B Common Stock, the record date for
which is on or after the Effective Date, that declaration shall include
dividends or other distributions with respect to all shares of Arch Common Stock
or Vast Class B Common Stock issuable or distributable pursuant to the Plan. No
dividends or other distributions with respect to such Arch Common Stock or Vast
Class B Common Stock shall be paid to any holder of any unsurrendered Senior
Subordinated Note or Old Common Stock until same is surrendered for exchange in
accordance with the provisions of this Article VII.B. Subject to the effect of
applicable laws, following surrender of any such Senior Subordinated Note or Old
Common Stock, there shall be issued or paid to the Holder of same certificates
representing shares of Arch Common Stock and Vast Class B Common Stock issued or
distributed in exchange therefor, without interest: (i) at the time of such
surrender, the dividends or other distributions with a record date after the
Effective Date and a payment date on or prior to the date of issuance of such
shares of Arch Common Stock or Vast Class B Common Stock and not previously
paid; and (ii) at the appropriate payment date, the dividends or other
distributions payable with respect to such shares of Arch Common Stock or Vast
Class B Common Stock with a record date after the Effective Date and prior to
the date of issuance of such shares of Arch Common Stock or Vast Class B Common
Stock but with a payment date subsequent to surrender. For purposes of dividends
or other distributions with respect to shares of Arch Common Stock and Vast
Class B Common Stock, all such shares to be issued or distributed pursuant to
the Plan shall be deemed issued and distributed as of the Effective Date.
(i) Voting With Respect to Unexchanged Notes and Stock. Subject to the
provisions of Article VII.B.2(d) hereof, at any meeting of stockholders of Arch
or Vast with a record date on or after the Effective Date, registered Holders of
unsurrendered Senior Subordinated Notes or Old Common Stock shall be entitled to
vote the number of shares of Arch Common Stock or Vast Class B Common Stock
represented by such Senior Subordinated Notes or Old Common Stock, regardless of
whether such Holders have exchanged their Senior Subordinated Notes or Old
Common Stock; provided, however, that any such vote shall be at the times, upon
the conditions, and in the manner prescribed by the certificate of incorporation
and bylaws of Arch or Vast, respectively.
(j) Fractional Shares. Notwithstanding any other provision of the Plan,
the Arch Common Stock will only be issued in whole shares. No certificates or
scrip representing fractional shares of Arch Common Stock will be issued, but in
lieu thereof, each Holder of an Allowed Senior Subordinated Note Claim or an
Allowed Old Common Stock Interest otherwise entitled to a fractional share of
Arch Common Stock will be entitled to receive, from the Exchange Agent in
accordance with the provisions of Article VII.B.2(i) hereof, a cash payment in
lieu of such fractional shares of Arch Common Stock determined by multiplying
such fraction (rounded to the nearest one-hundredth of a share) by the average
C-21
<PAGE> 432
closing price of a share of Arch Common Stock, as reported in The Wall Street
Journal, New York City edition, on the ten (10) days immediately prior to the
Effective Date. As soon as practicable after the determination of the amount of
cash, if any, to be paid to the Holders of Allowed Senior Subordinated Note
Claims or Allowed Old Stock Interests in lieu of any fractional shares of Arch
Common Stock, Arch and the Exchange Agent shall make available such amounts of
cash to such holders of Allowed Senior Subordinated Note Claims or Allowed Old
Stock Interests.
3. Distributions to Holders of Other Claims
All distributions provided for in the Plan on account of Allowed Other
Claims will be made by the Reorganized Debtors, or such Disbursing Agents as the
Reorganized Debtors may employ or contract with, as provided herein or in the
Confirmation Order. Neither the Reorganized Debtors nor Arch shall have
liability for any act or omission of any Disbursing Agent. Each Disbursing Agent
will serve without bond, and any Disbursing Agent may employ or contract with
other entities to assist in or make the distributions required by the Plan.
C. UNDELIVERABLE AND UNCLAIMED DISTRIBUTIONS
1. Delivery of Distributions
All property under the Plan to be distributed by mail shall be sent to the
latest mailing address Filed with the Bankruptcy Court for the party entitled
thereto or, if no such mailing address has been so Filed, the mailing address
reflected in the Debtor's Schedules or, in the case of the Holders of Allowed
Senior Subordinated Note Claims, to the latest mailing address maintained of
record by the pertinent Indenture Trustee or, if no mailing address is
maintained of record, to the pertinent Indenture Trustee.
2. Undeliverable Distributions
If any distribution to the Holder of an Allowed Claim or Allowed Interest
is returned as undeliverable, no further distributions shall be made to such
Holder unless and until the Reorganized Debtors are notified in writing of such
Holder's then-current address. Undeliverable distributions made by Arch or the
Reorganized Debtors shall be returned to Arch or the Reorganized Debtors,
respectively, and will remain in the possession of Arch or the Reorganized
Debtors pursuant to this Article VII.C until such time as a distribution becomes
deliverable. Undeliverable distributions shall not be entitled to any interest,
dividends or other accruals of any kind.
3. After Distributions Become Deliverable
Within 20 days after the end of each calendar quarter following the
Effective Date, the Reorganized Debtors or Arch shall make all distributions, as
provided herein or in the Confirmation Order, that become deliverable during the
preceding calendar quarter.
4. Failure to Claim Undeliverable Distributions
The Reorganized Debtors will file with the Bankruptcy Court, on each of the
first, second and third anniversaries of the Effective Date, a listing of the
Holders of unclaimed distributions. This list will be maintained until the entry
of an order and/or final decree concluding the Chapter 11 Cases. Any Holder of
an Allowed Claim or Allowed Interest that does not assert a Claim or Interest
pursuant to the Plan for an undeliverable distribution within three (3) years
after the Effective Date shall have its Claim or Interest for such undeliverable
distribution discharged and shall be forever barred from asserting any such
Claim or Interest against or in the Reorganized Debtors, Arch, or their
property. In such cases: (i) any Cash held for distribution on account of such
Claims or Interests shall be property of the Reorganized Debtors or Arch, in
accordance with Article VII.C.2, free of any restrictions thereon; and (ii) any
Arch Common Stock or Vast Class B Common Stock held for distribution on account
of such Claims or Interests shall be canceled and of no further force or effect.
Nothing contained in the Plan shall require the Reorganized Debtors, Arch, the
Administrative Agent Bank, the Exchange Agent, the Indenture
C-22
<PAGE> 433
Trustees, or the Disbursing Agents to attempt to locate any Holder of an Allowed
Claim or Allowed Interest.
D. COMPLIANCE WITH TAX REQUIREMENTS
In connection with the Plan, to the extent applicable, the Reorganized
Debtors shall comply with all tax withholding and reporting requirements imposed
on them by any governmental unit, and all distributions pursuant to the Plan
shall be subject to such withholding and reporting requirements. Notwithstanding
any other provision of this Plan, each Person or Entity that has received any
distribution pursuant to the Plan shall have sole and exclusive responsibility
for the satisfaction and payment of any tax obligation imposed by any
governmental unit, including income, withholding and tax obligations, on account
of such distribution.
E. COMPENSATION AND REIMBURSEMENT FOR SERVICES RELATED TO BALLOTING AND
DISTRIBUTIONS
1. Administrative Agent Bank and Indenture Trustees
All reasonable fees and expenses incurred by the Administrative Agent Bank
and the Indenture Trustees on and after the Petition Date, including reasonable
fees and expenses of Professionals retained by the Administrative Agent Bank or
the Indenture Trustees, shall be paid by the Reorganized Debtors as
Administrative Expense Claims. The foregoing payments will be in addition to
distributions made on account of any Agent Bank Charges or Indenture Trustee
Charging Liens. Notwithstanding the foregoing, in the event the Debtors dispute
the reasonableness of any fees or expenses to be paid to the Indenture Trustee,
either directly or through assumption of the Indenture Trustee's Charging Lien,
such dispute shall be submitted to the Bankruptcy Court for resolution and, in
such event, such fees and expenses shall be paid to the Indenture Trustee only
to the extent ordered by the Bankruptcy Court.
2. Exchange Agent and Disbursing Agents
The Exchange Agent and each Disbursing Agent providing services related to
distributions pursuant to the Plan will receive from the Reorganized Debtors,
without further Bankruptcy Court approval, reasonable compensation for such
services and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services. These payments will be made on terms agreed to
with the Reorganized Debtors.
F. SETOFFS
The Reorganized Debtors may, pursuant to section 553 of the Bankruptcy Code
or applicable non-bankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that the Debtors or Reorganized Debtors may hold
against the Holder of such Allowed Claim; provided, however, that neither the
failure to effect such a setoff nor the allowance of any Claim hereunder shall
constitute a waiver or release by the Debtors or Reorganized Debtors of any such
claims, rights and causes of action that the Debtors or Reorganized Debtors may
possess against such Holder.
ARTICLE VIII.
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
A. PROSECUTION OF OBJECTIONS TO CLAIMS AND INTERESTS
After the Confirmation Date, the Debtors and the Reorganized Debtors shall
have the exclusive authority to File objections, settle, compromise, withdraw or
litigate to judgment objections to Claims. From and after the Confirmation Date,
the Debtors and the Reorganized Debtors may settle or compromise any Disputed
Claim without approval of the Bankruptcy Court.
C-23
<PAGE> 434
B. ESTIMATION OF CLAIMS
The Debtors or the Reorganized Debtors may, at any time, request that the
Bankruptcy Court estimate any contingent or unliquidated Claim pursuant to
section 502(c) of the Bankruptcy Code regardless of whether the Debtors or the
Reorganized Debtors have previously objected to such Claim or whether the
Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will
retain jurisdiction to estimate any Claim at any time during litigation
concerning any objection to any Claim, including during the pendency of any
appeal relating to any such objection. In the event that the Bankruptcy Court
estimates any contingent or unliquidated Claim, that estimated amount will
constitute either the Allowed amount of such Claim or a maximum limitation on
such Claim, as determined by the Bankruptcy Court. If the estimated amount
constitutes a maximum limitation on such Claim, the Debtors or Reorganized
Debtors may elect to pursue any supplemental proceedings to object to any
ultimate payment on such Claim. All of the aforementioned Claims objection,
estimation and resolution procedures are cumulative and not necessarily
exclusive of one another. Claims may be estimated and subsequently compromised,
settled, withdrawn or resolved by any mechanism approved by the Bankruptcy
Court.
C. PAYMENTS AND DISTRIBUTIONS ON DISPUTED CLAIMS
Notwithstanding any provision in the Plan to the contrary, except as
otherwise agreed by the Reorganized Debtors in their sole discretion, no partial
payments and no partial distributions will be made with respect to a Disputed
Claim until the resolution of such disputes by settlement or Final Order.
Subject to the provisions of Article VIII.A above, after a Disputed Claim
becomes an Allowed Claim, the Holder of such Allowed Claim will receive all
payments and distributions to which such Holder is then entitled under the Plan.
Notwithstanding the foregoing, any Person or Entity who holds both an Allowed
Claim(s) and a Disputed Claim(s) will receive the appropriate payment or
distribution on the Allowed Claim(s), although, except as otherwise agreed by
the Reorganized Debtors in their sole discretion, no payment or distribution
will be made on the Disputed Claim(s) until such dispute is resolved by
settlement or Final Order.
ARTICLE IX.
CONDITIONS PRECEDENT TO CONSUMMATION OF THE PLAN
A. CONDITIONS PRECEDENT TO CONSUMMATION
It shall be a condition to Consummation of the Plan that the following
conditions shall have been satisfied or waived pursuant to the provisions of
Article IX.B of the Plan:
1. the Confirmation Order shall have been signed by the Bankruptcy
Court and duly entered on the docket for the Chapter 11 Cases by the Clerk
of the Bankruptcy Court;
2. the Confirmation Order shall have become a Final Confirmation
Order; and
3. all conditions precedent to the "Closing," as defined in the Merger
Agreement, shall have been satisfied.
B. WAIVER OF CONDITIONS
The conditions precedent to the "Closing," as defined in the Merger
Agreement, may only be waived pursuant to the terms thereof. The Parent
Corporation may waive any such conditions without leave or order of the
Bankruptcy Court, and without any formal action other than proceeding to
consummate the Plan.
C. EFFECT OF VACATION OF CONFIRMATION ORDER
If the Confirmation Order is vacated, except for the assumption of the
Merger Agreement which shall continue in effect, the Plan shall be null and void
in all respects and nothing contained in the Plan or the
C-24
<PAGE> 435
Disclosure Statement shall: (1) constitute a waiver or release of any Claims by
or against, or any Interests in, the Debtors; (2) prejudice in any manner the
rights of the Debtors; or (3) constitute an admission, acknowledgment, offer or
undertaking by the Debtors in any respect.
ARTICLE X.
RELEASE, INJUNCTION AND RELATED PROVISIONS
A. SUBORDINATION
The classification and manner of satisfying all Claims and Interests and
the respective distributions and treatments under the Plan take into account
and/or conform to the relative priority and rights of the Claims and Interests
in each Class in connection with any contractual, legal and equitable
subordination rights relating thereto whether arising under general principles
of equitable subordination, section 510(b) of the Bankruptcy Code or otherwise,
and any and all such rights are settled, compromised and released pursuant to
the Plan. The Confirmation Order shall permanently enjoin, effective as of the
Effective Date, all Persons and Entities from enforcing or attempting to enforce
any such contractual, legal and equitable subordination rights satisfied,
compromised and settled pursuant to this Article X.A.
B. LIMITED RELEASES BY THE DEBTORS
Except as otherwise specifically provided in the Plan or the Confirmation
Order, for good and valuable consideration, including, but not limited to, the
commitment and obligation of the Lender Releasees to provide the financial
support necessary for consummation of the Plan, including the financial
accommodations reflected in the Arch Credit Facility, the obligations and
undertakings of the Investor Releasees set forth in the Merger Agreement, and
the service of the D&O Releasees to facilitate the expeditious reorganization of
the Debtors and the implementation of the Merger and restructuring contemplated
by the Plan and the Merger Agreement, the Lender Releasees, the Investor
Releasees, and the D&O Releasees are released, as of the Effective Date, by the
Debtors and the Reorganized Debtors and their subsidiaries from any and all
Claims, obligations, rights, suits, damages, Causes of Action, Avoidance
Actions, remedies and liabilities whatsoever, whether known or unknown, foreseen
or unforeseen, existing or hereafter arising, in law, equity or otherwise, that
the Debtors, their subsidiaries or respective Estates would have been legally
entitled to assert in their own right (whether individually or collectively) or
on behalf of the Holder of any Claim or Interest or other Person or Entity,
based in whole or in part upon any act or omission, transaction, agreement,
event or other occurrence taking place on or before the Effective Date;
provided, however, that the foregoing provisions of this Article X.B shall have
no effect on the liability of (i) the Arch Companies resulting from any breach
of the Merger Agreement or (ii) any Person or Entity (a) that results from any
such act or omission that is determined in a Final Order to have constituted
fraud, gross negligence or willful misconduct, (b) in respect of any (1) loan,
advance or similar payment by the Debtors or their subsidiaries to any such
Person or Entity or (2) contractual obligation owed by such Person or Entity to
the Debtors or their subsidiaries or (c) for any claim held by any creditor,
interest holder or other person against any Releasee that does not constitute a
claim of the Debtor or their Estates.
C. PRESERVATION OF RIGHTS OF ACTION
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture or other agreement entered into in connection with the Plan,
in accordance with section 1123(b) of the Bankruptcy Code, the Reorganized
Debtors shall retain and may exclusively enforce any Avoidance Actions or other
Causes of Action or rights to payment of claims, that the Debtors or the Estates
may hold against any Person or Entity. The Reorganized Debtors may pursue such
retained Avoidance Actions, other Causes of Action and rights to payment of
claims, as appropriate, in accordance with the best interests of the Reorganized
Debtors. The Reorganized Debtors' shall retain and may enforce all defenses,
counterclaims
C-25
<PAGE> 436
and rights against all Claims and Interests asserted against the Debtors, the
Reorganized Debtors or their Estates.
D. EXCULPATION
The Debtors, the Reorganized Debtors, the Lender Releasees, the Investor
Releasees, and the D&O Releasees and their respective members and Professionals
(acting in such capacity) shall neither have nor incur any liability to any
Person or Entity for any act taken or omitted to be taken in connection with or
related to the formulation, preparation, dissemination, implementation,
administration, Confirmation or Consummation of the Plan, the Disclosure
Statement or any contract, instrument, release or other agreement or document
created or entered into in connection with the Plan, including the Merger
Agreement, or any other act taken or omitted to be taken in connection with the
Debtor's Chapter 11 Cases; provided, however, that the foregoing provisions of
this Article X.D shall have no effect on the liability of (i) the Corporation or
the Arch Companies resulting from any breach of the Merger Agreement or (ii) any
Person or Entity that results from any such act or omission that is determined
in a Final Order to have constituted fraud, gross negligence or willful
misconduct.
E. INJUNCTION
From and after the Effective Date, all Persons and Entities are permanently
enjoined from commencing or continuing in any manner, any suit, action or other
proceeding, on account of or respecting any Claim, obligation, debt, right,
Cause of Action, remedy, or liability released or to be released pursuant to
this Article X; provided, however, that this injunction shall not preclude
police or regulatory agencies from fulfilling their statutory duties.
ARTICLE XI.
RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the occurrence of
the Effective Date, the Bankruptcy Court shall retain such jurisdiction over the
Chapter 11 Cases after the Effective Date as is legally permissible, including
jurisdiction to:
A. Allow, disallow, determine, liquidate, classify, estimate or
establish the priority or secured or unsecured status of any Claim or
Interest, including the resolution of any request for payment of any
Administrative Expense Claim and the resolution of any and all objections
to the allowance or priority of Claims or Interests;
B. Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending on or before the Effective Date;
C. Resolve any matters related to the assumption, assumption and
assignment or rejection of any executory contract or unexpired lease to
which the Debtors are a party or with respect to which the Debtors may be
liable and to hear, determine and, if necessary, liquidate, any Claims
arising therefrom, including those matters related to the amendment after
the Effective Date pursuant to Article VI above to add any executory
contracts or unexpired leases to the list of executory contracts and
unexpired leases to be rejected;
D. Ensure that distributions to Holders of Allowed Claims and Allowed
Interests are accomplished pursuant to the provisions of the Plan,
including ruling on any motion Filed pursuant to Articles VII or VIII;
E. Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters and grant or deny any applications
involving the Debtors that may be pending on the Effective Date;
C-26
<PAGE> 437
F. Enter such orders as may be necessary or appropriate to implement
or consummate the provisions of the Plan and all contracts, instruments,
releases, indentures, and other agreements or documents created in
connection with the Plan or the Disclosure Statement or the Confirmation
Order;
G. Resolve any cases, controversies, suits or disputes that may arise
in connection with the Consummation, interpretation or enforcement of the
Plan or any Person's or Entity's obligations incurred in connection with
the Plan;
H. Permit the Debtors or the Reorganized Debtors to modify the Plan
before or after the Effective Date pursuant to section 1127 of the
Bankruptcy Code, the Confirmation Order or any contract, instrument,
release or other agreement or document created in connection with the Plan,
the Disclosure Statement, or the Confirmation Order; or remedy any defect
or omission or reconcile any inconsistency in any Bankruptcy Court order,
the Plan, the Disclosure Statement or the Confirmation Order or any
contract, instrument, release, indenture or other agreement or document
created in connection with the Plan, the Disclosure Statement or the
Confirmation Order, in such manner as may be necessary or appropriate to
consummate the Plan, to the extent authorized by the Bankruptcy Code;
I. Issue injunctions, enter and implement other orders or take such
other actions as may be necessary or appropriate to restrain interference
by any Person or Entity with Consummation, implementation or enforcement of
the Plan or the Confirmation Order, except as otherwise provided herein;
J. Resolve any cases, controversies, suits or disputes with respect to
the releases, injunction and other provisions contained in Article X and
enter such orders as may be necessary or appropriate to implement such
releases, injunction and other provisions;
K. Enter and implement such orders as are necessary or appropriate if
the Confirmation Order is for any reason modified, stayed, reversed,
revoked or vacated or distributions pursuant to the Plan are enjoined or
stayed;
L. Determine any other matters that may arise in connection with or
relate to the Plan, the Disclosure Statement, the Confirmation Order or any
contract, instrument, release, indenture or other agreement or document
created in connection with the Plan, the Disclosure Statement or the
Confirmation Order; and
M. Enter an order and/or final decree concluding the Chapter 11
Cases.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
A. DISSOLUTION OF COMMITTEE(S)
On the Effective Date, the Committee(s) shall dissolve and members shall be
released and discharged from all rights and duties arising from, or related to,
the Chapter 11 Cases.
B. PAYMENT OF STATUTORY FEES
All fees payable pursuant to section 1930 of title 28 of the United States
Code shall be paid on or before the Effective Date.
C. DISCHARGE OF DEBTORS
Except as otherwise provided herein or in the Confirmation Order, (1) the
rights afforded in the Plan and the treatment of all Claims and Interests
therein, shall be in exchange for and in complete satisfaction, discharge and
release of Claims and Interests of any nature whatsoever, (2) on the Effective
C-27
<PAGE> 438
Date, all such Claims against, and Interests in, the Debtors and the Reorganized
Debtors shall be satisfied, discharged, and released in full, and (3) all
Persons and Entities shall be precluded from asserting against the Debtors or
the Reorganized Debtors, their successors or their assets or properties any
other or further Claims or Interests based upon any act or omission, transaction
or other activity of any kind or nature that occurred prior to the Confirmation
Date.
D. MODIFICATION OF PLAN
Subject to the limitations contained herein and the Merger Agreement, (1)
the Debtors reserve the right, in accordance with the Bankruptcy Code and the
Bankruptcy Rules, to amend or modify the Plan prior to the entry of the
Confirmation Order and (2) after the entry of the Confirmation Order, the
Debtors or the Reorganized Debtors, as the case may be may, upon order of the
Bankruptcy Court, amend or modify the Plan, in accordance with section 1127(b)
of the Bankruptcy Code, or remedy any defect or omission or reconcile any
inconsistency in the Plan in such manner as may be necessary to carry out the
purpose and intent of the Plan.
E. REVOCATION OF PLAN
Subject to the Merger Agreement, the Debtors reserve the right, at any time
prior to the entry of the Confirmation Order, to revoke and withdraw the Plan.
F. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any Person or Entity named or
referred to in the Plan shall be binding on, and shall inure to the benefit of
any heir, executor, administrator, successor or assign of such Person or Entity.
G. RESERVATION OF RIGHTS
Except as expressly set forth herein, this Plan shall have no force or
effect unless the Bankruptcy Court shall enter the Confirmation Order. None of
the filing of this Plan, any statement or provision contained this Plan or the
Disclosure Statement, or the taking of any action by the Debtors with respect to
this Plan shall be or shall be deemed to be an admission or waiver of any rights
of the Debtors with respect to the Holders of Claims or Interests prior to the
Effective Date.
H. SECTION 1146 EXEMPTION
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance, transfer,
or exchange of any security under the Plan, or the making or delivery of an
instrument of transfer under this Plan, may not be taxed under any law imposing
a stamp tax or similar tax.
I. FURTHER ASSURANCES
The Debtors, the Reorganized Debtors, and all Holders of Claims or
Interests receiving distributions under the Plan and all other parties in
interest shall, from time to time, prepare, execute and deliver any agreements
or documents and take any other actions as may be necessary or advisable to
effectuate the provisions and intent of this Plan.
C-28
<PAGE> 439
J. SERVICE OF DOCUMENTS
Any pleading, notice or other document required by the Plan to be served on
or delivered to the Debtors or the Reorganized Debtors shall be in writing and
served by either (a) certified mail, return receipt requested, postage prepaid,
(b) hand delivery, (c) national overnight courier, freight prepaid or (d) fax,
assessed as follows:
Paging Network, Inc.
14911 Quorum Drive
Dallas, Texas 75240
Attn: Chief Executive Officer
Fax: (972) 801-8950
and
Paging Network, Inc.
14911 Quorum Drive
Dallas, Texas 75240
Attn: Senior Vice President and General Counsel
Fax: (972) 801-8978
with copies to:
Young Conway Stargatt & Taylor, LLP
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
Attn: James L. Patton
and
Mayer, Brown & Platt
190 South LaSalle Drive
Chicago, Illinois 60603
Attn: Lawrence K. Snider
and
Arch Communications Group, Inc.
1800 West Park Drive, Suite 250
Westborough, Massachusetts 01581
Attn: Chief Executive Officer
Fax: (508) 870-6076
and
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attn: Mark N. Polebaum
Fax: (617) 526-5000
C-29
<PAGE> 440
K. FILING OF ADDITIONAL DOCUMENTS
On or before the Effective Date, the Debtors may file with the Bankruptcy
Court such agreements and other documents as may be necessary or appropriate to
effectuate and further evidence the terms and conditions of the Plan.
Dated: May , 2000
PAGING NETWORK, INC., PAGENET, INC.,
PAGING NETWORK FINANCE CORP., PAGING
NETWORK OF AMERICA, INC., PAGING
NETWORK OF COLORADO, INC., PAGING
NETWORK OF MICHIGAN, INC., PAGING
NETWORK OF NORTHERN CALIFORNIA, INC.,
AND PAGING NETWORK OF SAN FRANCISCO,
INC.
Debtors and Debtors In Possession
By:
------------------------------------
Name: John P. Frazee, Jr.
Title: Chairman of the Board and
Chief Executive Officer
C-30
<PAGE> 441
ANNEX D
ARCH PAGING, INC.
SUMMARY OF PRINCIPAL TERMS OF THE
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
PRELIMINARY STATEMENT
This Summary (the "Term Sheet") sets forth the principal terms of the Third
Amended and Restated Credit Agreement, dated as of March 23, 2000, by and among
Arch Paging, Inc. (the "Borrower"), the Lenders party thereto, The Bank of New
York ("BNY"), Royal Bank of Canada ("RBC"), Toronto Dominion (Texas), Inc.
("TD"), Barclays Bank plc ("Barclays") and Fleet National Bank ("Fleet"), as
Managing Agents, RBC, as Documentation Agent, Barclays and Fleet, as
Co-Documentation Agents, TD, as Syndication Agent, and BNY, as Administrative
Agent (the "Credit Agreement"). Appendix A hereto contains a list of definitions
which are used in this Term Sheet. The lenders under the Credit Agreement having
a Tranche A Commitment and/or Tranche A Loans, Tranche B Loans and/or Tranche C
Loans are referred to as the "API Lenders". The terms of the Credit Agreement
are not limited to those set forth herein but rather are set forth in full in
the Credit Agreement and the collateral and other documents relating thereto
(together with the Credit Agreement, the "Loan Documents").
The Credit Agreement was adopted in connection with the proposed
acquisition (the "Acquisition") of Paging Network, Inc., a Delaware corporation
("PageNet") and its Subsidiaries. The Acquisition is to be effected by the
merger (the "Merger") of PageNet with St. Louis Acquisition Corp., a newly
created direct wholly-owned Subsidiary ("Merger Sub") of Arch Communications
Group, Inc. (the "Parent") with PageNet as the survivor. Prior to the Merger,
one or more of PageNet's existing domestic Subsidiaries may be merged into
PageNet or one or more of its other existing domestic Subsidiaries. As a result
of the Merger, PageNet and its Subsidiaries will become wholly-owned
Subsidiaries of the Parent. It is contemplated that immediately after the
Merger, the Parent will contribute, directly or indirectly, all of the Stock of
PageNet to the Borrower (the "Dropdown").
The Second Amended and Restated Credit Agreement, dated as of June 5, 1996,
as amended, among PageNet, its Subsidiaries party thereto, the lenders party
thereto (the "PageNet Lenders"), the Co-Agents party thereto, Bank of America,
N.A. (formerly, NationsBank of Texas, N.A.), as Documentation Agent, TD, as
Administrative Agent, and BankBoston, N.A. (formerly, The First National Bank of
Boston) and Chase Securities, Inc., as Co-Syndication Agents, and Bank of
Montreal, First Union National Bank (formerly, First Union National Bank of
North Carolina), Mercantile Bank National Association (formerly, Mercantile Bank
of St. Louis National Association), The Mitsubishi Trust and Banking
Corporation, Chicago Branch and Societe Generale, as Lead Managers (the
"Existing PageNet Credit Agreement") will be amended and restated in connection
with the Merger to become a part of the Credit Agreement and the outstanding
principal balance of the loans made under the Existing PageNet Credit Agreement
and the outstanding exposure of letters of credit issued under the Existing
PageNet Credit Agreement will be assumed by the Borrower and will be designated
as the Tranche B-1 Facility under the Credit Agreement. PageNet and its
Subsidiaries (other than certain of its Foreign Subsidiaries) which are
currently co-borrowers under the Existing PageNet Credit Agreement will become
Guarantors under the Credit Agreement.
MERGER; RECAPITALIZATION AND EXCHANGE OFFERS
The Merger will be effected pursuant to the Agreement and Plan of Merger,
dated as of November 7, 1999, as amended by Amendment No. 1, dated as of January
7, 2000, by and among the Parent, Merger Sub and PageNet (as amended from time
to time with the consent of Required Lenders, the "Merger Agreement"). On the
date of the consummation of the Merger (the "Merger Effective Date") and
immediately after the time of the effectiveness of the Merger (the "Merger
Effective Time"), the
D-1
<PAGE> 442
Dropdown shall take place. All documents executed and delivered in connection
with the Merger (including, without limitation, the Merger Agreement), the
Parent Exchange Offer (as defined below), the PageNet Exchange Offer (as defined
below), the Parent Preferred Stock Conversion (as defined below), the amendments
to the Parent's certificate of incorporation, the Spin-Off (as defined below),
the Dropdown, the PageNet Noteholder Consents (as defined below), the Parent
Noteholder Consents (as defined below), the amendments to the PageNet Indentures
and the Parent Discount Note Indenture, any PageNet Subsidiary Mergers and the
amended and restatement of the Existing PageNet Credit Agreement and related
collateral documents are referred to collectively as the "Merger Documents" and
the transactions contemplated thereby are referred to collectively as the
"Merger Transactions".
In connection with the consummation of the Merger, a recapitalization of
the Parent, PageNet and their respective Subsidiaries are contemplated as
follows:
First, the Parent will make an offer (the "Parent Exchange Offer") to
holders of the Parent Discount Notes to exchange such Parent Discount Notes for
common Stock of the Parent (the "Parent Exchange"). It is a condition to the
Parent Exchange Offer that at least 97.5% of the aggregate outstanding principal
amount of the Parent Discount Notes shall have been validly tendered and not
withdrawn prior to the expiration of the Parent Exchange Offer, provided that
PageNet has the right to reduce such minimum percentage to any specified level
prior to such expiration or to waive such requirement in its entirety and, under
certain circumstances, the Parent has the right to reduce such minimum
percentage to a percentage not less than 67%. As a condition to the acceptance
of the Parent Exchange Offer, holders thereof will be required to consent (the
"Parent Noteholder Consents") to certain amendments to the Parent Discount Notes
Indenture.
Second, PageNet will make an offer (the "PageNet Exchange Offer" and
together with the Parent Exchange Offer, the "Exchange Offers") to holders (the
"PageNet Noteholders") of the 10% Senior Subordinated Notes due October 15,
2008, the 10.125% Senior Subordinated Notes due August 1, 2007 and the 8.875%
Senior Subordinated Notes due February 1, 2006, each issued by PageNet
(collectively, the "PageNet Notes") to exchange (collectively, the "PageNet
Exchange") such PageNet Notes for (i) shares of its common Stock and (ii) up to
68.9% of its equity ownership in VAST Solutions, Inc. (the "Distributed
Subsidiary"). It is a condition to the PageNet Exchange Offer that at least
97.5% of the aggregate outstanding principal amount of the PageNet Notes and not
less than 50% of the aggregate outstanding principal amount of each series of
PageNet Notes shall have been validly tendered and not withdrawn prior to the
expiration thereof. As a condition to the acceptance of the PageNet Exchange
Offer, PageNet Noteholders will be required to consent (the "PageNet Noteholder
Consents") to certain amendments to the indentures under which the PageNet Notes
were issued (collectively, the "PageNet Indentures") to, among other things,
permit the Merger. In the event that the minimum percentages set forth above are
not satisfied but the conditions to a prepackaged bankruptcy proceeding (the
"Bankruptcy Proceeding") have been satisfied, PageNet will commence the
Bankruptcy Proceeding and, in connection therewith, shall submit a plan of
reorganization (the "Plan of Reorganization") for confirmation. See "Additional
Conditions Precedent -- Bankruptcy Proceeding" below.
Third, PageNet will distribute (the "Spin-Off") to the holders of its
common Stock who hold such shares prior to the acceptance of the PageNet
Exchange Offer (as defined above) up to 11.6% of its equity ownership in the
Distributed Subsidiary.
Fourth, the Parent will seek the agreement of the holders of its Series C
Convertible Preferred Stock to, among other things, support an amendment to the
Parent's certificate of incorporation providing for the conversion of such
preferred Stock to common Stock of the Parent according to the ratio set forth
in the Merger Agreement (the "Parent Preferred Stock Conversion").
Fifth, one or more of PageNet's existing domestic Subsidiaries may be
merged into PageNet or one or more of its other existing domestic Subsidiaries.
D-2
<PAGE> 443
COLLATERAL
Prior to the merger (the "ACE Merger") of Arch Communications Enterprises,
Inc. ("ACE") into the Borrower on June 29, 1998, the API Lenders were granted a
first priority security interest in (i) the Stock of Arch Communications, Inc.
("Arch"), (ii) intercompany notes made by ACE and ACE's Subsidiaries, Arch
Connecticut Valley, Inc. and Arch Communications Enterprises, LLC (the "ACE
Subsidiaries") to the Parent and (iii) all assets of the ACE Subsidiaries,
including intercompany notes made by the Borrower and the Parent to the ACE
Subsidiaries and by ACE Subsidiaries to other ACE Subsidiaries, and the Stock of
the ACE Subsidiaries, in each case to the extent such assets, notes and Stock
existed at the time of the ACE Merger and such security interest was in effect
at the time of the ACE Merger (the "Existing API Collateral"). Under the terms
of the Existing Arch Indentures, the API Lenders are not required to share the
Existing API Collateral with the holders of the Existing Arch Senior Notes
("Existing Arch Senior Noteholders"). On a vote of Minority Lenders, the API
Lenders have a right to require a grant of a security interest in all other
assets of Arch and its Subsidiaries. However, under the terms of the Existing
Arch Indentures, if the API Lenders exercise this right, the Existing Arch
Senior Noteholders must be equally and ratably secured by such assets. Such
assets would include, for example, accounts receivable and inventory of the ACE
Subsidiaries which arose or were acquired after the ACE Merger, all of the
assets of the Borrower (which consist primarily of the assets of the former USA
Mobile companies), all of the assets of the MobileMedia companies, etc.
The PageNet Lenders will be entitled to maintain their security interest in
the assets of PageNet and its Subsidiaries (including the Stock of such
Subsidiaries) existing at the time of the Merger (the "Existing PageNet
Collateral") but would be required to equally and ratably secure the Existing
Arch Senior Noteholders with any other assets in which the PageNet Lenders were
granted a security interest. The assets of the Canadian Subsidiaries of PageNet
will not constitute Existing PageNet Collateral or collateral to be shared with
the API Lenders and the Existing Arch Senior Noteholders for so long as the
existing Canadian credit facilities for such Subsidiaries remain in place.
On the Merger Effective Date and immediately after the Merger Effective
Time, a security interest will be granted by Arch, the Borrower, PageNet and
each of their respective Subsidiaries that is a Guarantor in all of their
respective present and after acquired assets (other than the Existing API
Collateral, the Existing PageNet Collateral and the assets of the Canadian
Subsidiaries of PageNet for so long as the Canadian Subsidiaries' Canadian
credit facilities remain in place and, with respect to the Stock owned by such
Person of any Foreign Subsidiary that is not a Material Foreign Subsidiary,
limited to 65% of the Stock of such Foreign Subsidiary) for the equal and
ratable benefit of the API Lenders, the PageNet Lenders and the Existing Arch
Senior Noteholders.
D-3
<PAGE> 444
Following is a summary of the credit facilities under the Credit Agreement
(the "Credit Facilities") and the principal terms of the Credit Agreement and
the collateral and other documents relating thereto (the "Loan Documents").
BORROWER: Arch Paging, Inc., a Delaware corporation.
MANAGING AGENTS: BNY, TD, RBC, Barclays and Fleet.
ADMINISTRATIVE AGENT: BNY.
DOCUMENTATION AGENT: RBC.
CO-DOCUMENTATION AGENTS: Barclays and Fleet.
SYNDICATION AGENT: TD.
LEAD ARRANGERS AND BOOK RUNNERS: BNY Capital Markets, Inc. and TD Securities
(USA) Inc.
LENDERS: The API Lenders and, after the consummation
of the Merger, the PageNet Lenders
(together with the API Lenders, the
"Lenders").
LETTER OF CREDIT -- ISSUING BANK: BNY. The Administrative Agent, the Lenders
and the Letter of Credit Issuing Bank are
referred to collectively as the "Credit
Parties").
COLLATERAL AGENTS: BNY, on behalf of the Lenders and the
Applicable Arch Indenture Trustees, on
behalf the Existing Arch Senior
Noteholders.
TYPE OF FACILITIES: An aggregate of $1,327,555,000 (less the
Tranche C amortization payment in the
amount of $3,060,000 made on or about
December 31, 1999) of senior Credit
Facilities comprised of the following:
1. Tranche A: A $175,000,000 reducing
revolving credit facility (the "Tranche
A Facility") pursuant to which revolving
loans (the "Tranche A Loans") may be
borrowed, prepaid and reborrowed and
pursuant to which letters of credit may
be issued as set forth below. The
commitments of the Lenders under the
Tranche A Facility are referred to as
the "Tranche A Commitments", each a
"Tranche A Commitment".
The Borrower may request the issuance of
letters of credit (each a "Letter of
Credit") with a face amount not in excess
of $5,000,000, subject to Tranche A
Commitment reductions. Each such Letter
of Credit shall have an expiry date of
one year or less and with a final expiry
date at least ten business days prior to
the Final Maturity Date for the Tranche A
Facility. The issuance of a Letter of
Credit will be deemed a utilization of
the Tranche A Facility. The outstanding
principal balance of the Tranche A Loans
plus the exposure in respect of Letters
of Credit are referred to collectively as
the "Tranche A Exposure".
2. Tranche B: A $100,000,000 amortizing
term loan facility (the "Tranche B
Facility"), the loans under which are
referred to as the "Tranche B Loans".
The outstanding
D-4
<PAGE> 445
principal amount of the Tranche B Loans
will amortize as set forth below.
3. Tranche B-1: A $746,555,000 (less any
Replaced Letters of Credit, as defined
below) amortizing term loan facility
(the "Tranche B-1 Facility"), consisting
of (i) term loans in the aggregate
principal amount of $745,000,000 plus
any additional loans made in connection
with the PageNet Letters of Credit as
discussed below (the "Tranche B-1
Loans") and (ii) letters of credit
issued by Bank of America, N.A. under
the Existing PageNet Credit Agreement
(the "PageNet Letters of Credit")
outstanding on the Merger Effective Date
(currently in the face amount of
$1,555,000) less any PageNet Letters of
Credit replaced by Letters of Credit
under the Tranche A Facility on the
Merger Effective Date (the "Replaced
Letters of Credit"). The reimbursement
obligations of the PageNet Lenders to
Bank of America, N.A., as the letter of
credit issuer under the Existing PageNet
Credit Agreement, will continue to be
governed by the provisions of the
Existing PageNet Credit Agreement as if
such Existing PageNet Credit Agreement
was still in effect. If (i) any PageNet
Letter of Credit is drawn before, on or
after the Merger Effective Date, (ii)
the issuer thereof is not reimbursed by
PageNet, and (iii) the issuer thereof is
reimbursed by the PageNet Lenders in
accordance with the provisions of the
Existing PageNet Credit Agreement, then
the amount so reimbursed will be deemed
to be additional Tranche B-1 Loans made
by the PageNet Lenders. The PageNet
Letters of Credit cannot be renewed but,
subject to availability, can be replaced
by Letters of Credit issued under the
Tranche A Facility. The outstanding
principal amount of the Tranche B-1
Loans will amortize as set forth below.
4. Tranche C: A $306,000,000 (less the
Tranche C amortization payment in the
amount of $3,060,000 made on or about
December 31, 1999) amortizing term loan
facility (the "Tranche C Facility"), the
loans under which are referred to as the
"Tranche C Loans". The outstanding
principal amount of the Tranche C Loans
will amortize as set forth below.
The Tranche A Loans, the Tranche B Loans,
the Tranche B-1 Loans and the Tranche C
Loans are referred to collectively as the
"Loans".
CLOSING DATE: March 23, 2000.
FINAL MATURITY DATE: Tranche A Facility and Tranche B
Facility -- the earlier to occur of (i)
June 30, 2005, and (ii) the Adjusted
Indenture Maturity Date.
D-5
<PAGE> 446
Tranche B-1 Facility and Tranche C
Facility -- the earlier of (i) June 30,
2006 and (ii) the Adjusted Indenture
Maturity Date.
PURPOSE: For general corporate purposes of the
Borrower and its Subsidiaries, including
(i) capital expenditures, (ii) working
capital, (iii) to finance permitted
acquisitions, (iv) to make permitted
Restricted Payments, (v) to make
investments in PageNet's Canadian
Subsidiaries and, in the event of the
commencement of the Bankruptcy Proceeding,
to repay PageNet's debtor-in-possession
financings, provided that the aggregate
amount of such investments and such
repayments under this clause (v) shall not
exceed $17,000,000 and (vi) to pay
transactions costs.
SECURITY: 1. The API Lenders will be entitled to
continue their first priority perfected
security interest in all Existing API
Collateral, provided that the security
interest granted by the Parent in the
Stock of Arch and intercompany notes
made by Arch, the Borrower and the ACE
Subsidiaries to the Parent shall be
subject to release as currently provided
in the Loan Documents.
2. The PageNet Lenders will be entitled to
continue their first priority perfected
security interest in the Existing
PageNet Collateral, including 100% of
its retained interest in the Distributed
Subsidiary to the extent it constitutes
Existing PageNet Collateral.
3. On the Merger Effective Date and
immediately after the Merger Effective
Time, a first priority perfected
security interest will be granted by
Arch, the Borrower, PageNet and each of
their respective Subsidiaries that is a
Guarantor to the Collateral Agents for
the equal and ratable benefit of the API
Lenders, the PageNet Lenders and the
Existing Arch Senior Noteholders in all
of their respective present and after
acquired assets (other than the Existing
API Collateral, the Existing PageNet
Collateral and the assets of any
Canadian Subsidiary of PageNet which is
a party to a loan document relating to a
Canadian credit facility which is then
in effect), provided that the percentage
of Stock owned by such Person in any
Foreign Subsidiary that is not a
Material Foreign Subsidiary shall be
limited to 65% of the Stock of such
Foreign Subsidiary.
4. The Credit Agreement provides for an
intercreditor arrangement covering the
Existing API Collateral and the Existing
PageNet Collateral. The arrangement
shall provide, among other things, for
the ratable sharing of the proceeds of
such collateral, provided, however, that
the amount of the secured claim with
respect to the Existing API Collateral
and the Existing PageNet Collateral
shall not be increased.
D-6
<PAGE> 447
GUARANTORS: Guaranties of (i) all present and future
direct and indirect Subsidiaries of the
Parent, including on and after the Merger
Effective Date, PageNet and its
Subsidiaries, but excluding the Borrower,
the Borrower's Foreign Subsidiaries which
are not Material Foreign Subsidiaries and,
until the Benbow Guaranty Date (as defined
below), Benbow Investments, Inc. ("Benbow
Investments") and Benbow PCS Ventures, Inc.
("Benbow") (if it is a Subsidiary at such
time) and (ii) the Parent shall be provided
to the Credit Parties. The guaranty of the
Parent referred to in clause (ii) above
shall be subject to release as currently
provided in the Loan Documents.
RELEASE OF SECURITY; GUARANTORS: At such time as (i) the Existing Arch
Senior Note Termination Date has occurred
and (ii) all action required to be taken to
grant to the Administrative Agent a first
perfected security interest in the
collateral to be granted at such time shall
have been taken (including the making of
all required filings), then so long as no
default or event of default exists or would
be continuing before and after giving
effect thereto and provided that the
Administrative Agent shall have received a
favorable opinion of counsel to the
Borrower (in form and substance
satisfactory to the Administrative Agent)
as to the grant and perfection of such
security interests, the Administrative
Agent shall take such reasonable actions as
requested by, and at the expense of, the
Borrower, to release the Parent from its
guaranty and the security interest in the
collateral pledged to the Administrative
Agent by the Parent thereunder.
SCHEDULED TRANCHE A COMMITMENT
REDUCTIONS: Commencing September 30, 2000, the Tranche
A Commitment shall reduce through equal
quarterly reductions occurring on the last
business day of each March, June, September
and December such that the following annual
reductions occur:
<TABLE>
<CAPTION>
% REDUCTION IN
YEAR ENDING TRANCHE A COMMITMENT
----------- --------------------
<S> <C>
12/31/00........................ 10.0%
12/31/01........................ 20.0%
12/31/02........................ 20.0%
12/31/03........................ 20.0%
12/31/04........................ 20.0%
12/31/05........................ 10.0%
</TABLE>
AMORTIZATION OF TRANCHE B
FACILITY: Commencing September 30, 2000, the Tranche
B Facility shall amortize in equal
quarterly installments occurring on the
last business day of each March, June,
September and
D-7
<PAGE> 448
December such that the following annual
percentages of the Tranche B Facility are
payable:
<TABLE>
<CAPTION>
YEAR ENDING % OF TRANCHE B FACILITY
----------- -----------------------
<S> <C>
12/31/00........................ 5.0%
12/31/01........................ 12.5%
12/31/02........................ 17.5%
12/31/03........................ 22.5%
12/31/04........................ 27.5%
12/31/05........................ 15.0%
</TABLE>
AMORTIZATION OF TRANCHE B-1
FACILITY: Commencing March 31, 2001, the Tranche B-1
Facility shall amortize in equal quarterly
installments occurring on the last business
day of each March, June, September and
December such that the following annual
percentages of the Tranche B-1 Facility are
payable:
<TABLE>
<CAPTION>
YEAR ENDING % OF TRANCHE B-1 FACILITY
----------- -------------------------
<S> <C>
12/31/01...................... 12.5%
12/31/02...................... 15.0%
12/31/03...................... 17.5%
12/31/04...................... 20.0%
12/31/05...................... 20.0%
</TABLE>
The remaining 15% of the Tranche B-1
Facility will amortize in two equal
installments on 3/31/06 and 6/30/06.
AMORTIZATION OF TRANCHE C
FACILITY: Commencing December 31, 1999, the Tranche C
Facility shall amortize in annual
installments occurring on the last business
day of each year such that the following
annual percentages of the Tranche C
Facility are payable:
<TABLE>
<CAPTION>
YEAR ENDING % OF TRANCHE C FACILITY
----------- -----------------------
<S> <C>
12/31/99......................... 1.0%
12/31/00......................... 1.0%
12/31/01......................... 1.0%
12/31/02......................... 1.0%
12/31/03......................... 1.0%
12/31/04......................... 1.0%
12/31/05......................... 1.0%
12/31/06......................... 93.0%
</TABLE>
INTEREST RATES: At the Borrower's option, the Loans will
bear interest at either (i) the Applicable
Margin plus, the greater of (a) the Federal
Funds Effective Rate plus 1/2 of 1% and (b)
BNY's prime commercial lending rate as
publicly announced to be in effect from
time to time (the "Alternate Base Rate"),
or (ii) subject to legality and
availability, the Administrative Agent's
reserve-adjusted LIBOR interest rate plus
the Applicable Margin. Interest periods for
the LIBOR interest rate option shall be for
periods of one, two, three or six months.
APPLICABLE MARGIN: Tranche A and Tranche B -- The Applicable
Margin with respect to any interest rate
option under the Tranche A
D-8
<PAGE> 449
Facility and the Tranche B Facility shall
be determined on the basis of the Pricing
Leverage Ratio as follows:
Prior to the Merger Effective Date:
<TABLE>
<CAPTION>
PRICING LEVERAGE RATIO ABR LIBOR
---------------------- ----- -----
<S> <C> <C>
$4.50:1.00........................... 1.875% 3.125%
$4.00:1.00 ,4.50:1.00................ 1.500% 2.750%
$3.00:1.00 ,4.00:1.00................ 1.125% 2.375%
,3.00:1.00........................... 0.750% 2.000%
</TABLE>
On and after the Merger Effective Date:
<TABLE>
<CAPTION>
PRICING LEVERAGE RATIO ABR LIBOR
---------------------- ----- -----
<S> <C> <C>
$3.50:1.00........................... 2.125% 3.375%
$3.00:1.00 ,3.50:1.00................ 1.875% 3.125%
$2.50:1.00 ,3.00:1.00................ 1.500% 2.750%
,2.50:1.00........................... 1.125% 2.375%
</TABLE>
Tranche B-1 -- The Applicable Margin with
respect to any interest rate option under
the Tranche B-1 Facility shall be
determined on the basis of the Pricing
Leverage Ratio as follows:
<TABLE>
<CAPTION>
PRICING LEVERAGE RATIO ABR LIBOR
---------------------- ----- -----
<S> <C> <C>
$3.50:1.00........................... 2.125% 3.375%
$3.00:1.00 ,3.50:1.00................ 1.875% 3.125%
$2.50:1.00 ,3.00:1.00................ 1.500% 2.750%
,2.50:1.00........................... 1.125% 2.375%
</TABLE>
Changes in the Applicable Margin with
respect to the Tranche A Facility, the
Tranche B Facility and the Tranche B-1
Facility shall become effective two
business days after the date of delivery of
a compliance certificate required to be
delivered by the Borrower, provided,
however, that in the event the Borrower
fails to deliver a compliance certificate
on a timely basis, the Pricing Leverage
Ratio shall be deemed to be greater than
the highest pricing level under each of the
above grids until a compliance certificate
is delivered which shows a lower Pricing
Leverage Ratio.
Tranche C -- The Applicable Margin with
respect to any interest rate option under
the Tranche C Facility shall be 6.875% with
respect to borrowings bearing interest
based upon LIBOR ("LIBOR Advances") and
5.625% with respect to ABR Advances.
DEFAULT RATE OF INTEREST: Following the occurrence of and during the
continuation of an Event of Default,
interest on the outstanding principal
balance of the Loans shall accrue at then
applicable interest rates plus 2.00% per
annum. If any amount payable under the Loan
Documents (other than the principal of the
Loans) is not paid when due, such amount
shall bear interest at the Alternate Base
Rate plus the Applicable Margin plus 2.00%
per annum from the date of nonpay-
D-9
<PAGE> 450
ment until paid in full. All such interest
shall be payable on demand.
COMMITMENT FEES: A non-refundable per annum fee payable to
the Administrative Agent for pro-rata
distribution to the Lenders with Tranche A
Commitments shall accrue on the average
daily unused portion of the Tranche A
Commitments, determined on the basis of the
Pricing Leverage Ratio, as follows:
1. Prior to the Merger Effective Date:
<TABLE>
<CAPTION>
PRICING LEVERAGE RATIO COMMITMENT FEE
---------------------- --------------
<S> <C> <C>
>4.00:1.00.................... 0.500%
<4.00:1.00.................... 0.375%
</TABLE>
2. On and after the Merger Effective
Date:
<TABLE>
<CAPTION>
PRICING LEVERAGE RATIO COMMITMENT FEE
---------------------- --------------
<S> <C> <C>
>3.00:1.00.................... 1.00%
<3.00:1.00.................... 0.75%
</TABLE>
Changes in the applicable commitment fee
percentage shall become effective two
business days after the date of delivery of
a compliance certificate required to be
delivered by the Borrower, provided,
however, that in the event the Borrower
fails to deliver a compliance certificate
on a timely basis, the Pricing Leverage
Ratio shall be deemed to be greater than
the highest pricing level under each of the
above grids until a compliance certificate
is delivered which shows a lower Pricing
Leverage Ratio. Commitment Fees shall be
computed on the basis of the actual number
of days elapsed in a year comprised of 365
days or, if appropriate, 366 days and shall
be payable quarterly in arrears on the last
day of March, June, September and December.
LETTER OF CREDIT FEES: A non-refundable per annum fee payable to
the Administrative Agent for pro-rata
distribution to the Lenders having Tranche
A Commitments, shall accrue on the face
amount of each Letter of Credit equal to
the Applicable Margin in effect for the
LIBOR interest rate option under the
Tranche A Facility. Letter of Credit Fees
shall be computed on the basis of the
actual number of days elapsed in a year
comprised of 360 days and shall be payable
quarterly in arrears on the last day of
March, June, September and December.
CALCULATION AND PAYMENT OF
INTEREST: Interest shall be computed on the basis of
the actual number of days elapsed in a year
comprised of 360 days (or, in the case of
Loans bearing interest at the Alternate
Base Rate based on the prime rate, 365 days
or, if appropriate, 366 days). Except as
provided under the heading "Default Rate of
Interest", above, interest at (i) the
Alternate Base Rate shall be payable
quarterly in arrears on the last day of
each March, June, September
D-10
<PAGE> 451
and December and (ii) LIBOR shall be
payable on the last day of the applicable
interest period, provided that if the
applicable interest period is greater than
three months, interest shall be payable on
the last day of each three month interval
occurring during such interest period and
the last day of such interest period.
PREPAYMENTS & COMMITMENT
REDUCTIONS: Voluntary Commitment Reductions -- The
Borrower may terminate or permanently
reduce the unused portion of the Tranche A
Commitment. All such reductions must be in
a minimum amount of $1,000,000 and $100,000
multiples thereof.
Voluntary Prepayments -- The Borrower may
prepay Loans (subject to break funding
indemnities and the prepayment fee
described under the heading "Prepayment Fee
on Prepayments of Tranche C Loans" below),
subject to a minimum prepayment of
$1,000,000 plus $100,000 multiples thereof.
The Borrower shall designate the Tranche to
which each prepayment shall apply and any
voluntary prepayments made on the Tranche B
Facility, the Tranche B-1 Facility or the
Tranche C Facility shall be applied
respectively to the remaining amortization
installments thereof on a pro rata basis.
Mandatory Commitment Reductions and
Prepayments:
1. On or before each date set forth below,
the Borrower shall prepay the Tranche B
Loans, the Tranche B-1 Loans and the
Tranche C Loans (and, if no Tranche B
Loans are outstanding, the Tranche A
Commitment is to be reduced) as set
forth below by an amount equal to the
amount set forth in subparagraphs (a)
through (d) below and applicable to such
date (the "Aggregate Prepayment/
Reduction Amount"):
(a) Excess Cash Flow -- For each
fiscal year prior to the fiscal
year in which the Existing Arch
Senior Note Termination Date
occurs, commencing with the fiscal
year ended December 31, 1999, and
effective on March 31st of each
immediately succeeding fiscal
year, in an aggregate amount equal
to the following: (i) if the Total
Leverage Ratio at the end of such
fiscal year is greater than
4.00:1.00, the lesser of (A) 80%
of Excess Cash Flow (the "Maximum
Excess Cash Flow Amount") and (B)
an amount equal to the sum of (1)
the portion of the Maximum Excess
Cash Flow Amount which will reduce
the Total Leverage Ratio to
4.00:1:00 at the end of such
fiscal year, plus (2) 50% of the
amount equal to Excess Cash Flow
minus such portion referred to in
clause (B)(1) above, or (ii) if
the Total Leverage Ratio at the
end of such fiscal year is less
D-11
<PAGE> 452
than or equal to 4.00:1.00, 50% of
Excess Cash Flow.
(b) Asset Sales -- 100% of the net
cash proceeds received from asset
sales, other than those in the
ordinary course of business,
subject to customary reinvestment
provisions.
(c) Insurance and Condemnation
Awards -- 100% of all property
insurance recoveries and
condemnation awards in excess of
amounts used to replace or restore
any properties, subject to
customary reinvestment provisions.
(d) Breakup Fee -- 100% of any breakup
or similar fee received by the
Parent or any of its Affiliates
under the Merger Agreement in the
event that the Merger is not
consummated less the amount
thereof used by the Parent or Arch
during the six month period
following the receipt thereof to
repay, redeem or otherwise retire
any of the Parent Discount Notes,
the Parent Subordinated Debentures
or the Existing Arch Senior Notes,
such prepayment to be made on the
last day of such period.
2. In addition to the Scheduled Tranche A
Commitment Reduction, the Tranche A
Commitment shall be permanently reduced
as described under the heading
"Application of Mandatory Prepayments &
Commitment Reductions", below. The
Borrower shall prepay the Tranche A
Loans so that the Tranche A Exposure
does not exceed the Tranche A Commitment
as so reduced.
3. The Tranche A Loans shall be due and
payable on the termination of the
Tranche A Commitment.
Simultaneously with the termination and
each reduction of the Aggregate Tranche A
Commitments, the Borrower shall pay to the
Administrative Agent, for the pro rata
account of the Lenders holding Tranche A
Commitments, accrued Commitment Fees (to
the date of termination or reduction) on
the terminated or reduced portion thereof.
APPLICATION OF MANDATORY
PREPAYMENTS & COMMITMENT
REDUCTIONS: The Aggregate Prepayment/Reduction Amount
to be applied on any date shall be applied
as follows:
Tranche B Facility -- The Tranche B Loans
shall be prepaid in an amount equal to the
product of (i) Aggregate
Prepayment/Reduction Amount to be applied
and (ii) the Aggregate Tranche B
Percentage.
Tranche B-1 Facility -- The Tranche B-1
Loans shall be prepaid in an amount equal
to the product of (i) Aggregate
Prepayment/Reduction Amount to be applied
and (ii) the Aggregate Tranche B-1
Percentage.
D-12
<PAGE> 453
Tranche C Facility -- The Tranche C Loans
shall be repaid in an amount equal to the
product of (i) Aggregate
Prepayment/Reduction Amount to be applied
and (ii) the Aggregate Tranche C
Percentage.
Tranche A Facility -- If as of any date
after applying all or any portion of the
Aggregate Prepayment/Reduction Amount to
the Tranche B Loans, the Tranche B Loans
shall have been paid in full, the Tranche A
Facility shall be permanently reduced in an
amount equal to the Aggregate
Prepayment/Reduction Amount to be applied
as of such date minus the sum of (i) the
product of the Aggregate Tranche B-1
Percentage and the Aggregate Prepayment/
Reduction Amount to be applied as of such
date and (ii) the product of the Aggregate
Tranche C Percentage and the Aggregate
Prepayment/Reduction Amount to be applied
as of such date.
Each reduction of the Tranche A Commitment
shall be applied to the remaining Scheduled
Tranche A Commitment Reductions on a pro
rata basis.
Prepayments of the Tranche B Loans, the
Tranche B-1 Loans and Tranche C Loans shall
be applied on a pro rata basis to the
remaining respective amortization
installments of such Loans.
PREPAYMENT FEE: If the Borrower makes a voluntary
prepayment of Tranche C Loans during the
periods set forth below, the Borrower shall
pay to each Tranche C Lender together with
the prepayment, a prepayment fee equal to
the following percentages of the principal
amount of such prepayment:
<TABLE>
<CAPTION>
PERIOD FEE
------ ----
<S> <C>
06/03/99-11/30/99........................... 2.00%
12/01/99-05/29/00........................... 1.50%
05/30/00-11/26/00........................... 1.00%
11/27/00-05/26/01........................... 0.50%
05/27/01 and thereafter..................... 0.00%
</TABLE>
REPRESENTATIONS & WARRANTIES: Customary for the type of transaction
proposed and others to be reasonably
specified by the Managing Agents, in each
case to be applied to Arch and its
Subsidiaries, including, without
limitation, representations and warranties
relating to: Subsidiaries and
capitalization; the existence,
qualification and good standing of the Loan
Parties; authorization; title to
properties; liens; employee benefits; the
accuracy and fair presentation of financial
statements; absence material adverse change
in the financial condition, business
operations or properties of the Borrower
and its Subsidiaries, if any, since
December 31, 1998; the noncontravention of
organizational documents, laws and material
agreements; the absence of litigation; the
payment of taxes and other material
obligations; compliance with environmental
and
D-13
<PAGE> 454
other laws; receipt of necessary approvals;
insurance; validity of licenses, permits
and franchises, including FCC licenses; and
the power and authority of the Loan Parties
to execute, deliver and perform obligations
pursuant to the Loan Documents. In
addition, the Parent's guaranty contains
comparable representations and warranties.
CONDITIONS PRECEDENT TO MERGER: Customary for the type of transaction
proposed, and others to be reasonably
specified by the Managing Agents,
including, without limitation:
1. Execution and delivery of definitive
documentation relating to the amendment
and restatement of the Existing PageNet
Credit Agreement and related collateral
documents and the assumption of the
loans thereunder by the Borrower,
signed by the Borrower and each Person
then a party to the Existing PageNet
Credit Agreement or related collateral
documents; and other documentation,
including, without limitation, a
joinder and assumption agreement.
2. Replacement of certain Schedules to the
Credit Agreement and related collateral
documents, in form and substance
acceptable to the Managing Agents.
3. Execution and delivery of promissory
notes for the Lenders (other than
Tranche A Lenders, Tranche B Lenders
and Tranche C Lenders).
4. Execution and delivery of joinder
supplements to the subsidiary guaranty
and applicable collateral documents by
PageNet, its domestic Subsidiaries and
its Material Foreign Subsidiaries.
5. (a) The stockholders of the Parent
shall have approved the Merger
Transactions, (b) either (i) the
stockholders of PageNet shall have
approved the Merger Transactions, or
(ii) the conditions precedent under the
heading "Additional Conditions
Precedent -- Bankruptcy Proceeding"
below shall have been satisfied, and
(c) the Administrative Agent shall have
received a certificate of the secretary
or assistant secretary of the Parent to
the foregoing effects.
6. The receipt by the Administrative Agent
of a certificate, dated as of the
Merger Effective Date, of the Secretary
or Assistant Secretary of each of
PageNet and each of its Subsidiaries
that is a party to a Transaction
Document (1) either (x) attaching a
true and complete copy of the
resolutions of its Board of Directors
or other managing body or Person and of
all documents evidencing other
necessary corporate or other action (in
form and substance satisfactory to the
Administrative Agent) taken by it to
authorize the Transaction Documents to
which it is a party and the
consummation of the Transactions or (y)
the condi-
D-14
<PAGE> 455
tions precedent under the heading
"Additional Conditions
Precedent -- Bankruptcy Proceeding"
below shall have been satisfied, (2)
attaching a true and complete copy of
its certificate of incorporation and
by-laws or other organizational
documents, (3) setting forth the
incumbency of its officer or officers
who may sign such Transaction Documents,
including therein a signature specimen
of such officer or officers and (4)
attaching a certificate of good standing
of the Secretary of State of the
jurisdiction of its incorporation and of
each other state in which it is
qualified to do business, together with
such other documents as the
Administrative Agent shall require.
7. The Administrative Agent shall have
received a certificate, dated as of the
Merger Effective Date, of the Secretary
or Assistant Secretary of each of the
Parent and each of its Subsidiaries
that is a party to a Transaction
Document (1) certifying that there have
been no amendments, supplements or
other modifications to the resolutions,
the certificate of incorporation or
by-laws delivered on the Closing Date
or if so, setting forth the same, and
(2) setting forth the incumbency of its
officer or officers who may sign such
Transaction Documents, including
therein a signature specimen of such
officer or officers, together with such
other documents as the Administrative
Agent shall require.
8. (a) The Operating Cash Flow of PageNet
for the three month period ending on
the Merger Effective Date or, if the
Merger Effective Date is not the last
day of a month, for the immediately
preceding three month period,
multiplied by 4 shall not be less than
$225,000,000, and the sum of (i)
Annualized Operating Cash Flow of the
Borrower plus (ii) Operating Cash Flow
of PageNet for the three month period
ending on the Merger Effective Date (or
if the Merger Effective Date is not the
last day of a month, for the
immediately preceding three month
period) multiplied by 4 shall not be
less than $485,000,000, (b) the
aggregate number of Pagers in Service
of (i) PageNet and its Subsidiaries as
of the Merger Effective Date shall not
be less than 7,250,000 and (ii) the
Borrower and its Subsidiaries and
PageNet and its Subsidiaries on a
combined basis as of the Merger
Effective Date shall not be less than
13,175,000, and (c) the Administrative
Agent shall have received a certificate
of a financial officer of the Borrower
(including calculations in reasonable
detail) to the foregoing effect in form
and substance satisfactory to the
Managing Agents.
D-15
<PAGE> 456
9. The corporate, tax, capital and
ownership structure (including articles
of incorporation and by-laws),
shareholders agreements and management
of the Parent and its Subsidiaries
before and after the consummation of
the Transactions shall be satisfactory
to the Managing Agents and the
aggregate tax liability reasonably
expected to be incurred by PageNet and
its Subsidiaries and the Parent and its
Subsidiaries as a result of the
Transactions shall not exceed
$15,000,000 in the aggregate and the
Administrative Agent shall have
received a certificate of a financial
officer of the Borrower to the
foregoing effect in form and substance
satisfactory to the Managing Agents.
10. Immediately after the consummation of
the Merger Transactions and the
repayment in full of the DIP Facility,
the Borrower shall have availability
under the Tranche A Commitments in an
amount not less than the sum of
$85,000,000 plus, without duplication,
the amount of any fees or expenses
incurred by the Parent or any of its
Subsidiaries in connection with the
Merger Transactions which are not paid
on the Merger Effective Date.
11. The Parent shall have completed the
Parent Exchange on terms satisfactory
to the Managing Agents, at least 50% of
the aggregate principal amount of the
Parent Discount Notes shall have been
validly tendered and not withdrawn,
Parent Noteholder Consents shall have
been received from holders of Parent
Discount Notes holding at least such
percentage of the aggregate outstanding
principal amount of Parent Discount
Notes, the Parent Discount Notes
Indenture shall either have been
terminated or amended on terms
satisfactory to Managing Agents, and
the Administrative Agent shall have
received a certificate of a financial
officer of the Parent to the foregoing
effects in form and substance
satisfactory to the Managing Agents.
12. (a) PageNet shall have completed the
PageNet Exchange on terms satisfactory
to the Managing Agents, at least 97.5%
of the aggregate outstanding principal
amount of PageNet Notes and at least
50% of the aggregate principal amount
of each series of PageNet Notes shall
have been validly tendered and not
withdrawn, PageNet Noteholder Consents
shall have been received from PageNet
Noteholders holding at least such
percentages of the aggregate
outstanding principal amount of PageNet
Notes, the PageNet Indentures shall
have been either terminated or amended
on terms satisfactory to the Managing
Agents, and the Administrative Agent
shall have received a certificate of a
financial officer of the Parent
D-16
<PAGE> 457
to the foregoing effects in form and
substance satisfactory to the Managing
Agents, or (b) the conditions precedent
under the heading "Additional Conditions
Precedent -- Bankruptcy Proceeding"
below shall have been satisfied.
13. PageNet's shareholders' rights plan
shall be inapplicable to the Merger
Transactions and the Administrative
Agent shall have received a certificate
of a financial officer of the Parent to
the foregoing effects in form and
substance satisfactory to the Managing
Agents.
14. Except for the Bankruptcy Proceeding
and orders issued by the court therein,
there shall be no injunction, writ,
preliminary restraining order or other
order of any nature issued by any
governmental body in any respect
affecting the Transactions and no
action or proceeding by or before any
governmental body shall have been
commenced and be pending or, to the
knowledge of the Parent, the Borrower
or Arch, be threatened, seeking to
prevent or delay the Transactions or
challenging any terms and provisions
thereof or seeking any damages in
connection therewith which would in the
reasonable opinion of the Parent (or in
the opinion of the Managing Agents in
their sole discretion with respect to
which written notice has been provided
to the Parent by one or more of the
Managing Agents), individually or in
the aggregate, have a material adverse
effect on (w) the business, property,
financial condition, operations,
projections or prospects of the Parent
and its Subsidiaries on a consolidated
basis, Arch and its Subsidiaries on a
consolidated basis, the Borrower and
its Subsidiaries on a consolidated
basis or PageNet and its Subsidiaries
on a consolidated basis; (x) the
legality, validity or enforceability of
any of the Transaction Documents, (y)
the ability of the Borrower or any
other Loan Party to perform its
obligations under the Loan Documents,
or (z) the rights and remedies of the
Credit Parties under the Loan
Documents, and the Administrative Agent
shall have received a certificate of a
financial officer of the Parent to the
foregoing effects in form and substance
satisfactory to the Managing Agents,
provided that to the extent such
certificate relates to PageNet, such
certificate shall be to the best of the
knowledge of such financial officer.
15. The consummation of the Transactions
shall not (i) constitute a default
under any material agreement of the
Parent, PageNet or any of their
respective Subsidiaries (other than
defaults resulting from the
commencement of the Bankruptcy
Proceeding or defaults nullified by the
Plan of Reorganization or the
Confirmation Order), (ii) require the
prepayment,
D-17
<PAGE> 458
repurchase, redemption or defeasance
(other than pursuant to the Exchange
Offers or requirements nullified by the
Plan of Reorganization or the
Confirmation Order) of any indebtedness
of the Parent, PageNet or any of their
respective Subsidiaries prior to its
scheduled maturity, including, without
limitation, under any change of control
or similar provision, or (iii)
constitute a Change of Control, and the
Administrative Agent shall have received
a certificate of a financial officer of
the Parent to the foregoing effects in
form and substance satisfactory to the
Managing Agents.
16. The Administrative Agent shall have
received a certificate of a financial
officer of the Parent, dated the Merger
Effective Date, in all respects
satisfactory to the Administrative
Agent certifying that as of the Merger
Effective Date (i) no default or Event
of Default exists and (ii) the
representations and warranties
contained in the Loan Documents are
true and correct.
17. (a) (1) Neither the Parent, Arch, the
Borrower nor any of their respective
Subsidiaries shall have sustained since
December 31, 1998 any loss or
interference with its respective
business from fire, explosion, flood or
other calamity, whether or not covered
by insurance or from any labor dispute
or court or governmental action order,
or decree, (2) except for the
Additional Tranche C Loans (as defined
in and made under the Existing Tranche
A and Tranche C Credit Agreement) and
the Arch 13 3/4% Notes, since such date
there shall not have been a material
increase in short-term debt or
long-term debt of the Parent, Arch, the
Borrower or any of their respective
Subsidiaries (other than debt
contemplated by this Agreement), and
(3) since such date there shall not
have been any change, or any
development involving a prospective
change, that could in the reasonable
opinion of the Parent reasonably be
expected to result (or in the opinion
of the Managing Agents in their sole
discretion with respect to which
written notice has been provided to the
Parent by one or more of the Managing
Agents be expected to result) in a
material adverse effect on (i) the
business, property, financial
condition, operations, projections or
prospects of the Parent and its
Subsidiaries on a consolidated basis or
Arch and its Subsidiaries on a
consolidated basis; (ii) the legality,
validity or enforceability of any of
the Loan Documents, (iii) the ability
of the Borrower to repay its
obligations under the Loan Documents or
of any other Loan Party to perform its
obligations under the Loan Documents,
or (iv) the rights and remedies of the
Credit Parties under the Loan
Documents.
D-18
<PAGE> 459
(b) (1) Except to the extent publicly
disclosed by PageNet prior to the
Closing Date, neither PageNet nor any
of its Subsidiaries shall have
sustained since December 31, 1998, any
loss or interference with its
respective business from fire,
explosion, flood or other calamity,
whether or not covered by insurance or
from any labor dispute or court or
governmental action order, or decree
(other than, in the event of the
commencement of the Bankruptcy
Proceeding, litigation before the
Bankruptcy Court which litigation is
disposed of pursuant to the
Confirmation Order (described under the
heading "Additional Conditions
Precedent -- Bankruptcy Proceeding"
below) other than as set forth in its
audited financial statements as of that
date, (2) since such date, except for
borrowings under the Existing PageNet
Credit Agreement and borrowings under
the DIP Facility, there shall not have
been a material increase in short-term
debt or long-term debt of PageNet or
any of its Subsidiaries (other than, in
the event of the commencement of the
Bankruptcy Proceeding, pursuant to the
DIP Loan Documents, as permitted in the
PageNet Merger Documents), and (3)
except to the extent publicly disclosed
by PageNet prior to the Closing Date,
since such date there shall not have
been any change, or any development
involving a prospective change (other
than the commencement of the Bankruptcy
Proceeding), that could in the
reasonable opinion of the Parent
reasonably be expected to result (or in
the opinion of the Managing Agents in
their sole discretion with respect to
which written notice has been provided
to the Parent by one or more of the
Managing Agents be expected to result)
in a material adverse effect on (i) the
business, property, financial
condition, operations, projections or
prospects of PageNet and its
Subsidiaries on a consolidated basis;
(ii) the legality, validity or
enforceability of any of the Loan
Documents, (iii) the ability of the
Borrower to repay its obligations under
the Loan Documents or of any other Loan
Party to perform its obligations under
the Loan Documents, or (iv) the rights
and remedies of the Credit Parties
under the Loan Documents.
(c) The Administrative Agent shall have
received a certificate of a financial
officer of the Parent, dated the Merger
Effective date, in all respects
satisfactory to the Managing Agents
certifying to clauses (a) and (b)
above, provided, that with respect to
clause (b), such certificate shall be
to the best of the knowledge of such
financial officer. The filing of the
Bankruptcy Proceeding shall not, in and
of itself, be deemed to be a material
adverse change with respect to PageNet
and its Subsidiaries.
D-19
<PAGE> 460
18. The Administrative Agent shall have
received financial projections (giving
effect to the Merger) of (i) the Parent
and its Subsidiaries on a consolidated
basis, (ii) Arch and its Subsidiaries
on a consolidated basis, (iii) the
Borrower and its Subsidiaries on a
consolidated basis, and (iv) PageNet
and its Subsidiaries on a consolidated
basis, in each case after giving effect
to the Merger, for the period through
the Tranche C Maturity Date, each in
form and substance satisfactory to the
Managing Agents.
19. The Administrative Agent shall have
received a certified copy of a final
order of the FCC approving the transfer
of control of such of PageNet and its
Subsidiaries which hold FCC licenses to
the Parent or any of its Subsidiaries.
20. All approvals and consents of all
Persons required to be obtained prior
to the Merger Effective Date in
connection with the consummation of the
Transactions (including, without
limitation, the lenders under the
Existing PageNet Credit Agreement and
the noteholders under the PageNet
Indentures and the Existing Arch
Indentures, to the extent required)
shall have been obtained and all
required notices shall have been given
and all required waiting periods shall
have expired, including, without
limitation, under the the
Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended
(or expiration of applicable waiting
periods), and no provision of any
applicable statute, law, rule or
regulation of any governmental body
will prevent the execution, delivery or
performance of, or affect the validity
of, the Transaction Documents, and the
Administrative Agent shall have
received a certificate of an officer of
the Parent in form and substance
satisfactory to the Administrative
Agent to the foregoing effects.
21. The Administrative Agent shall have
received (i) such UCC, tax, patent,
trademark and judgment lien search
reports with respect to such applicable
public offices where Liens are filed,
as shall be acceptable to the
Administrative Agent, disclosing that
there are no Liens of record in such
official's office covering any
collateral or showing the Parent,
PageNet or any of their respective
Subsidiaries as a debtor thereunder
(other than liens permitted by the Loan
Documents), (ii) a certificate of the
Parent, dated the Merger Effective
Date, certifying that, as of the Merger
Effective Date, there will exist no
Liens on the Collateral (other than
liens permitted by the Loan Documents),
and (iii) such Uniform Commercial Code
financing statements or financing
statement amendments, executed by the
appropriate Loan Parties,
D-20
<PAGE> 461
as shall be reasonably requested by the
Administrative Agent, together with
either (x) satisfactory evidence that
all taxes payable in connection with the
filing of the UCC-1 financing statements
have been paid or (y) a check payable to
each applicable governmental body in
payment of each such tax.
22. Each of the conditions precedent
contained in the Merger Documents to
the consummation of the Merger
Transactions shall have been satisfied
(with no waiver of any condition
thereof without the prior written
consent of the Managing Agents), and
the Merger Transactions (other than the
Dropdown) shall have been consummated
in accordance with the terms of the
Merger Documents (with no amendment,
supplement or other modification to any
term or provision contained therein
without the prior written consent of
the Required Lenders (other than any
amendment, supplement or other
modification to any nonmaterial term or
provision contained therein or any
amendment, supplement or other
modification which is not adverse to
the Lenders which may be made with the
prior written consent of the Managing
Agents)) and all applicable laws,
governmental policies, rules and
regulations.
23. All representations and warranties made
in the Merger Documents by the Parent,
Merger Sub and PageNet shall be true
and correct in all material respects.
24. The Administrative Agent shall have
received a certificate of the Secretary
or Assistant Secretary of the Parent,
in all respects satisfactory to the
Administrative Agent, (a) attaching a
true and complete copy of each of the
fully executed Merger Documents
(including, without limitation, the
Merger Agreement, the amendments to the
PageNet Indentures and the Parent
Discount Notes Indenture, the
registration statements with respect to
the Parent Exchange Offer and the
PageNet Exchange Offer as filed with
the SEC, all of which shall be
satisfactory to the Managing Agents),
and (b) certifying that (i) each Merger
Document is in full force and effect,
(ii) no default or event of default by
the Parent or the Borrower or, to the
best of the knowledge of the Parent and
the Borrower, any other party, has
occurred and is continuing thereunder
and (iii) each of the conditions
specified in paragraphs 22 and 23 above
have been satisfied, provided, however,
that with respect to the
representations and warranties made in
the Merger Documents by PageNet or any
of its Subsidiaries, such certification
shall be made to the best knowledge of
the Parent.
25. The Administrative Agent shall have
received, in form and substance
satisfactory to the Managing Agents,
D-21
<PAGE> 462
such amendments, waivers or consents to
the Transactions from the lenders under
the documentation for the existing
PageNet Canadian credit facilities,
including, without limitation,
amendments to limit the collateral
thereunder to the assets of the PageNet
Canadian Subsidiaries existing on the
Merger Effective Date in which a Lien
was granted prior to such date, as the
Managing Agents shall require.
26. The Administrative Agent shall have
received a compliance certificate
signed by a financial officer of the
Borrower, in all respects reasonably
satisfactory to the Administrative
Agent, dated the Merger Effective Date,
and (i) stating that the Borrower is in
compliance with all covenants on a
pro-forma basis after giving effect to
the Transactions, and (ii) attaching a
copy of a pro-forma Consolidated
balance sheet of the Borrower utilized
for purposes of preparing such
compliance certificate, which pro-forma
Consolidated balance sheet presents the
Borrower's good faith estimate of its
pro-forma Consolidated financial
condition at the date thereof, after
giving effect to the Transactions.
27. Either (i) all of the Existing PageNet
Lenders shall have consented to the
consummation of the Merger Transactions
and the Administrative Agent shall have
received a Certificate of the Secretary
or Assistant Secretary of the Parent to
the foregoing effect or (ii) the
conditions set forth under the heading
"Additional Conditions
Precedent -- Bankruptcy Proceeding"
shall have been satisfied.
28. The Merger shall occur on or before
September 30, 2000.
29. A certificate of merger shall have been
filed with the Secretary of State of
the State of Delaware, which
certificate shall comply as to form and
substance with the General Corporation
Law of Delaware, and the Administrative
Agent shall have received a certified
copy thereof.
30. With respect to each PageNet Subsidiary
Merger, if any, a PageNet Subsidiary
Merger Certificate shall have been
filed with the applicable governmental
body, each of which shall comply as to
form and substance with applicable
state law, and the Administrative Agent
shall have received a certified copy
thereof.
31. The API Lenders' due diligence
investigations with respect to the
Parent, Arch, the Borrower and their
respective Subsidiaries, PageNet and
its Subsidiaries, the Acquisition and
the other Transactions shall be
satisfactory in all respects to
Required Lenders.
D-22
<PAGE> 463
32. The Spin-Off shall have occurred.
33. The Administrative Agent shall have
received satisfactory legal opinions of
counsel to the Loan Parties, including,
without limitation, with respect to the
tax treatment of the Merger
Transactions and FCC matters, addressed
to the Administrative Agent and the
other Credit Parties, dated the Merger
Effective Date and in form and
substance satisfactory to the
Administrative Agent.
34. The percentage of shares of Stock of
PageNet with respect to which the
holders thereof shall have perfected
their appraisal rights shall not exceed
5% of the outstanding shares of
PageNet, the holders of which are
entitled to appraisal rights, and the
Administrative Agent shall have a
received a certificate of a financial
officer of the Parent, in form and
substance satisfactory to the
Administrative Agent, as to the
foregoing, which certificate shall
specify the number of such shares.
35. All fees and expenses payable to the
Agents and the Lenders on the Merger
Effective Date shall have been paid,
including the reasonable fees and
expenses of counsel to the
Administrative Agent.
36. The Administrative Agent shall have
received such other documents and
assurances as the Managing Agents shall
reasonably require.
ADDITIONAL CONDITIONS
PRECEDENT -- BANKRUPTCY
PROCEEDING: In the event that (i) a vote in favor of
the Plan of Reorganization by (A) PageNet
Noteholders holding at least two-thirds of
the aggregate principal amount of the
PageNet Notes that are actually voted and
by a majority in number of the PageNet
Noteholders that actually vote and (B)
lenders holding at least two-thirds of the
aggregate principal amount of the
indebtedness under the Existing PageNet
Credit Agreement that are actually voted
and by a majority in number of such lenders
that actually vote, and (ii) certain other
conditions set forth in the Merger
Agreement are satisfied, PageNet will
commence the Bankruptcy Proceeding. In the
event that the Bankruptcy Proceeding has
been commenced, as a condition to the
consummation of the Merger Transactions the
following additional conditions precedent
shall have been satisfied:
1. PageNet shall have submitted to the
court the Plan of Reorganization which
shall be acceptable in all respects to
the Managing Agents.
2. The DIP Facility shall have been repaid
in full (with not more than $15,000,000
(less any amount invested by the Parent
or any of its Subsidiaries in the
PageNet Canadian Subsidiaries) having
been paid by the Bor-
D-23
<PAGE> 464
rower with the proceeds of Tranche A
Loans) and all Liens in respect thereof
shall have been terminated, and the
Administrative Agent shall have received
evidence, in form and substance
satisfactory to the Managing Agents, to
such effect.
3. The Administrative Agent shall have
received a court certified copy of a
final confirmation order issued by the
bankruptcy court confirming the Plan of
Reorganization in form and substance
satisfactory to the Managing Agents.
FINANCIAL COVENANTS: Customary for the type of transaction
proposed, including, without limitation,
the following:
1. Total Leverage Ratio -- At all times
prior to the Existing Arch Senior Note
Termination Date, during the periods set
forth below the Total Leverage Ratio
shall not exceed the following:
(a) prior to the Merger Effective Date:
<TABLE>
<CAPTION>
PERIOD TOTAL LEVERAGE RATIO
------ --------------------
<S> <C>
Closing Date through 6/29/00.... 4.50:1.00
6/30/00 through 6/29/01......... 4.25:1.00
6/30/01 through 6/29/02......... 4.00:1.00
6/30/02 and thereafter.......... 3.50:1.00
</TABLE>
(b) on and after the Merger Effective
Date:
<TABLE>
<CAPTION>
PERIOD TOTAL LEVERAGE RATIO
------ --------------------
<S> <C>
Merger Effective Date through
6/29/01....................... 4.00:100
6/30/01 through 6/29/02......... 3.50:1.00
6/30/02 and thereafter.......... 3.00:1.00
</TABLE>
At all times on and after the Existing
Arch Senior Note Termination Date, the
Total Leverage Ratio shall not exceed
4.00:1.00.
2. API Leverage Ratio -- At all times the
API Leverage Ratio shall be less than or
equal to:
(a) prior to the Merger Effective Date,
2.50:1.00; and
(b) on and after the Merger Effective
Date during the periods set forth below
the following:
<TABLE>
<CAPTION>
PERIOD TOTAL LEVERAGE RATIO
------ --------------------
<S> <C>
Merger Effective Date through
6/29/01....................... 3.00:100
6/30/01 through 6/29/02......... 2.50:1.00
6/30/02 and thereafter.......... 2.00:1.00
</TABLE>
D-24
<PAGE> 465
3. Interest Coverage Ratio -- As of the
last day of each fiscal quarter during
the periods set forth below, the
Interest Coverage Ratio shall exceed the
following:
(a) prior to the Merger Effective Date:
<TABLE>
<CAPTION>
PERIOD INTEREST COVERAGE RATIO
------ -----------------------
<S> <C>
Closing Date through 9/30/00.... 2.00:1.00
12/31/00 and thereafter......... 2.25:1.00
</TABLE>
(b) on and after the Merger Effective Date:
<TABLE>
<CAPTION>
PERIOD TOTAL LEVERAGE RATIO
------ --------------------
<S> <C>
Merger Effective Date through
12/31/00....................... 2.00:1.00
3/31/01 through 9/30/01.......... 2.25:1.00
12/31/01 and thereafter.......... 2.50:1.00
</TABLE>
4. Pro Forma Debt Service Coverage
Ratio -- As of the last day of each
fiscal quarter, the Pro Forma Debt
Service Coverage Ratio shall exceed
1.25:1.00.
5. Fixed Charge Coverage
Ratio -- Commencing June 30, 2001, as of
the last day of each fiscal quarter, the
Fixed Charge Coverage Ratio shall exceed
1.00:1.00.
6. Minimum Net Revenues -- As of the last
day of each full fiscal quarter during
the period from Merger Effective Date
until the last day of the fiscal quarter
ending on the second anniversary thereof
(or if such anniversary is not the last
day of a fiscal quarter, the last day of
the fiscal quarter in which such
anniversary occurs), the net revenues of
the Borrower and its Subsidiaries on a
consolidated basis for such fiscal
quarter shall be greater than
$350,000,000.
7. Maximum Capital Expenditures -- Capital
Expenditures made or obligated to be
made in respect of each fiscal quarter
set forth below shall not exceed the
amount set forth below with respect to
such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING AMOUNT
--------------------- -----------
<S> <C>
9/30/00............................... $75,000,000
12/31/00.............................. $75,000,000
3/31/01............................... $70,000,000
</TABLE>
Capital Expenditures shall be calculated
on a non-cumulative basis so that amounts
not used in a fiscal quarter may not be
carried over and used in a subsequent
fiscal quarter.
OTHER COVENANTS: Customary affirmative and negative
covenants for the type of transaction
proposed, in each case (except where
otherwise provided) to be applied to Arch
and its Subsidiaries, including, without
limitation, the periodic delivery of
financial statements and other information;
the payment and performance of taxes and
other material obligations; the maintenance
of existence, qualification,
D-25
<PAGE> 466
good standing, properties, licenses and
insurance; compliance with environmental
and other laws, regulations and material
agreements; and the following:
1. Limitations on Liens -- Arch and its
Subsidiaries will not incur any liens,
except (i) existing liens securing
specified Indebtedness as set forth on a
schedule to the Credit Agreement, (ii)
liens for capital leases, taxes,
assessments or governmental charges,
mechanics, carriers, warehousemen or
materialmen arising in the ordinary
course of business not yet not
delinquent or, if delinquent, being
contested in good faith and by
appropriate proceedings diligently
conducted and for which such reserve or
other appropriate provision as shall be
required by the Borrower's accountants
in accordance with GAAP shall have been
made, (iii) liens created or existing
under the Credit Agreement and the
collateral documents executed in
connection therewith, (iv) equal and
ratable liens in favor of the Collateral
Agents in the Collateral (other than the
Existing API Collateral and the Existing
PageNet Collateral) as described in
paragraph 3 of "Security" above, (v)
liens on property existing on the Merger
Effective Date under the Canadian credit
facilities of PageNet's Canadian
Subsidiaries provided that such liens do
not extend to any other property of the
Borrower and its Subsidiaries, and (vi)
other liens securing Indebtedness
(including purchase money obligations)
of the Borrower and the Subsidiary
Guarantors not exceeding 2.5% of Maximum
Permitted Indebtedness.
2. Limitation on Indebtedness -- Arch and
its Subsidiaries will not incur any
Indebtedness, except:
(a) Indebtedness arising under the
Credit Facilities,
(b) Indebtedness of Arch arising under
the Arch Senior Notes,
(c) Indebtedness under intercompany
notes,
(d) existing Indebtedness as set forth
on a schedule to the Credit
Agreement,
(e) prior to the Existing Arch Senior
Note Termination Date, unsecured
Indebtedness (A) between the
Borrower and Arch, provided that
written notice thereof is given
120 days prior thereto and (B)
among the Borrower and its
Subsidiaries (other than Benbow
Investments until such time as
Benbow Investments ceases to be an
Unrestricted Subsidiary under and
as defined in the Arch Indentures,
has become a Subsidiary Guarantor
and has granted a security
interest to the Collateral Agents
in its assets),
D-26
<PAGE> 467
(f) on and after the Existing Arch
Senior Note Termination Date,
unsecured and subordinated
Indebtedness (i) between the
Borrower and Arch, (ii) between
the Borrower and any Subsidiary
Guarantor, and (iii) between any
Subsidiary Guarantor and any other
any Subsidiary Guarantor which
shall be subordinated to the
Borrower's or such Subsidiary
Guarantor's obligations under the
Credit Facilities on terms and
conditions acceptable to the
Administrative Agent and the
Required Lenders ("Intercompany
Subordinated Debt"),
(g) Indebtedness of the Borrower in
respect of a subordinated
promissory note (the "ACE
Subordinated Note"), made by ACE
(the Borrower's predecessor) to
The Westlink Company II
(subsequently merged into Benbow
Investments, Inc.), in a principal
amount not in excess of
$50,000,000,
(h) (i) prior to the Existing Arch
Senior Note Termination Date,
Contingent Obligations of Arch,
the Borrower or any Subsidiary of
the Borrower (other than Benbow
Investments until such time as
Benbow Investments ceases to be an
Unrestricted Subsidiary under and
as defined in the Arch Indentures,
has become a Subsidiary Guarantor
and has granted a security
interest to the Collateral Agents
in its assets) incurred to, or for
the benefit of, Arch, the Borrower
or any of its Subsidiaries (other
than Benbow Investments until such
time as Benbow Investments ceases
to be an Unrestricted Subsidiary
under and as defined in the Arch
Indentures, has become a
Subsidiary Guarantor and has
granted a security interest to the
Collateral Agents in its assets)
and (ii) on and after the Arch
Senior Note Termination Date,
guarantees by the Borrower of
Indebtedness of any Subsidiary
Guarantor, by any Subsidiary
Guarantor of Indebtedness of the
Borrower and by any Subsidiary
Guarantor of Indebtedness of any
other Subsidiary Guarantor,
provided that the Indebtedness
would be permitted under Covenant
2 above if it was directly
incurred,
(i) on and after the Merger Effective
Date, Indebtedness (including,
without duplication, guaranties)
of PageNet's Canadian Subsidiaries
in an aggregate principal amount
not in excess of (A) in the case
of the Paging Network of Canada,
Inc. credit facility, Canadian
$64,350,000, (B) in the case of
the Madison Telecommunications
Holdings, Inc.
D-27
<PAGE> 468
credit facility, Canadian
$28,500,000, and (C) without
duplication, the guaranties thereof
by PageNet and its Subsidiaries which
are in effect on the Merger Effective
Date, and
(j) other Indebtedness of the Borrower
and the Subsidiary Guarantors
(including purchase money and
capitalized lease obligations and
Indebtedness in respect of
non-competition agreements) not
exceeding 2.5% of Maximum
Permitted Indebtedness.
3. Limitation on Investments -- The
Borrower and its Subsidiaries shall not
make any investments, loans or other
advances other than:
(a) investments in cash equivalents
and investments existing at
closing (as set forth on a
schedule to the Credit Agreement),
(b) prior to the Existing Arch Senior
Note Termination Date, loans or
advances by the Borrower or any of
its Subsidiaries to Arch, the
Borrower or any of its
Subsidiaries (other than Benbow
Investments until such time as
Benbow Investments ceases to be an
Unrestricted Subsidiary under and
as defined in the Arch Indentures,
has become a Subsidiary Guarantor
and has granted a security
interest to the Collateral Agents
in its assets),
(c) investments by the Borrower in
Benbow Investments consisting
solely of the ACE Subordinated
Note,
(d) Investments by the Borrower or any
Subsidiary Guarantor in
Intercompany Subordinated Debt,
provided, however, that (A) any
such loan is evidenced by a
subordinated promissory note in
form and substance satisfactory to
the Administrative Agent which is
delivered to the Appropriate Party
under the applicable Collateral
Document, and (B) no default or
event of default would exist
before or after giving effect
thereto;
(e) investments ("Additional Benbow
Investments") by Benbow
Investments in Benbow, provided
that (i) immediately before and
after giving effect to any such
Additional Benbow Investment, no
default or event of default shall
exist, (ii) prior to the Existing
Arch Senior Note Termination Date,
the amount of such Additional
Benbow Investments (exclusive of
Parent common Stock contributed to
Benbow Investments and advanced by
Benbow Investments to Benbow to
enable Benbow to satisfy its
obligations under the Page Call
D-28
<PAGE> 469
Purchase Agreement or to satisfy the
Parent's guaranty thereof) shall not
exceed $10,000,000 in the aggregate
in any one fiscal year of the
Borrower and $25,000,000 in the
aggregate for all such Additional
Benbow Investments and provided
further that the amount of such
Additional Benbow Investments shall
in no event exceed the amount
required to be paid by Benbow
Investments to June Walsh pursuant
to the Purchase Agreement, dated as
of June 24, 1999, among the Parent,
Benbow, Benbow Investments and June
Walsh (the "Benbow Purchase
Agreement") plus the amount required
to be advanced by Benbow Investments
to Benbow to enable Benbow to make
payments to Lisa-Gaye Shearing under
the Page Call Purchase Documents,
and (ii) on and after the Existing
Arch Senior Note Termination Date,
Additional Benbow Investments may be
made so long as before and after
giving effect thereto, the API
Leverage Ratio is less than or equal
to 2:00:1.00 provided that the
amount of such Additional Benbow
Investments shall in no event exceed
the amount required to be paid by
Benbow Investments to June Walsh
pursuant to the Benbow Purchase
Agreement plus the amount required
to be advanced by Benbow Investments
to Benbow to enable Benbow to make
payments to Lisa-Gaye Shearing under
the Page Call Purchase Documents,
(f) payments by the Borrower in
respect of the ACE Subordinated
Note, provided that (i) no default
or event of default would exist
and be continuing immediately
before and after giving effect
thereto, (ii) the amount of any
such payment shall not exceed the
amount of Additional Benbow
Investments permitted to be made
to Benbow pursuant clause (e)
above as of the date such payment
is made, and (iii) the proceeds of
any such payment shall be used
promptly and solely as an
Additional Benbow Investment;
(g) other investments, provided that
(i) no default or event of default
shall exist before and after
giving effect thereto, (ii) the
Borrower shall have delivered the
required annual and quarterly
financial statements that
demonstrate that the Total
Leverage Ratio has been less than
3.00:1:00 for the immediately
preceding two consecutive fiscal
quarters, and (iii) the Total
Leverage Ratio would be less than
or equal to 3.00:1.00 after giving
effect thereto,
(h) Investments consisting of
intercompany notes, and
D-29
<PAGE> 470
(i) the Merger Transactions upon
satisfaction of the conditions set
forth under the headings
"Conditions Precedent to Merger"
and, if applicable, "Additional
Conditions Precedent
-- Bankruptcy Proceeding", above.
4. Limitation on the Sale/Exchange of
Assets -- Arch and its Subsidiaries may
not sell, assign, exchange, lease or
otherwise dispose of any assets, except
(i) sales, assignments, exchanges,
leases or other dispositions of property
in the ordinary course of business, (ii)
prior to the Existing Arch Senior Note
Termination Date, sales or other
dispositions of property between Arch,
the Borrower or any Subsidiary of Arch,
provided that written notice thereof is
given 120 days prior thereto, (iii)
other sales, assignments, exchanges,
leases or other dispositions not
exceeding $25,000,000 individually or
$50,000,000 collectively during any 24
month period; provided, however, that
both before and after giving effect
thereto (a) no default or event of
default shall exist, and (b) the
proceeds derived therefrom are used to
prepay loans as described in Mandatory
Prepayments, above;
5. Limitation on Acquisitions -- The Parent
and its Subsidiaries may not make
acquisitions (other than the Merger
pursuant to the terms contained herein)
except that the Borrower and its
Subsidiaries may make acquisitions,
provided (i) both before and after
giving effect to any acquisition no
default or event of default exists, (ii)
acquisitions are limited to the wireless
messaging industry, (iii) such
acquisitions do not exceed $25,000,000
individually or $50,000,000 collectively
during any 24 month period, (iv) the
Total Leverage Ratio is less than or
equal to 4.75:1.00 both before and after
such acquisition and (v) the API
Leverage Ratio is less than or equal to
2.50:1.00 both before and after such
acquisition;
6. Restricted Payments -- Prohibition on
distributions, including dividends and
other restricted payments ("Restricted
Payments"), except:
(a) Prior to the Existing Arch Senior
Note Termination Date -- Prior to
the Existing Arch Senior Note
Termination Date, whether or not
any of the Parent Discount Notes
are outstanding or the Parent
Discount Notes Indenture is in
effect, the following Restricted
Payments shall be permitted:
(i) any Subsidiary of Arch may,
directly or indirectly, make
Restricted Payments to Arch, the
Borrower or any of its
Subsidiaries (other than Benbow
Investments until such time as
Benbow Investments ceases to be
an Unrestricted Sub-
D-30
<PAGE> 471
sidiary under and as defined in the
Arch Indentures, has become a
Subsidiary Guarantor and has
granted a security interest to the
Collateral Agents in its assets),
provided that with respect to any
Restricted Payment to Arch written
notice thereof is given 120 days
prior thereto (other than with
respect to a Restricted Payment to
Arch on a day on which Arch is
obligated to make a payment in
respect of Required Obligations so
long as the amount thereof does not
exceed the amount of the Required
Obligation payable on such date);
(ii) Arch and its Subsidiaries may
make Restricted Payments to the
Parent for purposes of enabling
the Parent, as a consolidated
taxpayer to pay taxes, pursuant
to the terms set forth in the
Tax Sharing Agreement;
(iii) the Borrower and its
Subsidiaries may pay
management fees to Arch in any
fiscal quarter (in an
aggregate amount not exceeding
1.5% of the net revenue of
Arch and its Subsidiaries for
the immediately preceding four
fiscal quarters ending with
the latest fiscal quarter for
which Arch has filed a
quarterly report with the SEC
on form 10-Q or an annual
report on form 10-K) in
accordance with the terms set
forth in the Management
Agreement for services
rendered to the Borrower or
any of its Subsidiaries,
provided that (i) no default
or event of default has
occurred or is continuing
(provided that during the
continuance of a default or an
event of default, the
management fee may be accrued,
but not paid) and (ii) any
such management fee accrued or
paid shall be treated as an
operating expense and deducted
from the calculation of
Operating Cash Flow of the
Borrower; and
(iv) provided that no default or
event of default shall exist
both before and after giving
effect thereto, after the
Borrower has delivered the
required annual and quarterly
financial statements that
demonstrate that the Total
Leverage Ratio has been less
than 3.00:1:00 for the
immediately preceding two
consecutive fiscal quarters,
and provided that the Total
Leverage Ratio would be less
than or equal to 3.00:1.00
after giving effect thereto,
(A) Arch may make any
Restricted Payments to the
Parent, and (B) the Parent may
make any Restricted Payments to
its shareholders.
D-31
<PAGE> 472
(b) On and After the Existing Arch
Senior Note Termination Date -- On
and after the Existing Arch Senior
Note Termination Date, whether or
not any of the Parent Discount
Notes are outstanding or the
Parent Discount Notes Indenture is
in effect, the following
Restricted Payments shall be
permitted:
(i) any Subsidiary of the Borrower
may make a Restricted Payment to
its parent;
(ii) provided that no default or
event of default shall exist
both before and after giving
effect thereto, a Subsidiary of
Arch may make a Restricted
Payment (other than any payment
under the Tax Sharing Agreement
or the Management Agreement) to
Arch (A) on a day on which Arch
is obligated to make a payment
in respect of Required
Obligations so long as the
amount thereof does not exceed
the amount of the Required
Obligation payable on such
date, and (B) for any other
purpose so long as after giving
effect thereto, the API
Leverage Ratio does not exceed
2.00:1.00;
(iii) Arch and its Subsidiaries may
make Restricted Payments to
the Parent for purposes of
enabling the Parent, as a
consolidated taxpayer to pay
taxes, pursuant to the terms
set forth in the Tax Sharing
Agreement;
(iv) the Borrower and its
Subsidiaries may pay Management
Fees to Arch in any fiscal
quarter (in an aggregate amount
not exceeding 1.5% of the net
revenue of arch and its
Subsidiaries for the
immediately preceding four
fiscal quarters ending with the
latest fiscal quarter for which
Arch has filed a quarterly
report with the SEC on form
10-Q or an annual report on
form 10-K) in accordance with
the terms set forth in the
Management Agreement for
services rendered to the
Borrower or any of its
Subsidiaries, provided that (i)
no default or event of default
has occurred or is continuing
(provided that during the
continuance of a default or an
event of default, the
management fee may be accrued,
but not paid) and (ii) any such
management fee accrued or paid
shall be treated as an
operating expense and deducted
from the calculation of
Operating Cash Flow of the
Borrower; and
(v) provided that no default or
event of default shall exist
both before and after giving
effect thereto, after the
Borrower has delivered the
D-32
<PAGE> 473
required annual and quarterly
financial statements that
demonstrate that the Total Leverage
Ratio has been less than 3.00:1:00
for the immediately preceding two
consecutive fiscal quarters, and
provided that the Total Leverage
Ratio would be less than 3.00:1.00
after giving effect thereto, (A)
Arch may make any Restricted
Payments to the Parent, and (B) the
Parent may make any Restricted
Payments to its shareholders.
(c) Additional Restricted Payments to
the Parent -- So long as any of
the Parent Discount Notes are
outstanding or the Parent Discount
Notes Indenture is in effect, and
provided that immediately before
or after giving effect to such
declaration and payment no default
or event of default shall exist,
in addition to any payments
permitted under clauses (a) and
(b) above, Arch may make
Restricted Payments to the Parent
(A) on any day in an amount not in
excess of the amount of interest
due and payable on the Parent
Discount Notes on such day, (B) to
enable the Parent to repurchase
shares of its Stock in an
aggregate amount not exceeding
$1,000,000 minus amounts expended
for such purpose on or after March
12, 1996 and (C) to enable the
Parent to make payments (not
exceeding $189,282 in any fiscal
year) when due under the
Consulting Agreement with Lisa
Gaye Shearing.
7. Prohibition on Mergers or other
Fundamental Changes -- except that:
(a) prior to the Existing Arch Senior
Note Termination Date, Arch, the
Borrower or any of its
Subsidiaries (other than Benbow
Investments until such time as
Benbow Investments ceases to be an
Unrestricted Subsidiary under and
as defined in the Arch Indentures,
has become a Subsidiary Guarantor
and has granted a security
interest to the Collateral Agents
in its assets) may merge or
consolidate with, or transfer all
or substantially all of its assets
to, Arch, the Borrower or any of
its Subsidiaries (other than
Benbow Investments until such time
as Benbow Investments ceases to be
an Unrestricted Subsidiary under
and as defined in the Arch
Indentures, has become a
Subsidiary Guarantor and has
granted a security interest to the
Collateral Agents in its assets),
provided that (i) written notice
thereof is given 120 days prior
thereto and (ii) in any merger
involving the Borrower, the
Borrower shall be the survivor,
D-33
<PAGE> 474
(b) on and after the Existing Arch
Senior Note Termination Date, the
Borrower or any Subsidiary
Guarantor may merge or consolidate
with, or transfer all or
substantially all of its assets
to, the Borrower or any such
Subsidiary Guarantor, provided
that (A) the Administrative Agent
shall have received ten days'
prior written notice thereof, (B)
immediately before and after
giving effect thereto no default
or event of default shall exist
and (C) in any merger involving
the Borrower, the Borrower shall
be the survivor,
(c) at all times, mergers involving
Subsidiaries of the Borrower as
part of an Acquisition permitted
by Covenant 5, and
(d) the Merger, provided that the
conditions thereto set forth in
this Term Sheet have been
satisfied.
ADDITIONAL COVENANTS APPLICABLE
TO THE PARENT: Customary affirmative and negative
covenants for the type of transaction
proposed, including, without limitation:
(i) a limitation of the Parent's business
and activities to the ownership of Arch and
certain activities directly related
thereto, (ii) a prohibition on incurring,
assuming or creating any Indebtedness other
than in respect of its guaranty of the
Credit Facility, the Parent Discount Notes
and its existing convertible subordinated
notes, (iii) a limitation on its
investments to investment grade securities
and certain other investments which shall
be satisfactory to the Administrative
Agent, (iv) a prohibition against the
issuance of any Stock other than common
Stock and other perpetual Stock, provided
that no such Stock shall provide for
mandatory dividends (except for dividends
payable solely in such Stock), mandatory
redemptions or other similar payments, and
(v) an affirmative covenant providing that
immediately after the consummation of the
Merger, the Parent shall contribute all of
the Stock of PageNet to the Borrower.
EVENTS OF DEFAULT: Customary for the type of transaction
proposed, including, without limitation,
nonpayment of principal, interest or other
fees when due; breach of representations,
warranties or covenants; breach of other
material agreements; material undischarged
judgments; bankruptcy or insolvency; change
of control; and, cross default to other
Indebtedness (including mandatory
redemption of Existing Notes or Replacement
Notes) of the Borrower, the Parent and Arch
in excess of $10,000,000.
REQUIRED LENDERS: Lenders having more than (a) 50% of
Tranches A, B, B-1 and C, taken as a whole
and (b) 50% of Tranches A, B and C, taken
as a whole.
D-34
<PAGE> 475
MISCELLANEOUS: Customary for the type of transaction
proposed and others to be reasonably
specified by the Managing Agents,
including, without limitation, the
following:
1. Standard provisions for illegality,
inability to determine rate,
indemnification for break funding and
increased costs or reduced return
including, without limitation, those
arising from reserve requirements, taxes
and capital adequacy.
2. Amendments and waivers will be permitted
with the consent of Required Lenders,
provided, however, that amendments and
waivers relating to interest rates,
fees, payment amounts and dates and
releases of any security shall require
the consent of all Lenders;
3. The Lenders will be permitted to sell
assignments and participations in loans,
notes, and commitments with, in the case
of assignments to Persons other than
existing Lenders or their affiliates,
the consent of the Borrower, the
Administrative Agent and the Letter of
Credit Issuing Bank, provided, however,
(i) such consents shall not be
unreasonably withheld and, in the case
of the consent of the Borrower, not be
required during the continuance of an
Event of Default and (ii) the assignor
or the assignee pays a service fee to
the Administrative Agent of $3,500 for
each assignment;
4. Standard provisions for indemnification
of the Managing Agents, the
Administrative Agent, the Letter of
Credit Issuing Bank, BNY, as a
Collateral Agent, the Bank Collateral
Agent, and the Security Agent, each of
the Lenders and each of their respective
affiliates, directors, officers, agents
and employees; and
5. The Borrower will pay all reasonable
legal fees and other reasonable
out-of-pocket expenses of the Managing
Agents in connection with the
transactions contemplated hereby whether
or not consummated.
D-35
<PAGE> 476
APPENDIX A TO ANNEX D
DEFINITIONS
"Adjusted Indenture Maturity Date" means the earlier to occur of (i) if the
Arch 9 1/2% Indenture is in effect, August 1, 2003, and (ii) if the Arch 14%
Indenture is in effect, May 1, 2004.
"Aggregate Tranche B Percentage" means, on any date of determination, the
percentage equal to a fraction (i) the numerator of which is the sum of (1) the
aggregate outstanding principal amount of the Tranche B Loans on such date, plus
(2) (A) prior to the termination (or other nonexistence) of the Aggregate
Tranche A Commitments, the Aggregate Tranche A Commitments on such date, and (B)
on and after the termination (or other nonexistence) of the Aggregate Tranche A
Commitments, the Aggregate Tranche A Exposure on such date, and (ii) the
denominator of which is the sum of (1) the amount determined under clause (i) of
this definition on such date, plus (2) the aggregate outstanding principal
amount of the Tranche B-1 Loans on such date, plus (3) the aggregate outstanding
principal amount of the Tranche C Loans on such date.
"Aggregate Tranche B-1 Percentage" means, on any date of determination on
and after the Merger Effective Date, the percentage equal to a fraction (i) the
numerator of which is the aggregate outstanding principal amount of the Tranche
B-1 Loans on such date and (ii) the denominator of which is the sum of (1) the
amount determined under clause (i) of this definition on such date, plus (2) the
aggregate outstanding principal amount of the Tranche B Loans on such date plus
(3) the aggregate outstanding principal amount of the Tranche C Loans on such
date, plus (4) (A) prior to the termination (or other nonexistence) of the
Aggregate Tranche A Commitments, the Aggregate Tranche A Commitments on such
date, and (B) on and after the termination (or other nonexistence) of the
Aggregate Tranche A Commitments, the Aggregate Tranche A Exposure on such date.
"Aggregate Tranche C Percentage" means, on any date of determination, the
percentage equal to a fraction (i) the numerator of which is the aggregate
unpaid principal balance of the Tranche C Loans on such date, and (ii) the
denominator of which is the sum of (1) the amount determined under clause (i) of
this definition on such date, plus (2), the aggregate outstanding principal
amount of the Tranche B Loans on such date, plus (3), the aggregate outstanding
principal amount of the Tranche B-1 Loans on such date, plus (4) (A) prior to
the termination (or other nonexistence) of the Aggregate Tranche A Commitments,
the Aggregate Tranche A Commitments on such date and (B) on and after the
termination (or other nonexistence) of the Aggregate Tranche A Commitments, the
Aggregate Tranche A Exposure on such date.
"Annualized Operating Cash Flow" means, as to any Person on any date of
determination, an amount equal to (i) Operating Cash Flow of such Person and its
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
the fiscal quarter ending on such date or, if such date is not a fiscal quarter
ending date, the immediately preceding fiscal quarter, multiplied by (ii) four.
"API Debt" means, at any date of determination, the sum of all Indebtedness
of the Borrower and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"API Leverage Ratio" means, at any date of determination, the ratio of API
Debt to Annualized Operating Cash Flow of the Borrower.
"Applicable Arch Indenture Trustees" means, at any time, (i) if the Arch
9 1/2% Indenture is in effect and has not been satisfied, defeased or
discharged, United States Trust Company of New York or its successor as trustee
under the Arch 9 1/2% Indenture, and (ii) if the Arch 14% Indenture is in effect
and has not been satisfied, defeased or discharged, United States Trust Company
of New York or its successor as trustee under the Arch 14% Indenture.
"Arch 14% Indenture" means the Indenture, dated as of December 15, 1994,
between Arch and United States Trust Company of New York or its successor, as
trustee, pursuant to which Arch issued the Arch 14% Senior Notes.
A-1
<PAGE> 477
"Arch 14% Senior Notes" means the 14% Senior Notes due 2004 issued by Arch
pursuant to the Arch 14% Indenture.
"Arch Indentures": collectively, the Existing Arch Indentures, the Arch
12 3/4% Indenture, the Arch 13 3/4% Indenture and any Replacement Indenture (if
existing).
"Arch 9 1/2% Indenture" means the Indenture, dated as of February 7, 1994,
between Arch and United States Trust Company of New York or its successor, as
trustee, pursuant to which Arch issued the Arch 9 1/2% Senior Notes.
"Arch 9 1/2% Senior Notes" means the 9 1/2% Senior Notes due 2004 issued by
Arch pursuant to the Arch 9 1/2% Indenture.
"Arch Senior Notes": collectively, the Existing Arch Senior Notes, the Arch
13 3/4% Senior Notes, the Arch 12 3/4% Senior Notes and any Replacement Notes
(if existing).
"Arch 13 3/4% Indenture" means the Indenture, dated as of April 9, 1999,
between Arch (as successor by merger to Arch Escrow Corp.) and IBJ Whitehall
Bank & Trust Company, or its successor, as trustee, pursuant to which Arch
issued the Arch 13 3/4% Senior Notes.
"Arch 13 3/4% Senior Notes" means the 13 3/4% Senior Notes due 2008 issued
by Arch pursuant to the Arch 13 3/4% Indenture.
"Arch 12 3/4% Indenture" means the Indenture, dated as of June 29, 1998,
between Arch and U.S. Bank Trust National Association or its successor, as
trustee, pursuant to which Arch issued the Arch 12 3/4% Senior Notes.
"Arch 12 3/4% Senior Notes" means the 12 3/4% Senior Notes due 2007 issued
by Arch pursuant to the Arch 12 3/4% Indenture.
"Bank Collateral Agent": The Bank of New York, in its capacity as
collateral agent under the Borrower Pledge Agreement, the Restricted Subsidiary
Security Agreement and the Amended PageNet Collateral Documents.
"Benbow Guaranty Date": the earlier to occur of (i) the Existing Arch
Senior Note Termination Date and (ii) the date on which the last to occur of the
following events has occurred: (A) Benbow Investments ceases to be an
Unrestricted Subsidiary under and as defined in each of the Existing Arch
Indentures, (B) the consummation of the pending purchase of June Walsh's
interest in Benbow and (C) the redemption of the Benbow Stock received by
Adelphia Communications Corporation pursuant to the Page Call Purchase Agreement
has been consummated.
"Capital Expenditures": any expenditures made or costs incurred that are
required or permitted to be capitalized for financial reporting purposes in
accordance with GAAP other than deferred financing fees.
"Cash Interest Expense": for any period, the sum of (i) cash interest
expense on Total Debt (adjusted to give effect to all Interest Rate Protection
Agreements (including Interest Hedge Agreements (as defined in the Existing
PageNet Credit Agreement) which are assumed by the Borrower) and fees and
expenses paid in connection with the same, all as determined in accordance with
GAAP) during such period as determined in accordance with GAAP, (ii) Commitment
Fees, Letter of Credit Fees and fees in respect of PageNet Letters of Credit
during such period and (iii) without duplication, Restricted Payments made to
the Parent during such period to the extent made to enable the Parent to satisfy
its interest obligations under the Parent Discount Notes Indenture.
"Collateral Agents": collectively, (i) BNY in its capacity as collateral
agent for the Lenders under the Security and Intercreditor Agreement and (ii)
the Applicable Arch Indenture Trustees in their capacities as collateral agents
for the Existing Arch Senior Noteholders under the Security and Intercreditor
Agreement.
"Consolidated Total Assets" means, at any date of determination, the total
assets of the Borrower and its Subsidiaries determined on a consolidated basis
in accordance with GAAP as at such date.
A-2
<PAGE> 478
"Contingent Obligation": as to any Person, any obligation of such Person
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including any
obligation of such Person, whether or not contingent, (a) to purchase any such
primary obligation or any Property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain net worth, solvency or other
financial statement condition of the primary obligor, (c) to purchase Property,
securities or services primarily for the purpose of assuring the beneficiary of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (d) otherwise to assure, protect from
loss, or hold harmless the beneficiary of such primary obligation against loss
in respect thereof; provided, however, that the term Contingent Obligation shall
not include the indorsement of instruments for deposit or collection in the
ordinary course of business. The term Contingent Obligation shall also include
the liability of a general partner in respect of the recourse liabilities of the
partnership in which it is a general partner. The amount of any Contingent
Obligation of a Person shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such Person
in good faith.
"DIP Facility" means, in the event of the commencement of the Bankruptcy
Proceeding, any debtor in possession financing facility extended by one or more
lenders to PageNet and its Subsidiaries which are debtors in such proceeding.
"Excess Cash Flow" means, with respect to any fiscal year, Operating Cash
Flow of the Borrower for such fiscal year less the sum of, without duplication
(i) the amount, if positive, equal to (a) the amount of the Tranche A Loans
outstanding at the beginning of such fiscal year minus (b) the Aggregate Tranche
A Commitments at the end of such fiscal year (without giving effect to mandatory
reductions thereof (other than scheduled reductions) during such period, (ii)
payments of the principal of the Tranche B Loans, the Tranche B-1 Loans and the
Tranche C Loans during such fiscal year (other than mandatory prepayments
thereof, (iii) scheduled payments of principal of other Indebtedness of the
Borrower and its Subsidiaries on a consolidated basis made during such fiscal
year (including Indebtedness in respect of Capital Leases), (iv) Capital
Expenditures made by the Borrower and its Subsidiaries on a consolidated basis
during such fiscal year, (v) without duplication, taxes and payments under the
Tax Sharing Agreement paid by the Borrower and its Subsidiaries in cash during
such period, and (vi) Cash Interest Expense for such fiscal year.
"Existing Arch Indentures" means, collectively, the Arch 9 1/2% Indenture
and the Arch 14% Indenture.
"Existing Arch Senior Noteholders" means, collectively, the holders of the
Existing Arch Senior Notes.
"Existing Arch Senior Notes" means, collectively, (i) the 9 1/2% Senior
Notes and (ii) the 14% Senior Notes.
"Existing Arch Senior Note Termination Date" means the first date on which
none of the Existing Arch Senior Notes remain outstanding and neither of the
Existing Arch Indentures is in effect. For purposes of this definition, the
Existing Arch Senior Notes issued under an Existing Arch Indenture shall no
longer be deemed to be outstanding and such Existing Arch Indenture shall no
longer be deemed to be in effect if Arch has elected in accordance with the
provisions of such Existing Arch Indenture to have the defeasance and discharge
or covenant defeasance provisions thereof apply and has complied with the
requirements thereof.
"Fixed Charge Coverage Ratio" means, as of the last day of any fiscal
quarter, the ratio of (i) Annualized Operating Cash Flow to (ii) Fixed Charges
for the Four Quarter Trailing Period.
A-3
<PAGE> 479
"Fixed Charges" means for any period, the sum of (i) scheduled payments of
principal on Total Debt made or required to be made during such period, (ii) the
amount, if positive, equal to (a) the amount of the Tranche A Loans outstanding
at the beginning of such period minus (b) the Aggregate Tranche A Commitments at
the end of such period (without giving effect to reductions thereof during such
period required as a result of asset sales, the receipt of insurance proceeds or
condemnation awards or the receipt of a breakup or similar fee), (iii) Capital
Expenditures made by Arch and its Subsidiaries on a consolidated basis during
such period, (iv) payments under Capital Leases made or required to be made by
Arch and its Subsidiaries on a consolidated basis during such period, (v)
without duplication, taxes and payments under the Tax Sharing Agreement, in each
case paid or required to be paid in cash made by Arch and its Subsidiaries on a
consolidated basis during such period, and (vi) Cash Interest Expense.
"Foreign Subsidiary" means any Subsidiary that is a "controlled foreign
corporation" within the meaning of Section 957 of the Internal Revenue Code.
"Four Quarter Trailing Period" means, at any date of determination, the
period of the four fiscal quarters ending on such date, or, if such date is not
the last day of a fiscal quarter, the period of the most immediately completed
four fiscal quarters.
"Indebtedness" means, as to any Person, at a particular time, all items
which constitute, without duplication, (i) Indebtedness for borrowed money or
the deferred purchase price of Property (other than trade payables incurred in
the ordinary course of business), (ii) Indebtedness evidenced by notes, bonds,
debentures or similar instruments, (iii) obligations with respect to any
conditional sale or title retention agreement, (iv) Indebtedness arising under
acceptance facilities and the amount available to be drawn under all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder to the extent such Person shall not have reimbursed the
issuer in respect of the issuer's payment of such drafts, (v) all liabilities
(excluding liabilities under Secured Hedging Agreements) secured by any Lien on
any Property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof (other than carriers',
warehousemen's, mechanics', repairmen's or other like non-consensual Liens
arising in the ordinary course of business), (vi) obligations under Capital
Leases, (vii) all Contingent Obligations and (viii) obligations under the
Non-Competition Agreements.
"Loan Parties" -- means, collectively, the Borrower and the Guarantors.
"Interest Coverage Ratio": as of the last day of (i) any fiscal quarter
occurring on or before the Merger Effective Date and the fiscal quarter in which
the Merger Effective Date occurs, the ratio of Operating Cash Flow of the
Borrower to Cash Interest Expense, in each case for the Four Quarter Trailing
Period, (ii) the first full fiscal quarter ending after the Merger Effective
Date, the ratio of Operating Cash Flow of the Borrower to Cash Interest Expense
in each case for such fiscal quarter, (iii) the second full fiscal quarter
ending after the Merger Effective Date, the ratio of Operating Cash Flow of the
Borrower to Cash Interest Expense, in each case for the first and second full
fiscal quarters ending after the Merger Effective Date, (iv) the third full
fiscal quarter ending after the Merger Effective Date, the ratio of Operating
Cash Flow of the Borrower to Cash Interest Expense in each case for the first,
second and third full fiscal quarters ending after the Merger Effective Date,
and (v) the fourth full fiscal quarter ending after the Merger Effective Date
and each fiscal quarter thereafter, the ratio of Operating Cash Flow of the
Borrower to Cash Interest Expense for the Four Quarter Trailing Period.
"Management Agreement" means the Amended and Restated Management Services
Agreement, dated as of June 29, 1998, by and among Arch and its Subsidiaries.
"Material Foreign Subsidiary" means, as to any Person, a Foreign Subsidiary
of such Person which, as of the last day of the most recently completed fiscal
quarter, satisfied any one or more of the following three tests: (i) the
Borrower and its other Subsidiaries' investments in and advances made on or
after the Closing Date (or, in the case of a PageNet Canadian Subsidiary, the
Merger Effective Date) to (x) such Foreign Subsidiary and its Subsidiaries
exceed $15,000,000 in the aggregate or (y) all Foreign Subsidiaries which are
not Subsidiary Guarantors exceeds $25,000,000 in the aggregate, (ii) the
Borrower and its other
A-4
<PAGE> 480
Subsidiaries' proportionate share of Consolidated Total Assets (after
intercompany eliminations) consisting of the Property of such Foreign Subsidiary
exceeds 5% of Consolidated Total Assets or (iii) the Borrower and the other
Subsidiaries' equity in the income (not to include losses) from continuing
operations before income taxes, extraordinary items and the cumulative effect of
a change in accounting principles of such Foreign Subsidiary exceeds 5% of the
income (not to include losses) from continuing operations before income taxes,
extraordinary items and the cumulative effect of a change in accounting
principles of the Borrower and its Subsidiaries determined on a consolidated
basis in accordance with GAAP. Notwithstanding the foregoing, a PageNet Canadian
Subsidiary that is a party to one or more of the PageNet Canadian Loan Documents
shall not be a Material Foreign Subsidiary by reason of the satisfaction of the
tests set forth in clause (ii) or (iii) of the preceding sentence until the
PageNet Canadian Loan Documents to which it is a party have been terminated.
"Maximum Permitted Indebtedness" means, on any date of determination, the
maximum Total Leverage Ratio permitted on such date multiplied by Annualized
Operating Cash Flow.
"Minority Lenders" means, on any date of determination, Lenders under this
Agreement having Tranche A Commitments (or, if no Tranche A Commitments are in
effect, Tranche A Exposure), Tranche B Loans and Tranche C Loans aggregating not
less than 40% of the sum of (i) the Aggregate Tranche A Commitments (or, if no
Tranche A Commitments are in effect, Aggregate Tranche A Exposure), (ii) the
aggregate outstanding principal balance of the Tranche B Loans, and (iii) the
aggregate outstanding principal balance of the Tranche C Loans.
"Operating Cash Flow" means as to any Person for any period, total revenue
of such Person and its Subsidiaries on a consolidated basis for such period,
determined in accordance with GAAP, without giving effect to extraordinary gains
and losses from sales, exchanges and other dispositions of Property not in the
ordinary course of business, and non-recurring items, less the sum of, without
duplication, the following for such Person and its Subsidiaries on a
consolidated basis for such period, determined in accordance with GAAP: (i)
operating expenses (exclusive of depreciation, amortization and other non-cash
items included therein), and (ii) corporate office, general and administrative
expenses (exclusive of depreciation, amortization and other non-cash items
included therein). With respect to the Borrower and its Subsidiaries, any
Management Fees paid or accrued will be treated as an administrative expense.
Solely for purposes of calculating the API Leverage Ratio and the Total Leverage
Ratio, Operating Cash Flow of the Borrower shall be adjusted on a consistent
basis satisfactory to the Administrative Agent to give pro-forma effect to any
acquisition, sale, exchange or disposition of Property.
"Parent Discount Noteholders" means, collectively, the holders of Parent
Discount Notes.
"Parent Discount Notes" means the 10 7/8% Senior Parent Discount Notes, due
2008, issued by the Parent pursuant to the Parent Discount Notes Indenture.
"Parent Discount Notes Indenture" means the Indenture, dated as of March
12, 1996, between the Parent and IBJ Schroder Bank & Trust Company or its
successor, as trustee, pursuant to which the Parent issued the Parent Discount
Notes.
"Parent Subordinated Debentures" means the 6 3/4% Convertible Subordinated
Debentures, due 2003, issued by the Parent pursuant to the Parent Subordinated
Indenture.
"Parent Subordinated Indenture" means the Indenture, dated as of December
1, 1993, between the Parent and BNY or its successor, as trustee, pursuant to
which the Parent issued the Parent Subordinated Debentures.
"Person" means an individual, a partnership, a corporation, a business
trust, a joint stock company, a trust, an unincorporated association, a joint
venture, a Governmental Body or any other entity of whatever nature.
"Pricing Leverage Ratio" means (i) prior to the Existing Arch Senior Note
Termination Date, the Total Leverage Ratio, and (ii) at all other times, the API
Leverage Ratio.
A-5
<PAGE> 481
"Pro-forma Debt Service" means, at any date of determination, the sum of
(i) Cash Interest Expense for the period of the four fiscal quarters immediately
succeeding such date of determination, (ii) all current maturities of all
Indebtedness of Arch and its Subsidiaries (determined on a consolidated basis in
accordance with GAAP) for such four fiscal quarter period and (iii) the amount,
if positive, equal to (a) the amount of the Tranche A Loans outstanding at the
beginning of such period minus (b) the Aggregate Tranche A Commitments at the
end of such period (after giving effect to any mandatory reductions (other than
scheduled reductions during such period). Where any item of interest varies or
depends upon a variable rate of interest (or other rate of interest which is not
fixed for such entire four fiscal quarter period), such rate, for purposes of
calculating Pro-forma Debt Service, shall be assumed to equal the Alternate Base
Rate plus the Applicable Margin in effect on the date of such calculation, or,
if such rate is a Eurodollar Rate, the applicable Eurodollar Rate plus the
Applicable Margin in effect on the date of such calculation. Also, for purposes
of calculating Pro-forma Debt Service, the principal amount of Total Debt
outstanding on the date of any calculation of Pro-forma Debt Service shall be
assumed to be outstanding during the entire four fiscal quarter period
immediately succeeding such date, except to the extent that such Indebtedness is
subject to mandatory payment of principal during such period.
"Pro-forma Debt Service Coverage Ratio" means, as of the last day of any
fiscal quarter, the ratio of Annualized Operating Cash Flow to Pro-forma Debt
Service as of such date.
"Replacement Notes" means any senior note issue of Arch in an amount and on
terms and conditions satisfactory to the Required Lenders.
"Required Lenders": on any date of determination, Lenders satisfying both
clauses (a) and (b) below:
(a) Lenders having Tranche A Commitments (or, if no Tranche A
Commitments are in effect, Tranche A Exposure), Tranche B Loans and Tranche
C Loans aggregating more than 50% of the sum of (i) the Aggregate Tranche A
Commitments (or, if no Tranche A Commitments are in effect, Aggregate
Tranche A Exposure), (ii) the aggregate outstanding principal balance of
the Tranche B Loans, and (iii) the aggregate outstanding principal balance
of the Tranche C Loans, and
(b) Lenders having Tranche A Commitments (or, if no Tranche A
Commitments are in effect, Tranche A Exposure), Tranche B Loans, Tranche
B-1 Loans and Tranche C Loans aggregating more than 50% of the sum of (i)
the Aggregate Tranche A Commitments (or, if no Tranche A Commitments are in
effect, Aggregate Tranche A Exposure), (ii) the aggregate outstanding
principal balance of the Tranche B Loans, (iii) the aggregate outstanding
principal balance of the Tranche B-1 Loans and (iv) the aggregate
outstanding principal balance of the Tranche C Loans.
"Required Obligations" means, on any date, interest due and payable on such
date on the Arch Senior Notes.
"Restricted Payment": as to any Person, (i) the payment or declaration by
such Person of any dividend on any class of Stock (other than dividends payable
solely in common Stock of the such Person or other Stock to the extent the same
is permitted to be issued pursuant to the Credit Agreement), or warrants, rights
or options to acquire common Stock of such Person (or other Stock to the extent
the same is permitted to be issued pursuant to the Credit Agreement) or the
making of any other distribution on account of any class of its Stock, (ii) the
retirement, redemption, purchase or acquisition, directly or indirectly, of (a)
any shares of the Stock of such Person (except shares acquired solely upon the
conversion thereof into other shares of its Stock) and (b) any security
convertible into, or any option, warrant or other right to acquire, shares of
the Stock of such Person, or (iii) the payment of any management fees or any
payment under the Tax Sharing Agreement or the Management Agreement.
"Security Agent": The Bank of New York, in its capacity as security agent
under the Security and Intercreditor Agreement.
"Stock" means, as to any Person, all shares, interests, partnership
interests, limited liability company interests, participations, rights in or
other equivalents (however designated) of such Person's equity
A-6
<PAGE> 482
(however designated) and any rights, warrants or options exchangeable for or
convertible into such shares, interests, participations, rights or other equity.
"Subsidiary" means, as to any Person (the "parent") at any date, any
corporation, limited liability company, partnership, association or other entity
the accounts of which would be consolidated with those of the parent in the
parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
of which securities or other ownership interests representing more than 50% of
the equity or more than 50% of the ordinary voting power is or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held by the parent or one or more Subsidiaries of the
parent.
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of May 5,
1995, between the Parent and certain of its Subsidiaries.
"Total Debt" means, at any date of determination, the sum of all
Indebtedness (other than Intercompany Subordinated Debt) of Arch and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Total Leverage Ratio" means, at any date of determination, the ratio of
Total Debt to Annualized Operating Cash Flow.
"Tranche A Lenders": each Lender having a Tranche A Commitment (or, if no
Tranche A Commitments are in effect, a Tranche A Exposure).
"Tranche B Lenders": each Lender having a Tranche B Loan outstanding and
its successors and assigns.
"Tranche B-1 Lenders": each Lender having a Tranche B-1 Loan outstanding
and its successors and assigns.
"Transactions" collectively, the transactions contemplated by the
Transaction Documents.
"Transaction Documents" collectively, the Loan Documents and the Merger
Documents.
A-7
<PAGE> 483
ANNEX E
UNAUDITED COMBINED COMPANY PROJECTED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
2000 2001
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9.3 $ 6.4
Accounts receivable, net.................................. 115.4 118.0
Inventories............................................... 24.7 26.6
Prepaid expenses and other................................ 28.4 29.0
-------- --------
Total current assets................................... 177.8 180.0
Property and equipment, net................................. 967.7 780.0
Intangible and other assets, net............................ 1,403.8 1,109.4
-------- --------
$2,549.3 $2,069.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 34.2 $ 132.6
Accounts payable.......................................... 117.9 115.1
Accrued expenses.......................................... 112.5 130.1
Accrued interest.......................................... 52.9 51.5
Customer deposits and deferred revenue.................... 73.6 76.6
Accrued restructuring charges............................. 26.6 --
-------- --------
Total current liabilities.............................. 417.7 505.9
Long-term debt, less current maturities..................... 1,682.5 1,521.0
Other long-term liabilities................................. 65.8 55.8
Stockholders' equity........................................ 383.3 (13.3)
-------- --------
$2,549.3 $2,069.4
======== ========
</TABLE>
E-1
<PAGE> 484
UNAUDITED COMBINED COMPANY PROJECTED STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 2001
----------------- -----------------
<S> <C> <C>
Service, rental and maintenance revenues.................... $ 710.8 $1,435.2
Product sales............................................... 74.8 149.1
------- --------
Total revenues............................................ 785.6 1,584.3
Cost of products sold....................................... (51.1) (109.6)
------- --------
734.5 1,474.7
------- --------
Operating expenses:
Service, rental and maintenance........................... 195.5 370.1
Selling................................................... 87.1 186.5
General and administrative................................ 228.8 410.5
Depreciation and amortization............................. 345.2 714.4
------- --------
Total operating expenses............................... 856.6 1,681.5
------- --------
Operating income (loss)..................................... (122.1) (206.8)
Interest expense, net....................................... 96.9 189.8
------- --------
Income (loss) before income tax provision and extraordinary
item...................................................... (219.0) (396.6)
Provision for income taxes.................................. 15.0 --
------- --------
Income (loss) before extraordinary item..................... (234.0) (396.6)
Extraordinary gain from early extinguishment of debt........ 62.6 --
------- --------
Net income (loss)........................................... $(171.4) $ (396.6)
======= ========
</TABLE>
E-2
<PAGE> 485
UNAUDITED COMBINED COMPANY PROJECTED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 2001
----------------- -----------------
<S> <C> <C>
Net cash provided by operating activities................... $ 62.7 $ 293.6
------- -------
Cash flow from investing activities:
Additions to property and equipment, net.................. (106.0) (221.3)
Additions to intangible and other assets.................. (5.0) (11.0)
------- -------
Net cash used from investing activities..................... (111.0) (232.3)
------- -------
Cash flows from financing activities:
Increase in long-term debt................................ 35.0 --
Repayment of long-term debt............................... (8.1) (64.2)
------- -------
Net cash from (used for) financing activities............... 26.9 (64.2)
------- -------
Net increase in cash and cash equivalents................... (21.4) (2.9)
Cash and cash equivalents, beginning of period.............. 30.7 9.3
------- -------
Cash and cash equivalents, end of period.................... $ 9.3 $ 6.4
======= =======
EBITDA...................................................... $ 223.1 $ 507.6
======= =======
</TABLE>
UNAUDITED FINANCIAL PROJECTIONS AND OPERATIONAL COST SYNERGIES
Arch and PageNet have developed the unaudited combined company projections
reflected herein. The projections consist of projected operating and financial
results for the six months ending December 31, 2000 and the year ending December
31, 2001. The projections assume that the merger and related transactions will
take place as of July 1, 2000. The projections have been prepared for filing
with the bankruptcy court if PageNet commences a bankruptcy case.
The projections, which were developed by management of each of Arch and
PageNet, are based on:
- Arch's projected financial results, as developed by the
management of Arch, taking into account anticipated cost
reductions associated with its integration of MobileMedia;
- PageNet's projected financial results, as developed by the
management of PageNet, taking into account anticipated cost
reductions associated with the restructuring of its domestic
operations and divestiture of 80.5% of its interest in Vast;
Certain adjustments to PageNet's projected results were made by the
management of Arch to reflect more conservative assumptions with regard to
expected subscriber additions, subscriber turnover and net revenues. Such
adjustments were intended to reflect the continuing potential impact from the
effects of a bankruptcy case and the integration of Arch's and PageNet's
operations.
ASSUMPTIONS USED IN THE UNAUDITED FINANCIAL PROJECTIONS
A number of important assumptions are reflected in the projections. No
assurance can be given that such assumptions will be realized. See "Risk
Factors" for a discussion of various factors that could materially affect the
combined company's financial condition, results of operations, business,
prospects and securities.
1. The projections assume the merger will take place on July 1, 2000.
E-3
<PAGE> 486
2. The projections assume that general economic conditions will
continue unchanged throughout the projection period and that their
potential impact on capital spending and revenues within each of the
combined company's operating regions will not fluctuate.
3. Management estimates that it will achieve $100 million in operating
cost reductions annually after the consummation of the merger. However, due
to the time involved in implementing these cost savings, the projections
assume that the combined company would recognize only $15 million in
operating cost reductions for the six months ended December 31, 2000, and
$90 million in operating cost reductions for the year ended December 31,
2001. The managements of Arch and PageNet estimated the amounts and timing
of these operating cost reductions during multiple meetings. During these
meetings, they performed a market-by-market analysis to identify redundant
costs.
4. Service revenues for the combined company have been projected to
decrease by 11.7% for 2000 on the basis of Arch management's estimates for
subscriber growth and average revenue per unit. Based on these estimates,
Arch's service revenues for 2000 were projected to decrease by
approximately 6.3% from 1999 estimates, while PageNet's service revenues
were projected to decrease by approximately 16.2% from 1999 estimates. The
combined company's service revenues for 2001 were projected to decreased by
2.5% as compared to 2000.
5. Projected operating costs for 2000 are based on historical cost
margins for both companies individually and the expected decrease in cost
margins as Arch achieves further cost reductions resulting from its
integration of MobileMedia and PageNet. The combined company's projected
operating costs for 2000 are based on the actual 1999 operating results for
the individual companies. The cost margins used for 2000 assume a reduction
in the historical cost margins (approximately .8% of net revenue) for
Arch's base business and assume a reduction in the historical cost margins
(approximately 0.7% of net revenue) for PageNet's base business. Projected
costs are based upon historical experience, expected market conditions and
historical decreases in Arch's costs as Arch increased its operating
leverage. These cost assumptions were then adjusted to reflect the impact
of the assumed synergies.
6. The projections assume that the combined company will utilize
available borrowing capacity from its senior credit facility to fully repay
all administrative claims and transaction expenses and provide for working
capital throughout the period of the projections. Outstanding obligations
to PageNet's secured bank lenders are assumed to become obligations of the
combined company.
7. Interest expense is calculated based upon the capital structure
that would result upon consummation of the merger and related transactions,
as described in "Unaudited Selected Pro Forma Consolidated Financial Data",
during the projection period. This assumes tender and acceptance of 100% of
Arch's discount notes and 100% of PageNet's senior subordinated notes.
Interest also includes the amortization of any original issue discounts.
8. The projections have been prepared in accordance with applicable
principles of purchase accounting. Under purchase accounting principles,
the combined company will record an intangible asset equal to the excess,
if any, of the purchase price paid by Arch in the merger over the net fair
market value allocated to the identifiable assets and liabilities of
PageNet. We refer to any such excess as goodwill. The projections assume
that goodwill will be amortized ratably on a straight-line basis over a
period of 10 years. The actual calculation of goodwill will depend upon the
actual price of Arch's common stock at the time of the merger. The
projections assume a value of $6.02 per share of Arch common stock to
calculate the purchase accounting adjustment and an assumption that the
historical, restated book value of PageNet's assets and liabilities
generally approximates fair value.
Arch and PageNet have made these assumptions and resultant
computations solely for the purpose of preparing the projections. The
combined company will be required to determine the actual amount of
goodwill and the appropriate amortization period when the merger takes
place. Such determination will be based on the fair values of PageNet's net
assets and other relevant information when the merger takes place. Although
these determinations are not currently expected to result in
E-4
<PAGE> 487
the actual amount of goodwill and related amortization being materially
greater or less than the amounts assumed for purposes of the projections,
there can be no assurance in that regard. Any increase in the amount of
amortization of goodwill would reduce periodic income before taxes and net
income.
9. Projections of changes in certain balance sheet accounts such as
accounts receivable and accounts payable are based on historic ratios of
such accounts to other accounts such as revenue. These projections have
been modified, where deemed appropriate, to recognize any adjustment or
balance sheet item changes necessary to reflect the business combination.
Arch assumed approximately 30 days sales outstanding to estimate the
accounts receivable balance and approximately 55 days costs outstanding to
estimate the accounts payable balance. The projected long-term debt
reflects payments made to reduce borrowings under the senior credit
facility.
THE COMBINED COMPANY PROJECTIONS WERE NOT PREPARED TO COMPLY WITH THE
GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. NEITHER THE INDEPENDENT ACCOUNTANTS
FOR ARCH NOR THE INDEPENDENT AUDITORS FOR PAGENET HAVE EXAMINED OR COMPILED THE
ACCOMPANYING PROJECTIONS AND ACCORDINGLY DO NOT EXPRESS AN OPINION OR ANY OTHER
FORM OF ASSURANCE WITH RESPECT TO THE PROJECTIONS, ASSUME NO RESPONSIBILITY FOR
THE PROJECTIONS AND DISCLAIM ANY ASSOCIATION WITH THE PROJECTIONS.
ARCH AND PAGENET DO NOT PUBLISH PROJECTIONS OF THEIR RESPECTIVE ANTICIPATED
FINANCIAL POSITION OR RESULTS OF OPERATIONS. HOWEVER, TO THE EXTENT THEY BELIEVE
THAT THE SECURITIES LAWS REQUIRE, ARCH AND PAGENET WILL:
- FURNISH UPDATED COMBINED COMPANY PROJECTIONS,
- INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS WHICH MAY BE REQUIRED
TO BE FILED WITH THE SEC, OR
- OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
THE SECURITIES LAWS REQUIRE FULL AND PROMPT DISCLOSURE OF MATERIAL FACTS,
BOTH FAVORABLE AND UNFAVORABLE, REGARDING ARCH'S AND PAGENET'S FINANCIAL
CONDITION AND MAY EXTEND TO SITUATIONS WHERE MANAGEMENT KNOWS OR HAS REASON TO
KNOW ITS PREVIOUSLY DISCLOSED PROJECTIONS NO LONGER HAVE A REASONABLE BASIS.
MANAGEMENT OF ARCH AND PAGENET BELIEVE THAT THE PROJECTED AMOUNTS ARE THE MOST
PROBABLE SPECIFIC AMOUNTS THAT THEY CAN FORECAST AND THAT THE ESTIMATES AND
ASSUMPTIONS THEY HAVE MADE IN ARRIVING AT THESE AMOUNTS ARE REASONABLE. THE
ESTIMATES AND ASSUMPTIONS MAY NOT BE REALIZED, HOWEVER, AND ARE INHERENTLY
SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF ARCH AND PAGENET. NO
REPRESENTATIONS CAN BE OR ARE MADE AS TO WHETHER ACTUAL RESULTS WILL MEET THE
RESULTS SET FORTH IN THE COMBINED COMPANY PROJECTIONS. SOME ASSUMPTIONS
INEVITABLY WILL NOT MATERIALIZE, AND EVENTS AND CIRCUMSTANCES OCCURRING
SUBSEQUENT TO THE DATE ON WHICH THE PROJECTIONS WERE PREPARED MAY BE DIFFERENT
FROM THOSE ASSUMED OR MAY BE UNANTICIPATED, AND THEREFORE MAY AFFECT FINANCIAL
RESULTS IN A MATERIAL AND POSSIBLY ADVERSE MANNER. THE PROJECTIONS, THEREFORE,
MAY NOT BE RELIED UPON AS A GUARANTEE OR OTHER ASSURANCE OF THE ACTUAL RESULTS
THAT WILL OCCUR. SEE "FORWARD-LOOKING STATEMENTS."
E-5
<PAGE> 488
ANNEX F
November 7, 1999
Board of Directors
Paging Network, Inc.
14911 Quorum Drive
Dallas, Texas 75240
Members of the Board:
We understand that Paging Network, Inc., a Delaware corporation ("PageNet"
or the "Company"), St. Louis Acquisition Corp., a Delaware corporation ("Merger
Sub"), and Arch Communications Group, Inc., a Delaware corporation ("Arch
Communications") have entered into an Agreement and Plan of Merger, dated as of
November 7, 1999 (the "Merger Agreement"), which provides, among other things,
for the merger (the "Merger") of PageNet with and into Arch Communications. All
capitalized terms used herein and not defined herein shall have the same
meanings herein as ascribed thereto in the Merger Agreement. Pursuant to the
Merger, (i) Merger Sub shall be merged with and into PageNet, with the separate
corporate existence of Merger Sub ceasing thereupon and (ii) PageNet will become
a wholly-owned subsidiary of Arch Communications and each issued and outstanding
PageNet Share, other than the Excluded PageNet Shares, will be converted into
and exchangeable for 0.1247 shares of Arch Communications, which constitutes the
Merger Consideration.
We also understand that, pursuant to the Merger Agreement, Arch
Communications and PageNet have agreed to commence the Exchange Offers as
promptly as practicable after the date hereof. Immediately following the
Exchange Offers, PageNet Shares will be converted into the Merger Consideration
under the Merger Agreement. Our opinion expressed below relates solely to the
Merger Consideration and the Distributed Interests, taken together as a whole,
to be received by the holders of PageNet Shares, as of the date of this opinion,
in the Merger and related transactions. Nothing stated herein shall be construed
or interpreted as our providing an opinion as to the fairness, advisability or
relative values to be achieved as a result of the Exchange Offers.
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address PageNet's underlying business decision to
effect the Merger. We have not been requested to, and did not, solicit third
party indications of interest in acquiring all or any part of PageNet.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on Form 10-K
for the fiscal year ended 1998, quarterly reports on Form 10-Q for the
two quarters ended March 31, 1999 and June 30, 1999, Company-prepared
interim financial statements for the period ended September 30, 1999,
which the Company's management has identified as being the most current
financial statements available, Proxy Statement dated April 12, 1999,
and certain other documents filed with the Securities and Exchange
Commission;
2. reviewed Arch Communications' annual reports to Arch Communications'
shareholders and on Form 10-K for the fiscal years ended 1998 and 1997,
certain interim reports to shareholders on Form 10-Q of Arch
Communications, and certain documents filed with the SEC by Arch
Communications regarding its acquisition of MobileMedia;
3. reviewed copies of the Merger Agreement;
4. reviewed the Indenture dated July 15, 1995 of the 10% Senior
Subordinated Notes Due October 15, 2008, supplemented by a Second
Supplemental Indenture dated October 15, 1996;
F-1
<PAGE> 489
Board of Directors
Paging Network, Inc.
November 7, 1999 - 2-
5. reviewed the Indenture dated July 15, 1995 of 10.125% Senior
Subordinated Notes due August 1, 2007, supplemented by a First
Supplemental Indenture dated July 15, 1995;
6. reviewed the Indenture dated January 15, 1994 of 8.875% Senior
Subordinated Notes Due February 1, 2006, supplemented by a First
Supplemental Indenture dated January 15, 1994;
7. reviewed the Second Amended and Restated Credit Agreement of Paging
Network, Inc. and certain of its Subsidiaries;
8. reviewed the Amended and Restated Loan Agreement of Paging Network of
Canada Inc., and certain other documents;
9. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and
projected operations and performance of the Company, and met with
representatives of the Company's independent accounting firm, other
investment bankers and counsel to discuss certain matters;
10. visited certain facilities and business offices of the Company;
11. reviewed forecasts and projections prepared by the Company's management
with respect to the Company for the years ended December 31, 1999
through 2004 and for the quarters ended September 30, 1999 through
December 31, 2000;
12. reviewed certain forecasts and projections for Arch Communications
prepared by its management;
13. reviewed analyses prepared by and met with management of both companies
to discuss expected cost savings and other expected synergies resulting
from the business combination;
14. reviewed the historical market prices and trading volume for the
Company's and Arch Communications' publicly traded securities;
15. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Merger;
16. reviewed drafts of certain documents to be delivered at the closing of
the Merger; and
17. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of PageNet. Our opinion
is necessarily based on business, economic, market and other conditions as they
exist and can be evaluated by us at the date of this letter, and we have no
obligation to update this opinion. Our advisory services and the opinion
expressed herein are for the information and assistance of the Board of
Directors of the Company in connection with its consideration of the Merger and
related transactions and do not constitute a recommendation as to how any
security holder of the Company should vote with respect to such transactions.
F-2
<PAGE> 490
Board of Directors
Paging Network, Inc.
November 7, 1999 - 3-
PageNet, like other companies and any business entities analyzed by
Houlihan Lokey Howard & Zukin Capital ("Houlihan Lokey") or which are otherwise
involved in any manner in connection with this Opinion, could be materially
affected by complications that may occur, or may be anticipated to occur, in
computer-related applications as a result of the year change from 1999 to 2000
(the "Y2K Issue"). In accordance with long-standing practice and procedure,
Houlihan Lokey's services are not designed to detect the likelihood and extent
of the effect of the Y2K Issue, directly or indirectly, on the financial
condition and/or operations of a business. Further, Houlihan Lokey has no
responsibility with regard to PageNet's efforts to make its systems, or any
other systems (including its vendors and service providers), Year 2000 compliant
on a timely basis. Accordingly, Houlihan Lokey shall not be responsible for any
effect of the Y2K Issue on the matters set forth in this Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that,
as of the date hereof, the Merger Consideration and the Distributed Interests,
taken together as a whole, to be received by the holders of PageNet Shares, as
of the date of this opinion, in the Merger and related transactions, is fair to
such holders from a financial point of view.
/s/ HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL
F-3
<PAGE> 491
ANNEX G
[GOLDMAN SACHS LETTERHEAD]
PERSONAL AND CONFIDENTIAL
- ----------------------------------------
November 7, 1999
Board of Directors
Paging Network, Inc.
14911 Quorum Drive
Dallas, TX 75240
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders on the date hereof of the outstanding shares of Common
Stock, par value $0.01 per share (the "Shares") of Paging Network, Inc. (the
"Company") of the 0.1247 shares of Common Stock, par value $0.01 per share (the
"Arch Common Stock") of Arch Communications Group Inc. ("Arch Communications")
to be received for each Share (the "Exchange Ratio") pursuant to the Agreement
and Plan of Merger, dated as of November 7, 1999, among Arch Communications,
Arch Communications Merger Sub Inc. ("Merger Sub", and together with Arch
Communications "Arch") and the Company (the "Agreement"). Pursuant to the
Agreement, the Company will merge with and into Merger Sub, a wholly owned
subsidiary of Arch Communications (the "Merger"). The Agreement also provides
for, immediately prior to the Merger, (A) a financial restructuring (the
"Financial Restructuring"), in which (i) certain outstanding debt securities of
the Company would be exchanged for 616.7 million Shares and (ii) certain
outstanding debt securities and preferred stock of Arch would be exchanged for
31.7 million shares of Arch Common Stock, and (B)immediately subsequent to the
Financial Restructuring and prior to the Merger, 80.5% of the outstanding shares
of Common Stock, par value $0.01 (the "Silverlake Shares"), of Silverlake
Communications, Inc. ("Silverlake") then owned by the Company will be
distributed (the "Spinoff") to the holders of Shares on a pro rata basis,
including the holders of debt securities who will receive Shares in the
Financial Restructuring.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company, having acted as its financial advisor from time to
time, including having acted as its managing underwriter in May 1992 in an
offering of approximately 6 million Shares, as its private placement agent for
an aggregate of approximately $1.2 billion principal amount in Senior
Subordinated Notes in three offerings, one each in 1994, 1995 and 1996, and
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to the Agreement, Goldman,
Sachs & Co. provides a full range of financial advisory and securities services
and, in the course of its normal trading activities, may from time to time
effect transactions and hold securities, including derivative securities, of the
Company or Arch for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company and Arch for the five years ended December 31, 1998; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company and
Arch; certain other communications from the Company and Arch to their respective
stockholders; certain historical financial information and other information for
Silverlake; and certain internal financial analyses and forecasts for the
Company, Silverlake and Arch prepared by their respective managements, including
certain cost savings and operating synergies projected by the managements of the
Company and Arch to result from the transactions contemplated by the Agreement
(the "Synergies"). We also have held discussions with members of the senior
management of the Company and Arch regarding
G-1
<PAGE> 492
their assessment of the strategic rationale for, and the potential benefits of,
the transaction contemplated by the Agreement and with those persons and with
members of the senior management of Silverlake regarding the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Shares and the Arch Common Stock, compared certain
financial and stock market information for the Company and Arch and certain
financial information for Silverlake with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the paging and communications
industry specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate. At your direction, we have
also read certain analyses performed on behalf of the Company by Houlihan Lokey
Howard & Zukin Capital regarding the Financial Restructuring and the possible
restructuring of the Company's outstanding debt on a stand-alone basis (the
"Stand Alone Restructuring"). We also reviewed with the Company and its other
financial advisors, including Houlihan Lokey Howard & Zukin Capital, certain
options available to the Company, other than alternative business combinations,
for addressing the Company's liquidity needs. In addition, we have also reviewed
the tax analysis prepared by the management of the Company and the Company's
accountants with respect to the transactions contemplated by the Agreement,
including, without limitation, the Financial Restructuring and the Spinoff.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In this regard, we have
assumed with your consent that the financial forecasts, including the underlying
assumptions, provided to us and discussed with us with respect to the Company,
Silverlake and Arch after giving effect to the transactions contemplated by the
Agreement, including, without limitation, the Synergies, have been reasonably
prepared on a basis reflecting the best currently available judgments and
estimates of the Company, Silverlake and Arch, as applicable. Without making an
independent evaluation of the matters contained therein and with your consent,
we have relied upon the certain analyses prepared by Houlihan Lokey Howard &
Zukin Capital referenced in the third paragraph of this letter for, among other
things, purposes of analyzing the impact of the Stand Alone Restructuring on the
holders of the Shares on the date hereof. In that regard, we have also taken
into account the view of the management of the Company with respect to the
likely impact of a Stand Alone Restructuring on the holders of the Shares on the
date hereof. In addition, without making an independent evaluation of the
matters contained therein and with your consent, we have relied upon the tax
analysis prepared by the management of the Company and the Company's accountants
referenced in the third paragraph of this letter. In addition, we have not made
an independent evaluation or appraisal of the assets and liabilities of the
Company, Silverlake or Arch or any of their subsidiaries and we have not been
furnished with any such evaluation or appraisal. Our opinion does not address
the relative merits of the transactions contemplated pursuant to the Agreement
as compared to any alternative business transaction that might be available to
the Company. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transactions contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transactions. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the date
hereof and we assume no responsibility to update or revise our opinion based
upon circumstances and events occurring after the date hereof. Our opinion as
expressed below does not imply any conclusion as to the likely trading range of
Arch Common Stock or Silverlake Shares following consummation of the
transactions contemplated by the Agreement, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the price
of securities. In rendering this opinion, we have assumed, with your consent,
that the Financial Restructuring, the Spinoff and the other transactions
contemplated by the Agreement will be completed in the manner set forth in the
Agreement, including without limitations, that an aggregate of (i) 616.8 million
Shares will be issued pursuant to the PageNet Exchange Offer (as defined in the
Agreement) and (ii) 29.6 million shares of Arch Common Stock will be issued
pursuant to the Arch Exchange Offer (as defined in the Agreement)
G-2
<PAGE> 493
and that the outstanding preferred stock of Arch will be converted into 2.1
million shares of Arch Common Stock.
Our opinion set forth below relates solely to the fairness from a financial
point of view of the Exchange Ratio to the holders of the Shares on the date
hereof. We are not expressing any opinion concerning the consideration to be
received by any other security holder of the Company pursuant to the Financial
Restructuring, the Spinoff or any other transaction contemplated by the
Agreement or the fairness of the Financial Restructuring to the holders of the
Shares on the date hereof.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that the Exchange Ratio pursuant to
the Agreement is fair from a financial point of view to the holders of Shares as
of the date hereof.
Very truly yours,
/s/ Goldman, Sachs & Co.
--------------------------------------
(GOLDMAN, SACHS & CO.)
G-3
<PAGE> 494
ANNEX H
[MORGAN STANLEY DEAN WITTER LETTERHEAD]
November 7, 1999
Board of Directors
Paging Network, Inc.
14911 Quorum Drive
Dallas, Texas 75240
Members of the Board:
We understand that Arch Communications Group, Inc.("Arch"), Arch Merger
Sub, Inc., a wholly owned subsidiary of Arch ("Merger Sub") and Paging Network,
Inc. ("PageNet" or the "Company") propose to enter into an Agreement and Plan of
Merger substantially in the form of the draft, dated November 7, 1999 (the
"Merger Agreement"), which provides, among other things, for the merger (the
"Merger") of Merger Sub with and into PageNet. Pursuant to the Merger Agreement,
each outstanding share of Common Stock, par value $0.01 per share (the "PageNet
Common Stock") of PageNet, other than shares held by Arch, Merger Sub or any
direct or indirect subsidiaries of Arch or Merger Sub, will be converted into
the right to receive 0.125 shares (the "Exchange Ratio") of common stock, par
value $0.01 per share of Arch (the "Arch Common Stock"), subject to adjustment
in certain circumstances. The Merger Agreement also provides for (i) a financial
restructuring (the "Financial Restructuring"), in which (a) certain outstanding
debt securities of PageNet would be exchanged for PageNet Common Stock and (b)
certain outstanding debt securities of Arch and the outstanding Series C
Convertible Preferred Stock, par value $0.01 per share of Arch ("Arch Preferred
Stock") would be exchanged for Arch Common Stock and (ii) a spinoff (the
"Spinoff"), in which PageNet will distribute interests (the "Distributed
Interests," together with the Exchange Ratio, the "Consideration") representing
11.6% of the outstanding capital stock of Silverlake Communications, Inc. (the
"Spinoff Subsidiary"), to the holders of shares of PageNet Common Stock on the
date hereof, on a pro rata basis. The terms and conditions of the Merger, the
Financial Restructuring and the Spinoff are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the Consideration to be
received by holders of shares of Common Stock on the date hereof pursuant to the
Merger and the Spinoff, taken as a whole, is fair to such holders from a
financial point of view.
For purposes of the opinion set forth herein, we have;
(i) reviewed certain analyses (the "Houlihan Lokey Analysis") prepared
by the Company's restructuring advisor, Houlihan Lokey Howard &
Zukin Capital of the Financial Restructuring and the possible
restructuring of the Company's outstanding debt on a stand-alone
basis (the "Stand Alone Restructuring");
(ii) reviewed certain publicly available financial statements and other
business and financial information of Arch and PageNet,
respectively;
(iii) reviewed certain internal financial statements and other financial
and operating data concerning Arch and PageNet, respectively;
(iv) reviewed certain internal financial statements and other financial
and operating data concerning the Spinoff Subsidiary prepared by the
managements of PageNet and the Spinoff Subsidiary;
(v) analyzed certain financial forecasts prepared by the managements of
Arch and PageNet, respectively;
H-1
<PAGE> 495
(vi) analyzed certain financial forecasts for the Spinoff Subsidiary
prepared by the managements of PageNet and the Spinoff Subsidiary;
(vii) discussed the past and current operations and financial condition
and the prospects of Arch with senior executives of Arch;
(viii) discussed the past and current operations and financial condition
and the prospects of PageNet and the Spinoff Subsidiary with senior
executives of PageNet and the Spinoff Subsidiary;
(ix) discussed with the senior managements of Arch and PageNet their
estimates of the synergies and cost savings expected to be derived
from the Merger;
(x) reviewed and analyzed the pro forma impact of the Merger on the
consolidated capitalization and financial ratios of the combined
company;
(xi) reviewed the report prices and trading activity for the Arch Common
Stock and the PageNet Common Stock;
(xii) compared the financial performance of Arch and PageNet (excluding
the Spinoff Subsidiary) and the prices and trading activity of the
Arch Common Stock and the PageNet Common Stock and their respective
debt securities with that of certain other publicly-traded companies
and their securities;
(xiii) compared the financial performance of the Spinoff Subsidiary with
that of certain other companies that are comparable to the Spinoff
Subsidiary and have publicly-traded securities;
(xiv) reviewed the tax analysis prepared by the management of PageNet with
respect to the tax treatment of the transactions contemplated by the
Merger Agreement;
(xv) reviewed with the Company and its other financial advisors,
including Houlihan Lokey Howard & Zukin Capital, certain options
available to the Company, other than alternative business
combinations, for addressing the Company's liquidity needs;
(xvi) reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions deemed relevant;
(xvii) participated in discussions and negotiations among representatives
of Arch and PageNet and their financial, restructuring and legal
advisors;
(xviii) reviewed the draft Merger Agreement and certain related documents;
(xix) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of all information supplied or otherwise made
available to us and reviewed by us for the purposes of this opinion. We have
also relied, without independent verification or evaluation and with your
consent, on the Houlihan Lokey Analysis for, among other things, purposes of
analyzing the impact of the Stand Alone Restructuring on the holders of the
PageNet Common Stock on the date hereof. In addition, we have also relied,
without independent verification or evaluation and with your consent, on the tax
analysis prepared by management of PageNet with respect to the tax treatment of
the transactions contemplated by the Merger Agreement. With respect to the
financial forecasts, future prospects, estimates of synergies and cost savings,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of Arch, PageNet and the Spinoff Subsidiary. In addition, we have
assumed that the Merger will be consummated in accordance with the terms set
forth in the Merger Agreement, including, among other things, that the Merger
will be treated as a tax-free reorganization and/or exchange, each pursuant to
Section 368(a) of the Internal Revenue Code of 1986, as amended. We have not
made any independent valuation or appraisal of the assets or liabilities of
PageNet, Arch or the Spinoff Subsidiary, nor have we been furnished with any
such
H-2
<PAGE> 496
appraisals. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made with the Securities and Exchange Commission by the Company in
respect of the Merger.
This opinion is limited to the fairness, from a financial point of view, of
the Consideration to be received by holders of shares of PageNet Common Stock on
the date hereof pursuant to the Merger and the Spinoff and we are not expressing
any opinion concerning the consideration to be received by any other security
holder of the Company pursuant to the Financial Restructuring, Spinoff or any
other transaction contemplated by the Merger Agreement or the fairness of the
Financial Restructuring to the holders of the Shares on the date hereof. In
rendering this opinion, we have assumed, with your consent, that the Financial
Restructuring and the Spinoff will be completed in the manner set forth in the
Merger Agreement.
We note that trading in the Arch Common Stock and shares of the Spinoff
Subsidiary for a period of time following completion of the Merger and the
Spinoff may involve a redistribution of the Arch Common Stock and the shares of
the Spinoff Subsidiary among the stockholders of the combined entity and other
investors and, accordingly, during such period, Arch Common Stock and the shares
of the Spinoff Subsidiary may trade at prices below those at which they would
trade on a fully distributed basis after the Spinoff. This opinion does not in
any manner address the prices at which Arch's Common Stock or the shares of the
Spinoff Subsidiary will trade following consummation of the Merger and the
Spinoff. In addition, we express no opinion or recommendation as to how the
shareholders of Arch or PageNet should vote at the shareholders' meetings held
in connection with the Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the ordinary course of business Morgan Stanley & Co. Incorporated and its
affiliates may from time to time trade in the debt and equity securities or
senior loans of Arch and PageNet.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by holders of shares of PageNet
Common Stock on the date hereof pursuant to the Merger and the Spinoff, taken as
a whole, is fair to such holders from a financial point of view.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ R. BRADFORD EVANS
------------------------------------
R. Bradford Evans
Managing Director
H-3
<PAGE> 497
ANNEX I
HYPOTHETICAL CHAPTER 7 LIQUIDATION ANALYSIS
Section 1129(a)(7) of the Code requires, with respect to each impaired
class, that each holder of an allowed claim or interest in such class either (a)
has accepted the plan or (b) will receive or retain under the plan on account of
such claim or interest property of a value, as of the effective date of such
plan, that is not less than the amount that such person would receive or retain
if the company were liquidated under chapter 7 of the Bankruptcy Code on the
effective date. Presented on the following pages is a hypothetical liquidation
analysis of PageNet ("PageNet" or the "Company").
This liquidation analysis considers, hypothetically, the fair realizable
value in present value terms of the Company's assets through liquidation in a
chapter 7 bankruptcy proceeding and the costs that would be incurred and the
additional liabilities that would arise in such proceeding. The hypothetical
chapter 7 return to creditors is then calculated. Distribution of the
liquidation proceeds are assumed to made first, on account of secured claims,
and next in accordance with the distribution priorities established by chapter 7
of the Code, as altered by applicable subordination agreements.
The first step is to estimate the present value dollar amount that would be
generated from the liquidation of the Company's assets and properties in the
context of a chapter 7 liquidation case (taking into account the time necessary
to accomplish the liquidation). The total cash available would be the sum of the
present value of the proceeds (net of transaction costs) from the disposition of
the Company's assets and the cash held by the Company at the time of the
commencement of the chapter 7 case. The next step would be to reduce that total
by the costs of the chapter 7 liquidation, including the fees and expenses of
the chapter 7 trustee, then by any claims secured by enforceable security
interests and liens against such assets and then by the expenses of the
liquidation and such additional administrative expenses and priority claims that
may result from the termination of the Company's business and the use of chapter
7 for the purposes of liquidation. Next, any remaining cash would be allocated
to creditors and shareholders in strict priority in accordance with section 726
of the Bankruptcy Code (after giving effect to any applicable subordination
agreements). Finally, such allocations would be compared to the value of the
property that is proposed to be distributed under PageNet's proposed plan of
reorganization under chapter 11 of the Code.
The Company's costs of liquidation under chapter 7 would include the fees
payable to a trustee in bankruptcy, as well as those that would be payable to
attorneys and other professionals that such a trustee would engage to assist it
in liquidating the assets, and administering the bankruptcy estates, plus any
unpaid expenses incurred by the Company during their chapter 11 cases and
allowed in the chapter 7 case. These expenses could include compensation for
attorneys, financial advisors, appraisers, accountants and other professionals,
and costs and expenses of members of any statutory committees appointed by the
United States Trustee. In addition, potentially substantial claims could arise
by reason of the breach or rejection of obligations incurred by PageNet during
their chapter 11 cases, and the rejection of executory contracts or other
obligations incurred by PageNet before or during their Chapter 11 cases.
The foregoing types of claims, costs, expenses and fees and such other
claims that may arise in a chapter 7 liquidation case would be paid in full from
the liquidation proceeds before the balance of those proceeds would be made
available to pay other administrative, priority, general unsecured, noteholder
and shareholder claims.
The following hypothetical liquidation analysis has been prepared by
PageNet to indicate the net present value that would be allocated to creditors
and shareholders (the "Liquidation Value") in strict accordance with the
priorities established by section 726 of the Code.
Underlying this liquidation analysis are a number of estimates and
assumptions that are inherently subject to significant uncertainties. These
estimates and assumptions were developed by management through analysis of
market transactions, experience and the use of other valuation approaches. There
can
I-1
<PAGE> 498
be no assurance that the recoveries and liquidation expenses estimated, and
Liquidation Value indicated, in this analysis would be realized if PageNet was,
in fact, to undergo such a liquidation.
PageNet has approached this liquidation analysis on an asset liquidation
basis because there can be no assurance that PageNet's FCC licenses could be
assumed and assigned in a chapter 7 case. The inability to assume and assign the
FCC licenses would effectively eliminate the possibility that PageNet could
continue operating during the chapter 7 case and be liquidated as a "going
concern" or "going concerns".
PageNet's liquidation analysis assumes that assets would be broken up and
sold by a chapter 7 trustee or its duly appointed advisors, brokers or
liquidators, irrespective of their current deployment in the context of PageNet
operating as a going concern. Some of PageNet's assets when broken up may not be
able to be sold or may realize minimal proceeds. The estimated liquidation value
of PageNet's assets, net of transaction costs and discounted to take account of
the estimated time it might take to dispose of such assets, are set forth in the
table below.
The costs associated with a chapter 7 liquidation of PageNet, including the
fees that would be associated with a chapter 7 trustee, are anticipated to be
significant. Estimates of the major elements of such costs are set forth in the
table below.
The estimated amounts of claims secured by PageNet's assets and the
administrative and priority claims that would be required to be paid in a
chapter 7 liquidation before any allocation of net proceeds to secured
claimants, general unsecured creditors, noteholders and shareholders have been
set forth below.
I-2
<PAGE> 499
HYPOTHETICAL CHAPTER 7 LIQUIDATION ANALYSIS(1)
($ MILLIONS)
AS OF JANUARY 31, 2000
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 22.2
Major non-cash assets at liquidation value
FCC Licenses.............................................. 186.7
Radio Transmission Equipment.............................. 107.2
Pagers.................................................... 35.4
Accounts Receivable....................................... 22.7
Other Assets.............................................. 35.5
-------
ESTIMATED LIQUIDATION VALUE................................. 409.7
Less: Estimated costs associated with liquidation
Chapter 7 trustee fees.................................... (12.3)
Winddown operating costs.................................. (9.0)
Professional fees......................................... (6.0)
-------
Estimated cash available for claims......................... 382.4
Less: Secured claims........................................ (746.7)
-------
Estimated shortfall......................................... $(364.3)
=======
Available to general unsecured claimants and noteholders.... $ 0
=======
Available to shareholders................................... $ 0
=======
VAST SOLUTIONS -- ILLUSTRATIVE PURPOSES(2)
Estimated shortfall from above.............................. $(364.3)
Implied potential VAST Solutions value...................... $ 200.0
-------
Estimated shortfall including VAST implied potential
value..................................................... $(164.3)
=======
Available to general unsecured claimants and noteholders.... $ 0
=======
Available to shareholders................................... $ 0
=======
</TABLE>
- ---------------
(1) Net present value.
(2) For illustrative purposes an implied potential value of VAST Solutions and
the implied recoveries to claimants have been shown (See Management's
Assumptions). In the context of a chapter 7 liquidation management does not
believe that the implied potential value of VAST could be realized.
After consideration of the effects that a hypothetical chapter 7
liquidation would have on the proceeds available for distribution to creditors
and shareholders, including (a) the increased costs and expenses of a
liquidation under chapter 7 arising from fees payable to a trustee in bankruptcy
and professional advisors to such trustee, (b) the erosion in value of PageNet's
assets arising from the expeditious liquidation required under chapter 7 and the
"forced sale" atmosphere that would prevail, (c) the adverse effects on the
salability of PageNet's assets as a result of the departure of key employees and
the loss of major customers and suppliers, (d) the substantial increases in
claims that would be required to be satisfied on a priority basis, and (e) the
substantial time that would elapse before regulatory conditions could be met and
therefore, before which creditors would receive any distribution in respect of
their claims, PageNet has determined that confirmation of its plan of
reorganization will provide each creditor and shareholder with a recovery that
is not less than they would receive pursuant to a hypothetical liquidation of
PageNet under chapter 7 of the Code.
MANAGEMENT'S ASSUMPTIONS:
The realizable or liquidation value has been estimated by management after
taking into account the time period necessary to accomplish the liquidation of
the respective assets. As such, management did not
I-3
<PAGE> 500
perform additional net present value calculations. The estimated costs
associated with the realization of specific assets have been netted against the
estimated recovery value for those assets. All other costs that could not be
identified with the recovery of specific assets were estimated by management and
are shown separately as winddown operating costs and as other costs associated
with the liquidation.
Management assumed that all networks would be shut down and no additional
subscriber revenue would be earned and there would be no cash generated from
operations. The total amount of time estimated by management for the winding
down of operations and deconstruction of facilities is 18 months.
CURRENT ASSETS:
Cash and cash equivalents -- Outstanding checks have been added back to the
book balance at January 31, 2000.
Net Accounts Receivable -- Accounts receivable recoveries were estimated
based on the accounts receivable aging, historical recovery experience and
customer mix, discounted for the liquidation. Customers were stratified by type
and recovery percentages were estimated for each customer type. Higher
anticipated collection levels were assumed for large national account customers
as compared to small business and non-commercial subscribers. Net receivable
balances (i.e. net of the allowance for doubtful accounts) were utilized.
Note Receivable -- The note relates to the sale of Legacy Land. Management
expects payment in full and therefore has assumed the amount to be fully
recoverable in a liquidation.
Inventory -- Inventory consists primarily of new pagers held for sale. The
Company's current selling prices for pagers were used as a benchmark. These
selling prices were then discounted by management for the number of new pagers
that would be placed into the market during a period of limited industry-wide
subscriber growth.
Prepaid Expenses -- Prepaid expenses consist of prepaid rents and other
types of maintenance and insurance contracts. Management assumed that the
recovery of prepaid rent amounts would be limited given that the Company would
be terminating all of these leases in a hypothetical chapter 7 liquidation.
NET FIXED ASSETS:
Machinery and equipment includes, as its primary component, all radio
transmission equipment (which includes all of the Company's transmitters, paging
terminals, satellite uplinks, switches and other hardware throughout the United
States). Management assumed that this equipment would have to be deconstructed
and removed before resale as used equipment in a hypothetical chapter 7
liquidation. Comparable sales values for used equipment were used as benchmarks,
however, these values were then discounted by management to estimate liquidation
value to take into account the excess equipment that would be placed into the
market. Equipment was stratified by type and technology. A significant portion
of the capitalized value of each transmitter site represents unrecoverable
labor, wiring and site improvements. In light of the age of much of the
equipment and also factoring into the analysis the lack of alternative uses for
much of the equipment and the limited number of possible buyers, management
determined to use a substantial discount to net book value. The largest single
component of the Company's estimated radio transmission equipment liquidation
value is attributable to its advance messaging network (TAMS), construction of
which has just been completed.
Fixed asset pagers represent pagers leased to customers. Approximately 70%
of all direct customers lease pagers from PageNet. Pagers are depreciated over
two years. In order to obtain an estimate of potential recoveries in a
liquidation, management estimated the average cost of its pagers and used
estimates of the number of its leased numeric and alphanumeric pagers. Current
used pager sales prices were estimated based on recent transactions. A discount
was applied by management to these recent used pager sale prices to reflect the
substantial number of pagers that would be placed into the market during a
period of limited industry-wide subscriber growth. Finally, the recovery of
leased pagers was reduced to
I-4
<PAGE> 501
reflect the fact that a number of customers have given the Company security
deposits and would keep their pagers as they would not be able to recover their
security deposits.
Furniture and fixture liquidation values have been estimated by management
based on past experience with office closings and used furniture and fixture
sales.
Leasehold improvements have been assumed to have no value in a liquidation.
Land, buildings and building improvements consist of the Company's only
owned facility in Dallas, Texas. Based on the Company's relatively recent
purchase of this facility from a liquidating entity, management assumed that the
Company's current net book value was at or under market value. To reflect the
possibility that the Company could realize more than the current book value the
liquidation value has been estimated to range from net book value up to
approximately the Company's original purchase cost of the facility.
OTHER ASSETS:
FCC licenses are rights to construct, own and operate radio transmission
facilities utilizing the public airways. These licenses collectively represent
the Company's right to provide paging service and conduct a paging business.
Licenses include rights acquired through FCC grant, acquisitions of competitors
and spectrum auctions conducted by the FCC. FCC licenses are not absolute and
have varying renewal dates that, in a going concern business model, assuming
reasonable compliance, would likely be renewed by the FCC to permit the Company
(or other qualified entity) to continue to provide paging services. The book
value of these licenses represents the going concern value net of periodic
amortization charges. For purposes of this liquidation analysis, management has
assumed that the FCC would permit the Company to sell its rights to third
parties to provide service on the licensed frequencies. However, there can be no
assurance that the FCC would approve such license sales/transfers and
potentially the FCC could determine that the licenses should be revoked and
turned over to the FCC.
The Company has the following types of radio transmission licenses:
Local, regional and nationwide 900 MHz
Nationwide NPCS ("NPCS")
National Specialized Mobile Radio ("SMR")
Local, regional and nationwide 900 MHz licenses were primarily obtained by
the Company through grants from the FCC prior to the FCC initiating auction and
other spectrum allocation procedures. These licenses have no book value recorded
on the balance sheet. Local and regional spectrum was not given any liquidation
value by management since most of these licenses could be replaced with coverage
under the nationwide licenses or under the Company's other spectrum. The
nationwide licenses, of which the Company has 6, are viewed by management as
having some liquidation value due to their national coverage. Nationwide
licenses were valued by management based on a price per MHz times the population
covered. The price per MHz used by management was a discounted price based on
sales of other types of spectrum (such as SMR and NPCS) which have greater
bandwidth.
The Company has three NPCS licenses each with a 50 KHz inbound and outbound
channel. This spectrum has significantly more bandwidth than the Company's
nationwide licenses. However it is not sufficient for voice usage and therefore
is limited to data transmission. There has not been any recent sale of NPCS
spectrum and management believes that earlier auction values were inflated.
These licenses were also valued by management using a price per MHz per
population covered. The liquidation values are significantly lower than the
Company's book values because of the current excess spectrum capacity in the
industry for traditional paging services.
The Company's SMR licenses are currently viewed by management as the most
valuable license assets of the Company. These licenses have sufficient bandwidth
in many markets to carry voice using cellular architecture. There are a number
of companies currently utilizing this spectrum who have strong needs for
additional spectrum to continue to grow in many markets. Interest has been
expressed in the
I-5
<PAGE> 502
Company's SMR spectrum and the Company has received bids for it in the past. The
value of the SMR licenses has been estimated by management based on these
indications of interest as well as Nextel's attempt to acquire the spectrum of
NextWave through the NextWave bankruptcy proceeding.
Management has assumed that no liquidation value can be attributed to
Goodwill, Other Intangibles (which comprise capitalized debt issue costs) or
Other Non-Current Assets (which comprise primarily restricted cash, held as cash
collateral for a foreign banking facility). In addition, management does not
believe there is any liquidation value associated with the Company's customers
list in the context of a chapter 7 liquidation.
Management does not believe that the Company's VAST Solutions (VAST) Assets
have significant value in the context of a chapter 7 liquidation and therefore
net book values have been discounted considerably. The potential value
represented by these assets could be significantly different if alternative
capital and liquidation assumptions were made.
For illustrative purposes, the Company has included additional analysis
with its hypothetical chapter 7 liquidation analysis which takes into account an
implied potential range of value of VAST. The additional analysis is included to
demonstrate the impact of the implied potential value of VAST on the amounts
potentially available to the Company's claimants in a chapter 7 liquidation. The
implied potential range of value of VAST is based on comparisons to certain
comparable publicly traded companies. While the range of value of VAST is
included for illustrative purposes, the Company does not believe it could
realize the implied potential range of value of VAST in the context of a chapter
7 liquidation. The implied potential range of value of VAST included in the
illustrative analysis does not constitute an opinion as to the value of VAST and
should not be relied upon in making any decision with regard to VAST or the
Plan.
I-6
<PAGE> 503
HYPOTHETICAL CHAPTER 7 LIQUIDATION ANALYSIS AS OF JANUARY 31, 2000(1)
($ MILLIONS)
<TABLE>
<CAPTION>
UNAUDITED
ADJUSTED
BOOK VALUE ESTIMATED REALIZATION
JANUARY 31, ----------------------------------------
2000 LOW HIGH LOW HIGH MID
----------- --- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 22.2 100% 100% $ 22.2 $ 22.2 $ 22.2
Net Accounts Receivable............................. 151.6 10% 20% 15.2 30.3 22.7
Note Receivable..................................... 4.2 100% 100% 4.2 4.2 4.2
Inventory........................................... 8.4 40% 60% 3.4 5.0 4.2
Prepaid Expenses.................................... 13.1 5% 10% 0.7 1.3 1.0
Net Fixed Assets:
Machinery & equipment............................... 549.4 15% 30% 82.4 164.8 123.6
Pagers.............................................. 141.6 20% 30% 28.3 42.5 35.4
Furniture & fixtures................................ 22.0 10% 20% 2.2 4.4 3.3
Leasehold improvements.............................. 15.8 0% 0% -- -- --
Land, buildings, and building improvements.......... 2.6 100% 125% 2.6 3.3 3.0
Other Assets:
NPCS licenses (net)................................. 183.3 25% 30% 45.8 55.9 50.8
Other licenses (net)................................ 246.4 40% 50% 98.6 123.2 110.9
Nationwide License.................................. -- -- -- 20.0 30.0 25.0
Goodwill (net)...................................... 25.1 0% 0% -- -- --
Other intangibles (net)............................. 28.7 0% 0% -- -- --
Other noncurrent assets (net)....................... 35.7 0% 0% -- -- --
VAST Solutions Assets............................... 11.5 20% 40% 2.3 4.6 3.5
-------- ------- ------- -------
Total Assets/Estimated Liquidation Value.... $1,461.7 327.9 491.8 409.7
-------- ------- ------- -------
Less Estimated Costs Associated with Liquidation:
Chapter 7 Trustee Fees (3%)........................... (9.8) (14.8) (12.3)
Winddown Operating Costs.............................. (11.6) (6.6) (9.0)
Professional Fees..................................... (7.0) (5.0) (6.0)
------- ------- -------
Costs Associated with Liquidation........... (28.4) (26.4) (27.4)
------- ------- -------
Estimated cash available for claims................... 299.4 465.5 382.4
------- ------- -------
Secured Claims:
Long Term Debt...................................... (745.0) (745.0) (745.0)
Capital Lease Obligation............................ (1.7) (1.7) (1.7)
------- ------- -------
Total Secured Claims........................ (746.7) (746.7) (746.7)
Estimated % recovery for secured
creditors................................. 40% 62% 51%
------- ------- -------
Estimated Shortfall................................... $(447.2) $(281.2) $(364.3)
======= ======= =======
Available to general unsecured claimants and
noteholders......................................... $ 0 $ 0 $ 0
Available to shareholders............................. $ 0 $ 0 $ 0
VAST SOLUTIONS -- ILLUSTRATIVE PURPOSES(2)
Estimated Shortfall from above........................ $(447.2) $(281.2) $(364.3)
Implied potential VAST Solutions value................ $ 100.0 $ 300.0 $ 200.0
------- ------- -------
Estimated (Shortfall) Excess Including VAST implied
potential value..................................... $(347.2) $ 18.8 $(164.3)
======= ======= =======
Available to general unsecured claimants and
noteholders......................................... $ 0 $ 18.8 $ 0
Available to shareholders............................. $ 0 $ 0 $ 0
</TABLE>
- ---------------
(1) In net present value terms.
(2) For illustrative purposes an implied potential range of value of VAST
Solutions and the implied recoveries to claimants have been shown (See
Management's Assumptions). In the context of a chapter 7 liquidation
management does not believe that the implied potential value of VAST could
be realized.
I-7
<PAGE> 504
IMPORTANT
Any holder of senior subordinated notes who wishes to accept the exchange
offer should complete the letter of transmittal and forward it and any other
required documents to the exchange agent. Holders of senior subordinated notes
registered in the name of a broker, dealer, bank, trust company or other nominee
should contact such institution to tender their senior subordinated notes. See
"Exchange Offer -- Procedure for Tendering Senior Subordinated Notes and
Delivery of Consents."
Any holder of senior subordinated notes who wishes to vote to accept or
reject the prepackaged bankruptcy plan should complete a ballot or, if
applicable, a master ballot and forward it to the information agent. See
"Prepackaged Bankruptcy Plan -- Voting Instructions and Procedures."
THE EXCHANGE AGENT
<TABLE>
<S> <C>
By Mail: By Hand and Overnight Courier:
Harris Trust Company of New York Harris Trust Company of New York
Wall Street Station 88 Pine Street
P.O. Box 1023 19th Floor
New York, New York 10268-1023 New York, New York 10005
</TABLE>
By Facsimile Transmission: (212) 701-7636 or (212) 701-7637
(For Eligible Institutions Only)
Confirm Facsimile by Telephone: (212) 701-7624
For Information Call: (212) 701-7624
THE INFORMATION AGENT
If you have any additional questions, or need additional copies of this
prospectus, the letter of transmittal or any other exchange offer materials,
please contact the information agent at the address or telephone number as
listed below.
[INNISFREE LOGO]
501 Madison Avenue, 20th Floor
New York, New York 10022
Banks and Brokers Call Collect: (212) 750-5833
OR
All Others Call Toll-Free: (888) 750-5834
<PAGE> 505
PART II FOR PAGING NETWORK, INC. S-4
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate of Incorporation of the Registrant provides that
the Registrant 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 civil, criminal, administrative, investigative or
other, including appeals, by reason of the fact that he or she is or was a
director, officer, employee or other agent of the Registrant, or is or was
serving at the request of the Registrant as a director, officer, employee or the
agent of any corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or other agent, to the fullest extent authorized by the
Delaware General Corporation Law, against all expenses, liability and loss
(including attorney's fees, judgements, fines, ERISA excise taxes and penalties,
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith; provided, however, that except with respect
to proceedings seeking to enforce the rights to indemnification granted herein,
the Registrant shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
the proceeding (or part thereof) was authorized by the Board of Directors of the
Registrant.
The Registrant's Certificate of Incorporation also limits the liability of
directors, providing that no director of the Registrant shall be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director. Such limitation of liability does not extend to
liability (i) for any breach of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, relating to prohibited
dividends or distributions or the repurchase or redemption of stock, or (iv) for
any transaction from which the director derives an improper personal benefit.
The Registrant's By-Laws provide for indemnification as follows:
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND OTHERS
Section 1. 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 civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was an officer of the corporation, or is
or was serving at the request of the corporation as director or officer of
another corporation, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit or proceeding if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interest of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her 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 he or she reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was unlawful.
Section 2. 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 or suit by or in the right of the corporation
II-1
<PAGE> 506
to procure a judgment in its favor by reason of the fact that he or she is or
was an officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
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, 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 the court shall deem
proper.
Section 3. To the extent that an officer of the corporation or person
serving at the request of the corporation as a director or officer of another
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article VI or
in defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this Article VI
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the officer or
person serving at the request of the corporation as a director or officer of
another corporation is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Sections 1 and 2 of this Article VI.
Such determination shall be made (1) 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 (2) if such quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
Section 5. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the officer or person serving at the request of the corporation as a
director or officer of another corporation to repay such amount entitled to be
indemnified by the corporation as authorized in this Article VI.
Section 6. The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
Section 7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was an officer of the corporation or
is or was serving at the request of the corporation as a director or officer of
another corporation against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her status
as such, whether or not the corporation would have the power to indemnify him or
her against such liability under the provisions of this Article VI.
Section 8. For purposes of this Article VI, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors and officers so that any
person who is or was a director or officer of such constituent corporation or is
or was serving at the request of such constituent corporation as a director or
officer of another corporation shall stand in the same position under the
provisions of this Article VI with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
II-2
<PAGE> 507
Section 9. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an officer,
employee or person serving at the request of the corporation as a director or
officer of another corporation and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 10. This Article VI may be amended or repealed only by the
affirmative vote of the holders of a majority of the Voting Stock; provided that
no such amendment or repeal shall adversely affect any right to indemnification
for any act or omission of any person referred to in Sections 1 and 2 of this
Article VI which occurred or allegedly occurred prior to the effective date of
such amendment or repeal
Section 11. If in any action, suit or other proceeding or investigation, a
director of the corporation is held liable for monetary damages because that
director is relieved of personal liability under Article VI of the By-Laws or
otherwise, the director shall be deemed to have met the standards of conduct set
forth above and to be entitled to indemnification as provided above.
Pursuant to the provisions of Section 145 of the Delaware General
Corporation Law, every Delaware corporation has the power to 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 (other than an
action by or in the right of the corporation) by reason of the fact that he or
she is or was a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, against any and all
expenses, judgments, fines and amounts paid in settlement and reasonably
incurred in connection with such action, suit or proceedings. The power to
indemnify applies only if such person acted in good faith and in a manner he or
she reasonably believed to be in the best interest, or not opposed to the best
interest, of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication unless the court, in its discretion,
believes that in the light of all the circumstances indemnification should
apply.
To the extent any of the persons referred to in the two immediately
preceding paragraphs is successful in the defense of the actions referred to
therein, such person is entitled, pursuant to Section 145, to indemnification as
described above.
The Registrant has entered into Indemnification Agreements with each of its
directors and the officers subject to Section 16 of the Exchange Act. Each
Indemnification Agreement provides for indemnification of directors and officers
of the Registrant to the fullest extent permitted by law and additionally
permits advancing attorney's fees and all other costs, expenses, fees, fines and
losses, paid or incurred by a director or officer in connection with the
investigation, defense or other participation in any event or occurrence that is
related to the fact that the director or officer is or was a director or officer
of the Registrant or is serving at the request of the Registrant as a director
or officer in another corporation, partnership, joint venture, employee benefit
plan, trust or other enterprise, or by reason of any action taken or not taken
by the director or officer in any such capacity. The foregoing provisions are
subject to the condition that the Registrant's Board of Directors or any other
person or body appointed by the Board who is not a party to the particular claim
for which the director or officer is seeking indemnification has not determined
that the indemnification would not be permitted under applicable law. The
Indemnification Agreements further provide that in the event of a change in
control of the Registrant, then with respect to all matters arising concerning
the rights of directors to indemnification, such decisions will be made only by
independent legal counsel selected by the director and approved by the
Registrant.
II-3
<PAGE> 508
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of November 7, 1999 by
and among Paging Network, Inc., Arch Communications Group,
Inc. and St. Louis Acquisition Corp. (Filed as an exhibit to
Paging Network, Inc.'s Current Report on Form 8-K on
November 17, 1999 and incorporated by reference herein.)
2.2 Amendment to Agreement and Plan of Merger dated as of
January 7, 2000 by and among Paging Network, Inc., Arch
Communications Group, Inc. and St. Louis Acquisition Corp.
(Filed as an exhibit to Paging Network, Inc.'s Current
Report on Form 8-K on January 20, 2000 and incorporated by
reference herein.)
2.3 Amendment No. 2 to Agreement and Plan of Merger dated as of
May 10, 2000 by and among Paging Network, Inc., Arch
Communications Group, Inc. and St. Louis Acquisition Corp.
3.1 Restated Certificate of Incorporation of Paging Network,
Inc. (Filed as an exhibit to Registration Statement No.
33-42253 on Form S-1 and incorporated by reference herein.)
3.3 Bylaws of Paging Network, Inc., as amended. (Filed as an
exhibit to Paging Network, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
by reference herein.)
4.1 Articles Sixth, Seventh, Eighth, Twelfth, and Thirteenth of
the Restated Certificate of Incorporation of Paging Network,
Inc., as amended. (Filed as an exhibit to Registration
Statement No. 33-42253 on Form S-1 and incorporated by
reference herein.)
4.2 Articles II, III, and VII and Section 1 of Article VIII of
Paging Network, Inc.'s Bylaws, as amended. (Filed as an
exhibit to Paging Network, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
by reference herein.)
4.3 Form of Indenture. (Filed as an exhibit to Registration
Statement No. 33-46803 on Form S-1 and incorporated by
reference herein.)
4.4 Shareholder Rights Agreement. (Filed as an exhibit to Paging
Network, Inc.'s Report on Form 8-K on September 15, 1994 and
incorporated by reference herein.)
4.5 First Amendment to the Shareholder Rights Agreement. (Filed
as an exhibit to Paging Network, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated by reference herein.)
4.6 Second Amendment to the Shareholder Rights Agreement. (Filed
as an exhibit to Paging Network, Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1999
and incorporated by reference herein.)
5.1 Opinion of Mayer, Brown & Platt. (To be filed by amendment.)
8.1 Form of Tax Opinion of Mayer, Brown & Platt.
10.1 1982 Incentive Stock Option Plan, as amended and restated.
(Filed as an exhibit to Registration Statement No. 33-42253
on Form S-1 and incorporated by reference herein.)
10.2 Form of Stock Option Agreement executed by recipients of
options granted under the 1982 Incentive Stock Option Plan.
(Filed as an exhibit to Registration Statement No. 33-42253
on Form S-1 and incorporated by reference herein.)
10.3 Form of Management Agreement executed by recipients of
options granted under the 1982 Incentive Stock Option Plan.
(Filed as an exhibit to Registration Statement No. 33-42253
on Form S-1 and incorporated by herein.)
</TABLE>
II-4
<PAGE> 509
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
10.4 Form of Vesting Agreement executed by recipients of options
granted under the 1982 Incentive Stock Option Plan. (Filed
as an exhibit to Registration Statement No. 33-42253 on Form
S-1 and incorporated by herein.)
10.5 Form of Indemnification Agreement executed by recipients of
options granted under the 1991 Stock Option Plan. (Filed as
an exhibit to Registration Statement No. 33-42253 on Form
S-1 and incorporated by herein.)
10.6 Form of First Amendment to Vesting Agreement executed by
recipients of options granted under the 1982 Incentive Stock
Option Plan. (Filed as an exhibit to Registration Statement
No. 33-42253 on Form S-1 and incorporated by herein.)
10.7 Form of First Amendment to Management Agreement executed by
recipients of options granted under the 1982 Incentive Stock
Option Plan. (Filed as an exhibit to Registration Statement
No. 33-42253 on Form S-1 and incorporated by herein.)
10.10 Second Amended and Restated Credit Agreement dated as of
June 5, 1996 among Paging Network, Inc., NationsBank of
Texas, N.A., Toronto Dominion (Texas), Inc., The First
National Bank of Boston, Chase Securities Inc. and certain
other lenders. (Filed as an exhibit to Paging Network,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996.)
10.13 1997 Restricted Stock Plan, as approved by shareowners on
May 22, 1997. (Filed as an exhibit to Paging Network, Inc.'s
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997 and incorporated by reference herein.)
10.14 Employment Agreement dated as of August 4, 1997 among Paging
Network, Inc. and John P. Frazee, Jr. (Filed as an exhibit
to Paging Network, Inc.'s Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997 and
incorporated by reference herein.)
10.17 1992 Director Compensation Plan, as amended and restated on
April 22, 1998. (Filed as an exhibit to Paging Network,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998 and incorporated by reference
herein.)
10.18 Amended and Restated 1991 Stock Option Plan, as approved by
shareowners on May 21, 1998. (Filed as an exhibit to Paging
Network, Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998 and incorporated by
reference herein.)
10.19 Letter dated May 26, 1998 regarding Second Amendments
effective March 31, 1998 to the Loan Agreements dated as of
June 5, 1996: (1) among Paging Network of Canada Inc., The
Toronto-Dominion Bank, and such other financial institutions
as become banks (2) among Madison Telecommunications
Holdings, Inc., The Toronto-Dominion Bank, and such other
financial institutions as become banks. (Filed as an exhibit
to Paging Network, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated by
reference herein.)
10.20 Forms of Stock Option Agreement executed by recipients of
options granted under the 1991 Stock Option Plan. (Filed as
an exhibit to Paging Network, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and
incorporated by reference herein.)
10.21 Employee Stock Purchase Plan, as amended on December 16,
1998. (Filed as an exhibit to Paging Network, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998 and
incorporated by reference herein.)
10.22 Severance Pay Plan dated as of January 20, 1999. (Filed as
an exhibit to Paging Network, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998 and incorporated
by reference herein.)
10.23 Amendment to Severance Pay Plan dated as of December 9, 1999
(Filed as an exhibit to Paging Network, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 and
incorporated by reference herein.)
</TABLE>
II-5
<PAGE> 510
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
10.24 Form of Stock Option Agreement executed by recipients of
options grant under the 1992 Director Compensation Plan.
(Filed as an exhibit to Paging Network, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998 and
incorporated by reference herein.)
10.25 Amended and Restated Loan Agreement dated August 5, 1999
among Paging Network of Canada Inc., The Toronto-Dominion
Bank, Canadian Imperial Bank of Commerce, National Bank of
Canada, and such other financial institutions as become
banks. (Filed as an exhibit to Paging Network, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 and incorporated by reference herein.)
10.26 Amended and Restated Loan Agreement dated August 5, 1999
among Madison Telecommunications Holdings, Inc., The
Toronto-Dominion Bank, Canadian Imperial Bank of Commerce,
National Bank of Canada, and such other financial
institutions as become banks. (Filed as an exhibit to Paging
Network, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 and incorporated by reference
herein.)
21.1 List of Subsidiaries of Paging Network, Inc.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Mayer, Brown & Platt. (To be included in the
opinion filed as Exhibit 5.1 to this registration
statement.)
24.1 Power of Attorney of certain directors and officers of
Paging Network, Inc.
99.1 Client Letter -- Noteholder
99.2 Letter to Brokers -- Noteholder
99.3 Letter of Transmittal/Consent Form
99.4 Notice of Guaranteed Delivery
99.5 Class 5 Master Ballot -- 8.875% Notes Due 2006
99.6 Class 5 Ballot -- 8.875% Notes Due 2006
99.7 Class 6 Master Ballot -- Old Stock Interests
99.8 Class 6 Ballot -- Old Stock Interests
99.9 Consent of Houlihan Lokey Howard & Zukin Capital. (To be
filed by amendment.)
99.10 Consent of Goldman, Sachs & Co. (To be filed by amendment.)
99.11 Consent of Morgan Stanley Dean Witter. (To be filed by
amendment.)
</TABLE>
II-6
<PAGE> 511
(b) Financial Statement Schedules:
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING COSTS AND AND OTHER BALANCE AT
OF PERIOD EXPENSES ADJUSTMENTS END OF PERIOD
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1997......................................... $ 4,994 $18,343 $16,667 $ 6,670
1998......................................... 6,670 20,516 16,067 11,119
1999......................................... 11,119 28,189 21,909 17,399
Reserve for unrecoverable subscriber devices:
1997......................................... $ 2,420 $ 4,184 $ 4,064 $ 2,540
1998......................................... 2,540 5,193 3,411 4,322
1999......................................... 4,322 5,592 7,107 2,807
</TABLE>
II-7
<PAGE> 512
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareowners
Paging Network, Inc.
We have audited the consolidated financial statements of Paging Network,
Inc. as of December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999, and have issued our report thereon dated May 3,
2000. Our audits also included Schedule II -- Valuation and Qualifying Accounts.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein. The
financial statement schedule does not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of the uncertainty regarding the Company's ability to continue as a going
concern.
/s/ ERNST & YOUNG LLP
Dallas, Texas
May 3, 2000
II-8
<PAGE> 513
ITEM 22. UNDERTAKINGS.
The undersigned Registrant undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment of the Registration Statement) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement,
shall be deemed to be a new registration statement relating to the
securities offered in the Registration Statement and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(5) That, prior to any public reoffering of the securities registered
under this Registration Statement through use of a prospectus which is a
part of this Registration Statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings
by persons who may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form;
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
II-9
<PAGE> 514
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered in the Registration Statement, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering of such securities;
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request; and
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved in a
transaction that was not the subject of and included in the registration
statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-10
<PAGE> 515
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PAGING NETWORK,
INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN DALLAS, TEXAS, ON MAY 12, 2000.
PAGING NETWORK, INC.
/s/ JOHN P. FRAZEE, JR.
By:
--------------------------------------
John P. Frazee, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MAY 12, 2000.
<TABLE>
<S> <C>
* *
- -------------------------------------------- --------------------------------------------
Richard C. Alberding Hermann Buerger
Director Director
/s/ JULIAN B. CASTELLI *
- -------------------------------------------- --------------------------------------------
Julian B. Castelli Jeffrey M. Cunningham
Senior Vice President and Chief Financial Director
Officer
(Principal Financial Officer and Principal
Accounting Officer)
* /s/ JOHN P. FRAZEE, JR.
- -------------------------------------------- --------------------------------------------
Gary J. Fernandes John P. Frazee, Jr.
Director Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
* *
- -------------------------------------------- --------------------------------------------
John S. Llewellyn Robert J. Miller
Director Director
*By: /s/ JOHN P. FRAZEE, JR.
---------------------------------------
John P. Frazee, Jr.
Attorney-in-fact
</TABLE>
II-11
<PAGE> 516
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Westborough, Commonwealth
of Massachusetts of May 11, 2000.
Arch Communications Group, Inc.
/s/ C. EDWARD BAKER, JR.
By:
--------------------------------------
C. Edward Baker, Jr. Chairman of
The Board and Chief Executive
Officer
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
J. Roy Pottle, Gerald J. Cimmino and David A. Westenberg as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments
and any Registration Statement pursuant to Rule 462(b)) to this Registration
Statement on Form S-4 and to file the same with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing necessary or desirable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
SIGNATURE TITLE DATE
- ----------------------------------------------------- ----------------------------- ------------
<S> <C> <C>
/s/ C. EDWARD BAKER, JR. Chairman of the Board and May 11, 2000
- ----------------------------------------------------- Chief Executive Officer,
C. Edward Baker, Jr. Director (principal executive
officer)
/s/ J. ROY POTTLE Executive Vice President and May 11, 2000
- ----------------------------------------------------- Chief Financial Officer
J. Roy Pottle (principal financial officer
and principal accounting
officer)
/s/ R. SCHORR BERMAN Director May 11, 2000
- -----------------------------------------------------
R. Schorr Berman
/s/ JAMES S. HUGHES Director May 11, 2000
- -----------------------------------------------------
James S. Hughes
Director
- -----------------------------------------------------
John Kornreich
</TABLE>
II-12
<PAGE> 517
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director
- -----------------------------------------------------
Allan L. Rayfield
/s/ JOHN B. SAYNOR Director May 10, 2000
- -----------------------------------------------------
John B. Saynor
/s/ JOHN A. SHANE Director May 10, 2000
- -----------------------------------------------------
John A. Shane
Director
- -----------------------------------------------------
Edwin M. Banks
/s/ H. SEAN MATHIS Director May 10, 2000
- -----------------------------------------------------
H. Sean Mathis
</TABLE>
II-13
<PAGE> 518
PART II FOR VAST SOLUTIONS, INC. S-1
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities registered hereby, all of which
will be paid by the Registrant:
<TABLE>
<S> <C>
Registration fee............................................ $ 1,338
Transfer agent fees......................................... 5,000
Printing and duplicating expenses........................... 250,000
Legal fees and expenses..................................... 750,000
Accounting fees and expenses................................ 500,000
Miscellaneous expenses...................................... 200,000
----------
Total.................................................. $1,706,338
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Registrant provides that the
Registrant shall indemnify, in accordance with and to the full extent now or
hereafter permitted by law, any person who was or is a party or its threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including,
without limitation, an action by or in the right of the Registrant), by reason
of his or her acting as a director or officer of the Registrant (and the
Registrant, in the discretion of the Board of Directors, may so indemnify a
person by reason of the fact that he is or was an employee or agent of the
Registrant or is or was serving at the request of the Registrant in any other
capacity for or on behalf of the Registrant) against any liability or expense
actually and reasonably incurred by such person in respect thereof; provided,
however, the Registrant shall be required to indemnify an officer or director in
connection with an action, suit or proceeding initiated by such person only if
such action, suit or proceeding was authorized by the Board of Directors of the
Registrant.
The Registrant's Certificate of Incorporation also limits the liability of
directors, providing that no director of the Registrant shall be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director. Such limitation of liability does not extend to
liability (i) for any breach of the director's duty loyalty to the Registrant or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit.
The Registrant's By-Laws provide for indemnification as follows:
"ARTICLE VI.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. 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 civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee, agent or
representative of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, agent or representative of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably
A-II-1
<PAGE> 519
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 his 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 he 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 his conduct was unlawful.
Section 2. 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 or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee,
agent or representative of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee, agent or representative of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Chancery or 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 indemnify for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. To the extent that a director, officer, employee, agent or
representative of the Corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in Sections 1 and 2 of
this article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee, agent or representative is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections 1
and 2 of this article. Such determination shall be made (1) 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 (2) 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 (3) by the
stockholders.
Section 5. Expenses (including attorneys' fees) incurred in defending any
civil, criminal, administrative or investigative action, suit or proceeding may
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the manner
provided in Section 4 of this article upon receipt of an undertaking by or on
behalf of the director, officer, employee, agent or representative to repay such
amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation under this article.
Section 6. 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 civil, criminal, administrative or
investigative, (i) arising under the Employee Retirement Income Security Act of
1974 or regulations promulgated thereunder, or under any other law or regulation
of the United States or any agency or instrumentality thereof or law or
regulation of any state or political subdivision or any agency or
instrumentality of either, or under the common law of any of the foregoing,
against expenses (including attorneys' fees), judgments, fines, penalties, taxes
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding by reason of the fact that he is
or was a fiduciary, disqualified person or party in interest with respect to an
employee benefit plan covering employees of the Corporation or of a subsidiary
corporation, or is or was serving in any other capacity with
A-II-2
<PAGE> 520
respect to such plan, or has or had any obligations or duties with respect to
such plan by reason of such laws or regulations, provided that such person was
or is a director, officer, employee, agent or representative of the Corporation,
or (ii) in connection with any matter arising under federal, state or local
revenue or taxation laws or regulations, against expenses (including attorneys'
fees), judgments, fines, penalties, taxes, amounts paid in settlement and
amounts paid as penalties or fines necessary to contest the imposition of such
penalties or fines, actually and reasonably incurred by him in connection with
such action, suit or proceeding by reason of the fact that he is or was a
director, officer, employee, agent or representative of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, agent or representative of another corporation, partnership, joint
venture, trust or other enterprise and had responsibility for or participated in
activities relating to compliance with such revenue or taxation laws and
regulations; provided, however, that such person did not act dishonestly or in
willful or reckless violation of the provisions of the law or regulation under
which such suit or proceeding arises. Unless the Board of Directors determines
that under the circumstances then existing, it is probable that such director,
officer, employee, agent or representative will not be entitled to be
indemnified by the Corporation under this section, expenses incurred in
defending such suit or proceeding, including the amount of any penalties or
fines necessary to be paid to contest the imposition of such penalties or fines,
shall be paid by the Corporation in advance of the final disposition of such
suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee, agent or representative to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation under this section.
Section 7. The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, agent or representative and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 8. The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, agent or representative
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, agent or representative of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not he would be entitled to indemnity against
such liability under the provisions of this article."
Pursuant to the provisions of Section 145 of the Delaware General
Corporation Law, every Delaware corporation has the power to 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 (other than an
action by or in the right of the corporation) by reason of the fact that he or
she is or was a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, against any and all
expenses, judgments, fines and amounts paid in settlement and reasonably
incurred in connection with such action, suit or proceedings. The power to
indemnify applies only if such person acted in good faith and in a manner he or
she reasonably believed to be in the best interest, or not opposed to the best
interest, of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication unless the court, in its discretion,
believes that in the light of all the circumstances indemnification should
apply.
To the extent any of the persons referred to in the two immediately
preceding paragraphs is successful in the defense of the actions referred to
therein, such person is entitled, pursuant to Section 145, to indemnification as
described above.
A-II-3
<PAGE> 521
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
3.1* Form of Amended and Restated Certificate of Incorporation of
Vast Solutions, Inc.
3.2* Form of Amended and Restated Bylaws of Vast Solutions, Inc.
4.1* Certificate for shares of Vast Solutions, Inc.'s Class B
common stock, par value $0.01 per share.
5.1* Opinion of Mayer, Brown and Platt.
10.1 Vast Solutions, Inc. 2000 Long-Term Stock Incentive Plan.
10.2* Tax Allocation Agreement between Vast Solutions, Inc. and
Paging Network, Inc.
10.3* Separation Agreement between Vast Solutions, Inc. and Paging
Network, Inc.
10.4* Administrative Services Agreement between Vast Solutions,
Inc. and Paging Network, Inc.
10.5* Technology Services Agreement between Vast Solutions, Inc.
and Paging Network, Inc.
10.6* Reseller Agreement between Vast Solutions, Inc. and Paging
Network, Inc.
10.7* Facility Access Agreement between Vast Solutions, Inc. and
Paging Network, Inc.
10.8 Software Sublicense Agreement, dated as of March 30, 2000,
among Vast Solutions, Inc., Paging Network, Inc. and TIBCO
Software, Inc.
10.9 License Agreement, dated as of May 11, 2000, between Paging
Network, Inc. and Vast Solutions, Inc.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Mayer, Brown & Platt (included in the opinion
filed as Exhibit 5.1 to this registration statement).
99.1 Consent of KPMG LLP.
</TABLE>
- ---------------
* To be included with an amendment to this registration statement.
(b) Financial Statement Schedules:
No schedule for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is required or applicable
under the related instructions, or the amounts that would be included in such
schedule are immaterial, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
A-II-4
<PAGE> 522
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Vast Solutions,
Inc. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Addison, Texas, on May 12, 2000.
VAST SOLUTIONS, INC.
By: /s/ JOHN P. FRAZEE, JR.
------------------------------------
John P. Frazee, Jr.
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 12, 2000.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ JOHN P. FRAZEE, JR. Chairman of the Board and Chief Executive
- --------------------------------------------------- Officer (Sole Director and Principal Executive
John P. Frazee, Jr. Officer)
/s/ JULIAN B. CASTELLI Acting Chief Financial Officer (Principal
- --------------------------------------------------- Financial and Accounting Officer)
Julian B. Castelli
</TABLE>
A-II-5
<PAGE> 523
PAGING NETWORK, INC.
EXHIBIT INDEX
FOR FORM S-4
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of November 7, 1999 by
and among Paging Network, Inc., Arch Communications Group,
Inc. and St. Louis Acquisition Corp. (Included as Annex B to
the prospectus included herein.)
2.2 Amendment to Agreement and Plan of Merger dated as of
January 7, 2000 by and among Paging Network, Inc., Arch
Communications Group, Inc. and St. Louis Acquisition Corp.
(Filed as an exhibit to Paging Network, Inc.'s Current
Report on Form 8-K on January 20, 2000 and incorporated by
reference herein.
2.3 Amendment No. 2 to Agreement and Plan of Merger dated as of
May 10, 2000 by and among Paging Network, Inc., Arch
Communications Group, Inc. and St. Louis Acquisition Corp.
3.1 Restated Certificate of Incorporation of Paging Network,
Inc. (Filed as an exhibit to Registration Statement No.
33-42253 on Form S-1 and incorporated by reference herein.)
3.3 Bylaws of Paging Network, Inc., as amended. (Filed as an
exhibit to Paging Network, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
by reference herein.)
4.1 Articles Sixth, Seventh, Eighth, Twelfth, and Thirteenth of
the Restated Certificate of Incorporation of Paging Network,
Inc., as amended. (Filed as an exhibit to Registration
Statement No. 33-42253 on Form S-1 and incorporated by
reference herein.)
4.2 Articles II, III, and VII and Section 1 of Article VIII of
Paging Network, Inc.'s Bylaws, as amended. (Filed as an
exhibit to Paging Network, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
by reference herein.)
4.3 Form of Indenture. (Filed as an exhibit to Registration
Statement No. 33-46803 on Form S-1 and incorporated by
reference herein.)
4.4 Shareholder Rights Agreement. (Filed as an exhibit to Paging
Network, Inc.'s Report on Form 8-K on September 15, 1994 and
incorporated by reference herein.)
4.5 First Amendment to the Shareholder Rights Agreement. (Filed
as an exhibit to Paging Network, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated by reference herein.)
4.6 Second Amendment to the Shareholder Rights Agreement. (Filed
as an exhibit to Paging Network, Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1999
and incorporated by reference herein.)
5.1 Opinion of Mayer, Brown & Platt. (To be filed by amendment.)
8.1 Form of Tax Opinion of Mayer, Brown & Platt.
10.1 1982 Incentive Stock Option Plan, as amended and restated.
(Filed as an exhibit to Registration Statement No. 33-42253
on Form S-1 and incorporated by reference herein.)
10.2 Form of Stock Option Agreement executed by recipients of
options granted under the 1982 Incentive Stock Option Plan.
(Filed as an exhibit to Registration Statement No. 33-42253
on Form S-1 and incorporated by reference herein.)
10.3 Form of Management Agreement executed by recipients of
options granted under the 1982 Incentive Stock Option Plan.
(Filed as an exhibit to Registration Statement No. 33-42253
on Form S-1 and incorporated by herein.)
</TABLE>
<PAGE> 524
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
10.4 Form of Vesting Agreement executed by recipients of options
granted under the 1982 Incentive Stock Option Plan. (Filed
as an exhibit to Registration Statement No. 33-42253 on Form
S-1 and incorporated by herein.)
10.5 Form of Indemnification Agreement executed by recipients of
options granted under the 1991 Stock Option Plan. (Filed as
an exhibit to Registration Statement No. 33-42253 on Form
S-1 and incorporated by herein.)
10.6 Form of First Amendment to Vesting Agreement executed by
recipients of options granted under the 1982 Incentive Stock
Option Plan. (Filed as an exhibit to Registration Statement
No. 33-42253 on Form S-1 and incorporated by herein.)
10.7 Form of First Amendment to Management Agreement executed by
recipients of options granted under the 1982 Incentive Stock
Option Plan. (Filed as an exhibit to Registration Statement
No. 33-42253 on Form S-1 and incorporated by herein.)
10.10 Second Amended and Restated Credit Agreement dated as of
June 5, 1996 among Paging Network, Inc., NationsBank of
Texas, N.A., Toronto Dominion (Texas), Inc., The First
National Bank of Boston, Chase Securities Inc. and certain
other lenders. (Filed as an exhibit to Paging Network,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996.)
10.13 1997 Restricted Stock Plan, as approved by shareowners on
May 22, 1997. (Filed as an exhibit to Paging Network, Inc.'s
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997 and incorporated by reference herein.)
10.14 Employment Agreement dated as of August 4, 1997 among Paging
Network, Inc. and John P. Frazee, Jr. (Filed as an exhibit
to Paging Network, Inc.'s Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997 and
incorporated by reference herein.)
10.17 1992 Director Compensation Plan, as amended and restated on
April 22, 1998. (Filed as an exhibit to Paging Network,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998 and incorporated by reference
herein.)
10.18 Amended and Restated 1991 Stock Option Plan, as approved by
shareowners on May 21, 1998. (Filed as an exhibit to Paging
Network, Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998 and incorporated by
reference herein.)
10.19 Letter dated May 26, 1998 regarding Second Amendments
effective March 31, 1998 to the Loan Agreements dated as of
June 5, 1996: (1) among Paging Network of Canada Inc., The
Toronto-Dominion Bank, and such other financial institutions
as become banks (2) among Madison Telecommunications
Holdings, Inc., The Toronto-Dominion Bank, and such other
financial institutions as become banks. (Filed as an exhibit
to Paging Network, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated by
reference herein.)
10.20 Forms of Stock Option Agreement executed by recipients of
options granted under the 1991 Stock Option Plan. (Filed as
an exhibit to Paging Network, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and
incorporated by reference herein.)
10.21 Employee Stock Purchase Plan, as amended on December 16,
1998. (Filed as an exhibit to Paging Network, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998 and
incorporated by reference herein.)
10.22 Severance Pay Plan dated as of January 20, 1999. (Filed as
an exhibit to Paging Network, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998 and incorporated
by reference herein.)
10.23 Amendment to Severance Pay Plan dated as of December 9, 1999
(Filed as an exhibit to Paging Networks, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31,
1999 and incorporated by reference herein.)
</TABLE>
<PAGE> 525
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
10.24 Form of Stock Option Agreement executed by recipients of
options grant under the 1992 Director Compensation Plan.
(Filed as an exhibit to Paging Network, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998 and
incorporated by reference herein.)
10.25 Amended and Restated Loan Agreement dated August 5, 1999
among Paging Network of Canada Inc., The Toronto-Dominion
Bank, Canadian Imperial Bank of Commerce, National Bank of
Canada, and such other financial institutions as become
banks. (Filed as an exhibit to Paging Network, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 and incorporated by reference herein.)
10.26 Amended and Restated Loan Agreement dated August 5, 1999
among Madison Telecommunications Holdings, Inc., The
Toronto-Dominion Bank, Canadian Imperial Bank of Commerce,
National Bank of Canada, and such other financial
institutions as become banks. (Filed as an exhibit to Paging
Network, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 and incorporated by reference
herein.)
21.1 List of Subsidiaries of Paging Network, Inc.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Mayer, Brown & Platt. (To be included in the
opinion filed as Exhibit 5.1 to this registration
statement.)
24.1 Power of Attorney of certain directors and officers of
Paging Network, Inc.
99.1 Client Letter -- Noteholders
99.2 Letter to Brokers -- Noteholders
99.3 Letter of Transmittal/Consent Form
99.4 Notice of Guaranteed Delivery
99.5 Class 5 Master Ballot -- 8.875% Notes Due 2006
99.6 Class 5 Ballot -- 8.875% Notes Due 2006
99.7 Class 6 Master Ballot -- Old Stock Interests
99.8 Class 6 Ballot -- Old Stock Interests
99.9 Consent of Houlihan Lokey Howard & Zukin Capital. (To be
filed by amendment.)
99.10 Consent of Goldman, Sachs & Co. (To be filed by amendment.)
99.11 Consent of Morgan Stanley Dean Witter. (To be filed by
amendment.)
</TABLE>
<PAGE> 526
VAST SOLUTIONS, INC.
EXHIBIT INDEX
FOR FORM S-1
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
3.1* Form of Amended and Restated Certificate of Incorporation of
Vast Solutions, Inc.
3.2* Form of Amended and Restated Bylaws of Vast Solutions Inc.
4.1* Certificate for shares of Vast Solutions, Inc.'s Class B
common stock, par value $0.01 per share.
5.1* Opinion of Mayer, Brown and Platt.
10.1 Vast Solutions, Inc. 2000 Long-Term Stock Incentive Plan.
10.2* Tax Allocation Agreement between Vast Solutions, Inc. and
Paging Network, Inc.
10.3* Separation Agreement between Vast Solutions, Inc. and Paging
Network, Inc.
10.4* Administrative Services Agreement between Vast Solutions,
Inc. and Paging Network, Inc.
10.5* Technology Services Agreement between Vast Solutions, Inc.
and Paging Network, Inc.
10.6* Reseller Agreement between Vast Solutions, Inc. and Paging
Network, Inc.
10.7* Facility Access Agreement between Vast Solutions, Inc. and
Paging Network, Inc.
10.8 Software Sublicense Agreement, dated as of March 30, 2000,
among Vast Solutions, Inc., Paging Network, Inc. and TIBCO
Software, Inc.
10.9 License Agreement, dated as of May 11, 2000, between Paging
Network, Inc. and Vast Solutions, Inc.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Mayer, Brown & Platt (included in the opinion
filed as Exhibit 5.1 to this registration statement).
99.1 Consent of KPMG LLP.
</TABLE>
- ---------------
* To be included with an amendment to this registration statement.
6
<PAGE> 1
Exhibit - 2.3
AMENDMENT NO. 2
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT dated as of May 10, 2000 (this "Amendment") between Paging
Network, Inc., a Delaware corporation ("PageNet"), Arch Communications Group,
Inc., a Delaware corporation ("Arch"), and St. Louis Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Arch ("Merger Sub").
WHEREAS, PageNet, Arch and Merger Sub have previously entered into that
certain Agreement and Plan of Merger dated as of November 7, 1999, as amended on
January 7, 2000, between PageNet, Arch and Merger Sub (the "Merger Agreement");
and
WHEREAS, the respective Boards of Directors of PageNet, Arch and Merger
Sub have determined that it is in the best interests of PageNet or Arch, as the
case may be, and its respective stockholders to amend the Merger Agreement as
hereinafter set forth and have duly approved this Amendment and authorized its
execution and delivery.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined herein,
shall have the meanings given them in the Merger Agreement, and each reference
in the Merger Agreement to "this Agreement", "hereof", "herein", "hereunder" or
"hereby" and each other similar reference shall be deemed to refer to the Merger
Agreement as amended hereby. All references to the Merger Agreement in any other
agreement between PageNet and Arch relating to the transactions contemplated by
the Merger Agreement shall be deemed to refer to the Merger Agreement as amended
hereby.
2. Section 1.1 of the Merger Agreement is hereby amended by deleting
the reference to "Article III" and substituting in lieu thereof "Articles II and
III".
3. The first sentence of Section 4.1(a) of the Merger Agreement is
hereby deleted in its entirety and replaced with the following:
"Each share of common stock, par value $0.01 per share, of PageNet
(each, a "PageNet Share") issued and outstanding immediately prior to
the Effective Time (excluding PageNet Shares (collectively, "Excluded
PageNet Shares") that are owned by Arch, Merger Sub or any direct or
indirect, wholly owned subsidiary of Arch or Merger Sub (collectively,
the "Arch Companies") or Dissenting Shares (as defined below)), shall
be converted into and become exchangeable for 0.1247
<PAGE> 2
of a share (the "Exchange Ratio") of common stock, par value $0.01 per
share, of Arch (the "Arch Common Stock"), subject to adjustment as
provided in Section 4.4, (the "Merger Consideration")."
4. Section 4.2 (a) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"(a) Exchange Procedures. Promptly after the Effective Time, Arch shall
cause its transfer agent or another exchange agent selected by Arch
with PageNet's prior approval (the "Exchange Agent"), which shall not
be unreasonably withheld, to mail to each holder of record as of the
Effective Time of a Certificate: (i) a letter of transmittal specifying
that delivery of the Certificates shall be effected, and that risk of
loss and title to the Certificates shall pass, only upon delivery of
the Certificates (or affidavits of loss in lieu thereof) to the
Exchange Agent in accordance with the terms and conditions of such
letter of transmittal, such letter of transmittal to be in such form
and have such other provisions as Arch and PageNet may reasonably
agree; and (ii) instructions for exchanging the Certificates for: (A)
certificates representing shares of Arch Common Stock; (B) with respect
to holders of PageNet Shares at the Vast Distribution Record Date (as
defined in Section 6.22), the Distributed Interests (as defined in
Section 6.22), and (C) any unpaid dividends and other distributions due
to such holder with respect to such shares. Subject to Sections 4.2(g)
and 4.3, upon proper surrender of a Certificate for cancellation (or
affidavits of loss in lieu thereof) to the Exchange Agent together with
such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor: (x) a
certificate representing that number of shares of Arch Common Stock
that such holder is entitled to receive pursuant to this Article IV
and, with respect to PageNet Shares at the Vast Distribution Record
Date, certificates representing the Distributed Interests that such
holder is entitled pursuant to Section 6.22; and (y) a check in the
amount (after giving effect to any required tax withholdings) of any
dividends or other distributions that such holder has the right to
receive pursuant to the provisions of this Article IV. The Certificate
so surrendered shall forthwith be canceled. No interest will be paid or
accrued on any amount payable upon due surrender of any Certificate.
Notwithstanding the foregoing, a holder of Dissenting Shares shall not
be required to surrender a Certificate in order to receive Distributed
Interests with respect to the PageNet Shares represented by such
Certificate, provided that Arch has confirmed to the Exchange Agent
that such holder has taken all necessary steps to perfect appraisal
rights pursuant to Section 4.3 hereof and the DGCL. In the event of a
transfer of ownership of PageNet Shares that is not registered in the
transfer records of PageNet, a certificate representing the proper
number of shares of Arch Common Stock and, with respect to PageNet
Shares at the Vast Distribution Record Date, certificates representing
the Distributed Interests, together with a check for any dividends or
2
<PAGE> 3
distributions with respect thereto, may be issued and/or paid to such a
transferee if the Certificate formerly representing such PageNet Shares
is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that all
applicable stock transfer taxes have been paid. If any certificate for
shares of Arch Common Stock (and/or Distributed Interests) is to be
issued in a name other than that in which the Certificate surrendered
in exchange therefor is registered, it shall be a condition of such
exchange that the Person (as defined below) requesting such exchange
shall pay all transfer and other taxes required by reason of the
issuance of certificates for shares of Arch Common Stock and/or
Distributed Interests in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the
satisfaction of Arch or the Exchange Agent that such tax has been paid
or is not applicable.
The term "Person" means any individual, corporation (including
not-for-profit), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization,
Governmental Entity (as defined in Section 5.1(d)(i)), or other entity
of any kind or nature."
5. Section 4.2(c) of the Merger Agreement is hereby amended by deleting
the reference to "or Arch Series C Preferred Shares" and substituting in lieu
thereof "or, if Arch elects to convert shares of Arch Class B Common Stock (as
defined below) into shares of Arch Common Stock at the Effective Time, Arch
Class B Common Stock."
6. Section 4.2(e) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"(e) Termination of Exchange Period; Unclaimed Stock. Any shares of
Arch Common Stock, and any portion of the dividends or other
distributions with respect to the Arch Common Stock deposited by Arch
with the Exchange Agent (including the proceeds of any investments
thereof) that remain unclaimed by the holders of Certificates 180 days
after the Effective Time shall be re-delivered to Arch. Any holders of
Certificates who have not theretofore complied with this Article IV
shall thereafter be entitled to look only to the Surviving Corporation
for exchange of shares of Arch Common Stock, and any dividends and
other distributions with respect thereto issuable and/or payable
pursuant to Section 4.1, Section 4.2(b), and Section 4.2(d) upon due
surrender of their Certificates (or affidavits of loss in lieu
thereof), in each case, without any interest thereon. Any Distributed
Interests, and any portion of the dividends or other distributions with
respect to the Distributed Interests deposited by PageNet with the
Exchange Agent (including the proceeds of any investments thereof) that
remain unclaimed by the holders of Certificates 180 days after the
Effective Time shall be re-delivered to the Distributed Subsidiary. Any
holders of Certificates who have not theretofore
3
<PAGE> 4
complied with this Article IV shall thereafter be entitled to look only
to the Distributed Subsidiary for the Distributed Interests, and any
dividends and other distributions with respect thereto issuable and/or
payable pursuant to Section 4.1, Section 4.2(b), and Section 6.22 upon
due surrender of their Certificates (or affidavits of loss in lieu
thereof), in each case, without any interest thereon. Notwithstanding
the foregoing, none of Arch, the Distributed Subsidiary, the Exchange
Agent, nor any other Person shall be liable to any former holder of
Certificates for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws."
7. Section 4.2(f) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"(f) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed, and the posting by such Person of a bond
in the form customarily required by Arch as indemnity against any claim
that may be made against it with respect to such Certificate, Arch and
PageNet will issue the shares of Arch Common Stock and the Distributed
Interests and the Exchange Agent will issue stock and any dividends and
other distributions with respect thereto issuable or payable in
exchange for such lost, stolen, or destroyed Certificate pursuant to
Section 4.1, Section 4.2(b), Section 4.2(d), and Section 6.22, in each
case, without interest."
8. Section 4.3 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"4.3. Dissenters' Rights. Notwithstanding anything to the contrary,
PageNet Shares outstanding immediately prior to the Effective Time and
held by a stockholder of record as of the time of the PageNet
Stockholders Meeting who has not voted in favor of the Merger or
consented thereto in writing and who has delivered a written demand for
appraisal of such shares at or before the PageNet Stockholders Meeting
in accordance with Section 262 of the DGCL ("Dissenting Shares"), shall
not be converted into the right to receive the Merger Consideration
unless such holder fails to perfect or withdraws or otherwise loses his
right to appraisal and payment under the DGCL. If, after the Effective
Time, any such holder fails to perfect or effectively withdraws or
loses his right to appraisal and payment, such Dissenting Shares shall
thereupon be treated as if they had been converted as of the Effective
Time into the right to receive the Merger Consideration to which such
holder is entitled, without interest or dividends thereon."
4
<PAGE> 5
9. Section 4.4 of the Merger Agreement is hereby amended by deleting
all references to ", Arch Series C Preferred Shares" and all references to "and
the Series C Exchange Ratio".
10. Section 4.5 of the Merger Agreement is hereby amended by deleting
the reference to "(with a corresponding reduction in the number of shares
offered to the holders of PageNet Shares (or Distributed Interests) or the
holders of Arch Common Stock, respectively)." and substituting in lieu thereof
"(with a corresponding reduction in the number of shares of Arch Common Stock
(or Distributed Interests) offered to the holders of PageNet Shares or the
holders of Arch Common Stock, respectively).".
11. Section 5.1(c)(ii) of the Merger Agreement is hereby amended by
deleting all references to "and the Series C Consent Agreement" and all
references to "and a majority of the votes of the Arch Series C Preferred Shares
(for certain of the Certificate Amendments)".
12. Section 5.1(o) of the Merger Agreement is hereby amended by
deleting all references to "or, the Series C Consent Agreement, as applicable".
13. Section 6.3 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"6.3. The Certificate Amendments. Arch shall take all actions necessary
(subject to applicable law and any necessary stockholder approval) to
adopt the Certificate Amendments. The Certificate Amendments shall
provide for an increase in the authorized number of shares of Arch
Common Stock to an amount sufficient to effectuate the actions
contemplated hereby and, if Arch so elects, may provide for the
conversion of each share of Arch Class B Common Stock into one share of
Arch Common Stock. Some or all of the Certificate Amendments may, in
the discretion of Arch, be made contingent upon the consummation of the
Merger or the Alternative Merger (as the case may be)."
14. Section 6.5(b) of the Merger Agreement is hereby amended by
deleting all references to ", the conversion of the Arch Series C Preferred
Shares" and substituting in lieu thereof ", the conversion of the Arch Class B
Common Stock (if Arch elects to have such shares converted pursuant to the
Certificate Amendments)" and by deleting the reference to (the "Arch
Stockholders Approval") and substituting in lieu thereof "(with respect to all
matters other than the approval of the conversion of the Arch Class B Common
Stock pursuant to the Certificate Amendments, the "Arch Stockholder Approval").
15. Section 6.9 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"6.9 Stock Exchange Listing. Arch shall use its reasonable best efforts
to file a notification for listing of additional shares with respect to
the shares of Arch
5
<PAGE> 6
Common Stock to be issued pursuant to the Merger, Arch Exchange Offer
and pursuant to the Certificate Amendments with the Nasdaq Stock Market
("NASDAQ") on or prior to the Closing Date."
16. Section 6.18(b) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"(b) The obligations of PageNet under the PageNet Exchange Offer shall
be subject to the satisfaction of the conditions to the consummation of
the Merger set forth in Article VII of this Agreement and shall be
subject to the further condition that not less than 97.5% of the
aggregate outstanding principal amount of PageNet Notes and not less
than a majority of the outstanding principal amount of each series of
PageNet Notes shall have been validly tendered in accordance with the
terms of the PageNet Exchange Offer prior to the expiration date of the
PageNet Exchange Offer and not withdrawn (such 97.5% of the outstanding
principal amount of the PageNet Notes and not less than a majority of
the outstanding principal amount of each series of PageNet Notes
tendered and not withdrawn being herein referred to as the "PageNet
Minimum Condition"). Except as otherwise provided in this Agreement, no
term or condition of the Exchange Offers may be amended or modified
without the written consent of the parties hereto, which consent shall
not be unreasonably withheld."
17. Section 6.18(h) of the Merger Agreement is hereby amended by
deleting the reference to "the twentieth business day" and substituting in lieu
thereof "the thirty-fifth calendar day".
18. Section 6.19 of the Merger Agreement is amended by deleting the
definition of "Initial Determination Date" and substituting in lieu thereof the
following:
""Initial Determination Date" shall mean the date which is 35 calendar
days after the date upon which the S-4 Registration Statement and the
PageNet Exchange Registration Statement are declared effective by the
SEC;"
19. Section 6.19 of the Merger Agreement is hereby amended by deleting
the definition of "Requisite Conditions to the Prepackaged Plan" and
substituting in lieu thereof the following:
""Requisite Conditions to the Prepackaged Plan" shall mean (i) the
PageNet Conditions to the Prepackaged Plan, (ii) the Arch Stockholders
Approval, and (iii) that either the Exit Financing has been obtained or
upon entry of the Final Order will be obtained."
6
<PAGE> 7
20. Section 6.19 of the Merger Agreement is hereby amended by deleting
the definition of "Arch Conditions to the Prepackaged Plan".
21. Section 6.19 of the Merger Agreement is hereby amended by deleting
all references to "the PageNet Minimum Condition and the Arch Minimum Condition
are satisfied" and substituting in lieu thereof "the PageNet Minimum Condition
is satisfied".
22. Section 6.19(a)(i) of the Merger Agreement is hereby amended by
deleting all references to "satisfaction of the PageNet Minimum Condition and
the Arch Minimum Condition" and substituting in lieu thereof "satisfaction of
the PageNet Minimum Condition".
23. Section 6.19(a)(iv) of the Merger Agreement is hereby amended by
deleting all references to "the Arch Conditions to the Prepackaged Plan" and
substituting in lieu thereof "the Arch Stockholders Approval".
24. Section 6.19(a)(v) of the Merger Agreement is hereby amended by
deleting all references to "the PageNet Minimum Condition and the Arch Minimum
Condition have been satisfied" and substituting in lieu thereof "the PageNet
Minimum Condition has been satisfied".
25. Section 6.21 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"6.21. Payment of Dissenters' Rights. Following the Effective Time, any
payment made with respect to a holder of Dissenting Shares entitled to
payment under the DGCL will be made solely from the assets of the
Surviving Corporation. Arch shall not make any payments to holders of
Dissenting Shares and shall not directly or indirectly reimburse the
Surviving Corporation for the payments made with respect to Dissenting
Shares."
26. Section 6.22 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"6.22. Distribution of Interests in Vast to PageNet Shareholders. Prior
to the Closing, the Board of Directors of PageNet will set aside for
distribution, solely to those holders of PageNet Shares immediately
prior to the acceptance of PageNet Notes in the PageNet Exchange Offer
(the "Vast Distribution Record Date"), with respect to each PageNet
Share issued and outstanding at such date, interests (the "Distributed
Interests") representing the portion of such equity ownership in Vast
Solutions, Inc. (the "Distributed Subsidiary") equal to (x) subject to
Section 6.1(d), 11.6% of the total equity ownership of the Distributed
Subsidiary divided by (y) the number of PageNet Shares issued and
outstanding at the Vast Distribution Record Date (the distribution of
the Distributed Interests shall be referred to herein as the "Vast
Distribution"). The distribution of the Distributed
7
<PAGE> 8
Interests shall be conditioned upon the occurrence of (i) either (A)
the satisfaction of the PageNet Minimum Condition and the acceptance of
the PageNet Notes or (B) the filing of the Final Confirmation Order and
(ii) the consummation of the Merger. PageNet and the Distributed
Subsidiary shall take such action reasonably necessary (including
filings with and no-action requests of the SEC and communications with
stockholders) to effectuate the Vast Distribution. Upon satisfaction of
the conditions to the Vast Distribution, Arch shall, in accordance with
Section 4.2 of this Agreement and in connection with the exchange of
PageNet certificates, use its reasonable best efforts to consummate, or
cause to be consummated the Vast Distribution as promptly as
practicable after the Effective Time."
27. Section 7.1(b) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"(b) "NASDAQ Listing. The notification for listing of additional shares
with respect to all shares of Arch Common Stock issuable pursuant to
this Agreement shall have been filed with NASDAQ."
28. Section 7.1(d) of the Merger Agreement is hereby amended by
deleting all references to "Exchange Offers" and substituting in lieu thereof
"PageNet Exchange Offer".
29. Section 7.1(e) of the Merger Agreement is hereby amended by
deleting all references to "Exchange Registration Statements" and substituting
in lieu thereof "PageNet Registration Statement".
30. Section 7.1(g) of the Merger Agreement is hereby amended by
deleting all references to "and the Arch Minimum Condition" and all references
to "and the Arch Minimum Condition shall have obtained".
31. Section 7.3(f) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"(f) Intentionally Omitted."
32. Section 7.3(g) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"(g) Vast Distribution. The Board of Directors of PageNet shall have
set aside Distributed Interests pursuant to Section 6.22 of this
Agreement or the Final Confirmation Order shall have been entered
confirming the Prepackaged Plan."
8
<PAGE> 9
33. Section 8.5(b) of the Merger Agreement is hereby amended by
deleting all references to "or Arch's noteholders do not satisfy the Arch
Minimum Condition with respect to the Arch Notes".
34. Section 9.7 of the Merger Agreement is hereby amended by deleting
all references to "Series C Consent Agreement,".
35. The Merger Agreement is hereby amended by replacing all references
to "June 30, 2000" with "September 30, 2000".
36. The Merger Agreement is hereby amended by replacing all references
to "Spinoff" with "Vast Distribution".
37. The Merger Agreement is hereby amended by replacing all references
to "Spinoff Record Date" with "Vast Distribution Record Date".
38. The Index of Defined Terms in the Merger Agreement is hereby
amended by deleting all references to "Arch Conditions to the Prepackaged Plan",
"Arch Minimum Conditions", "Series C Consent Agreement", "Series C
Consideration" and "Series C Exchange Ratio" and the associated section
references and by adding the following immediately after the reference to
"Dismissal Order":
"Dissenting Shares . . . . . . . . . . . . . . . . . . . . .4.3"
39. The Table of Contents in the Merger Agreement is hereby amended to
reflect all of the amendments to the Merger Agreement set forth herein.
* * *
9
<PAGE> 10
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
by the duly authorized officers of the parties to this Amendment as of the date
first written above.
PAGING NETWORK, INC.
By: /s/ Julian B. Castelli
-------------------------------------
Name: Julian B. Castelli
Title: Senior Vice President and
Chief Financial Officer
ARCH COMMUNICATIONS GROUP, INC.
By: /s/ C.E. Baker, Jr.
-------------------------------------
Name: C.E. Baker, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ST. LOUIS ACQUISITION CORP.
By: /s/ C.E. Baker, Jr.
-------------------------------------
Name: C.E. Baker, Jr.
Title: Chief Executive Officer
10
<PAGE> 1
EXHIBIT 8.1
, 2000
Paging Network, Inc.
14911 Quorum Drive
Dallas, TX 75240
Dear Ladies and Gentlemen:
We have acted as your counsel in connection with (i) the proposed merger
(the "Merger") of St. Louis Acquisition Corp. ("Merger Sub"), a wholly owned
subsidiary of Arch Communications Group, Inc. ("Arch") with and into Paging
Network, Inc. ("PageNet"), pursuant to the Agreement and Plan of Merger, dated
as of November 7, 1999, and as amended January 7 and May , 2000 (the
"Merger Agreement"), (ii) the exchange offer to be made to holders of PageNet
senior subordinated notes as provided in the Merger Agreement, (iii) the
preparation and filing of the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1993, as amended (the "Securities Act"), Registration No. 333-94403 (the
"Registration Statement"), and (iv) the preparation and filing of the joint
proxy statement and prospectus filed with the Commission under the Securities
Act, Registration No. 333-95677 (the "Joint Proxy/Prospectus"). Capitalized
terms used but not defined herein shall have the meaning given to such terms in
the Merger Agreement.
Pursuant to the Merger Agreement:
1. Merger Sub will merge with and into PageNet, and PageNet will
become a wholly owned subsidiary of Arch;
2. Each share of PageNet common stock, $0.01 par value per share
("PageNet Common Stock") will be converted into the right to receive 0.1247
shares of Arch common stock, $0.01 par value per share ("Arch Common
Stock");
3. Prior to the Merger, PageNet will make an exchange offer to the
holders of its senior subordinated notes pursuant to which noteholders who
accept the offer will, immediately prior to the Merger, exchange their
notes for PageNet Common Stock and Vast Class B Common Stock (the "PageNet
Debt Exchange"). In addition, the indentures governing any senior
subordinated notes outstanding after the PageNet Debt Exchange will be
amended. Immediately following the PageNet Debt Exchange, the PageNet
Common Stock received by such PageNet noteholders in the exchange will be
converted into Arch Common Stock as a result of the Merger. (The foregoing
transactions are collectively being referred to as the "PageNet Debt
Exchange/Merger");
4 Prior to consummation of the PageNet Debt Exchange, PageNet will
distribute to its stockholders who exist immediately prior to the PageNet
Debt Exchange ("Pre Debt Exchange PageNet Stockholders") up to 11.6% of the
equity of Vast Solutions, Inc. ("Vast"), a wholly owned subsidiary of
PageNet (the "Vast Distribution"), such distribution to be in the form of
shares of Class B common stock of Vast ("Vast Class B Common Stock");
5 Prior to the Merger, Arch will make an exchange offer to the
holders of its senior discount notes pursuant to which such noteholders who
accept the offer will exchange their notes for Arch Common Stock
immediately prior to the Merger (the "Arch Debt Exchange").
The Merger, the Debt Exchange, and the Vast Distribution (together, the
"Transactions") may also be implemented through a consensual or "prepackaged"
bankruptcy plan on substantially the same terms.
You have requested our opinion concerning certain United States federal
income tax consequences of the Transactions.
In providing this opinion, we have relied on and assumed the accuracy of
(without any independent investigation or review thereof (i) the description of
the transactions as set forth in the Merger Agreement
<PAGE> 2
and the exhibits thereto, including the representations and covenants of PageNet
and Arch contained therein; (ii) the description of the transactions as set
forth in the Registration Statement and the Joint Proxy/Prospectus and the
exhibits thereto; (iii) representations provided by Arch and PageNet concerning
certain facts underlying and relating to the Transactions; (iv) confirmation of
certain valuation assumptions provided by Houlihan Lokey, Howard & Zukin Capital
("Houlihan Lokey"), financial advisors to PageNet, and (v) such other
instruments and documents related to the formation, organization and operation
of Arch, PageNet and Merger Sub and related to the consummation of the
Transactions as we have deemed necessary or appropriate.
This opinion is expressly conditioned on the accuracy of representations of
Arch and PageNet that (i) the Arch Common Stock to be issued in the Merger to
the Pre Debt Exchange PageNet Stockholders will represent more than 50% of the
total value of the consideration to be received by Pre Debt Exchange PageNet
Stockholders pursuant to the Transactions, and (ii) the Arch Common Stock to be
issued in the Merger to Pre Debt Exchange PageNet stockholders and exchanging
PageNet noteholders, in the aggregate, will represent more than 50% of the total
value of the consideration to be received by such stockholders and noteholders
in the Transactions, in each instance taking into account as total consideration
the sum of: (i) the value of the Arch Common Stock, (ii) the value of the Vast
Class B Common Stock, (iii) the amount of cash paid to dissenters who perfect
appraisal rights, (iv) the amount of cash paid in lieu of fractional shares and
(v) the value of any other property received by such holders from PageNet or
Arch pursuant to the Transactions. PageNet's representations on this subject
have been confirmed by its financial advisor, Houlihan Lokey.
In addition, we have assumed that: (i) the Transactions will be reported by
Arch and PageNet on their respective United States federal income tax returns in
a manner consistent with the options set forth below; (ii) any representation or
statement that is anticipated to be true or that is made "to the best of
knowledge" or is similarly qualified is correct without such qualification;
(iii) the Merger will qualify as a statutory merger under the laws of the State
of Delaware; (iv) as to all matters as to which any person or entity represents
that it is not a party to, does not have, or is not aware of any plan,
intention, understanding or agreement, there is in fact no such plan, intention,
understanding or agreement, and (v) officers of Arch and PageNet who have signed
the representations on behalf of those respective entities are knowledgeable
concerning the matters and are authorized to make all of the representations set
forth therein.
To the extent that this opinion addresses the United States federal income
tax consequences of the Transactions to a stockholder or noteholder of PageNet,
this opinion only addresses such consequences to a shareholder or noteholder of
PageNet who both (i) is a citizen or resident of the United States for federal
income tax purposes and (ii) holds its PageNet Common Stock or notes as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code"). In addition, the conclusions set forth in this opinion
may not be fully applicable to PageNet noteholders or stockholders subject to
special treatment under United States federal income tax law, such as dealers in
securities, financial institutions, insurance companies, tax-exempt entities,
persons who acquired PageNet Common Stock or senior subordinated notes as part
of a straddle, hedge, conversion transaction or other integrated transaction,
persons who hold PageNet Common Stock or senior subordinated notes through a
partnership or other pass-through entity, stockholders who acquired their
PageNet Common Stock through exercise of an employee stock option or otherwise
as compensation, and foreign individuals and entities.
This opinion is based on current provisions of the Code, the final,
proposed and temporary treasury regulations promulgated thereunder, and the
interpretation of the Code and such regulations by the courts and the Internal
Revenue Service (the "IRS"), as they are in effect and exist at the date of this
opinion. It should be noted that statutes, regulations, judicial decisions and
administrative interpretations are subject to change at any time and, in some
circumstances, with retroactive effect. A material change that is made after the
date hereof in any of the foregoing bases for our opinion could adversely affect
our conclusions.
<PAGE> 3
Based upon and subject to the foregoing, it is our opinion that, for United
States federal income tax purposes:
1. The Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Code.
2. Each of PageNet, Arch, and Merger Sub will be a party to that
reorganization within the meaning of Section 368(b) of the Code.
3. Except for (i) cancellation of indebtedness income recognized in
connection with the PageNet Debt Exchange and the Arch Debt Exchange and
(ii) recognition by PageNet of gain in connection with distribution of the
Vast Class B Stock pursuant to the Vast Distribution and the PageNet Debt
Exchange, neither Arch nor PageNet will recognize income, gain or loss as a
result of the Transactions.
4. The receipt of Vast Class B Common Stock will be taxable to the Pre
Debt Exchange PageNet Stockholders, and will likely be treated as
distribution in redemption of a portion of each such stockholder's PageNet
Common Stock, taxable under Section 302 of the Code; the remaining portion
of such PageNet Common Stock being treated as exchanged for Arch Common
Stock pursuant to the Merger. It is possible, however, that the
distribution of Vast Class B Stock would be treated as a distribution to
Pre Debt Exchange PageNet Stockholders taxable under Section 301 of the
Code.
5. A Pre Debt Exchange PageNet Stockholder and exchanging PageNet
noteholder will recognize no gain or loss on the exchange of PageNet Common
Stock for Arch Common Stock pursuant to the Merger, except with respect to
cash received in lieu of fractional shares. However, with respect to Pre
Debt Exchange PageNet Stockholders, income, gain or loss will be recognized
with respect to the Vast Class B Common Stock received in the Vast
Distribution, as described in paragraph 4 above.
6. The receipt of cash in lieu of a fractional share of Arch Common
Stock will be treated as a redemption of such fractional share by Arch
taxable under Section 302 of the Code.
7. A Pre Debt Exchange PageNet Stockholder's tax basis for the Arch
Common Stock received, including any fractional share, will equal the
stockholder's aggregate tax basis in the shares of PageNet Common Stock
held immediately prior to the Merger, as reduced by reason of the Vast
Distribution, and the holding period for such Arch Common Stock will
include the period during which the shares of PageNet Common Stock were
held.
8. A Pre Debt Exchange PageNet Stockholder's tax basis in shares of
Vast Class B Common Stock received will be equal to the fair market value
of the Vast Class B Common Stock on the date of the Merger, and the holding
period for such stock will begin on the day after the date of Merger.
9. The PageNet senior subordinated notes, both as originally issued
and as modified by the proposed amendment to the indentures, will likely
constitute "securities" for United States federal income tax purposes. This
conclusion, however, is not free from doubt, due to the factual nature of
the determination and the lack of clear definition of a "security" in the
applicable authorities.
10. Except for any amounts allocable to accrued interest and cash
received in lieu of fractional shares, an exchanging PageNet noteholder
will not recognize a loss on the PageNet Debt Exchange/Merger, and will
recognize gain on the PageNet Debt Exchange/Merger in an amount equal to
the lesser of: (i) the fair market value of the shares of Vast Class B
Common Stock received, and (ii) the amount by which the sum of (a) the fair
market value of the Vast Class B Common Stock received plus (b) the fair
market value of the Arch Common Stock received exceeds the noteholder's tax
basis in the senior subordinated notes surrendered.
11. An exchanging noteholder's tax basis in the Arch Common Stock
received in the PageNet Debt Exchange/Merger, including fractional shares,
but excluding amounts attributable to accrued
<PAGE> 4
interest, will equal the noteholder's tax basis in the senior subordinated
notes surrendered immediately prior to the PageNet Debt Exchange/Merger,
decreased by the fair market value of the Vast Class B Common Stock
received, other than amounts attributable to accrued interest, and
increased by any gain recognized on the exchange.
12. The holding period for the Arch Common Stock received by
exchanging noteholders, including fractional shares, will include the
noteholder's holding period for the senior subordinated notes exchanges.
13. A PageNet noteholder's tax basis in shares of Vast Class B Common
Stock received will be equal to the fair market value of the Vast Class B
Common Stock on the date of the PageNet Debt Exchange, and the holding
period for such stock will begin on the day after the date of the PageNet
Debt Exchange.
14. Gain recognized by a PageNet noteholder as described in paragraph
10 above will be capital gain except that any gain recognized by an
exchanging noteholder will be treated as ordinary income an amount equal to
the lesser of: (i) the gain recognized on the PageNet Debt Exchange/Merger,
and (ii) any accrued and unrecognized market discount on the notes as
determined under Sections 1276-1278 of the Code. Any such accrued and
unrecognized market discount which exceeds the amount recognized as
ordinary income in the PageNet Debt Exchange/Merger will carry over to the
Arch Common Stock and be recognized on disposition of the Arch Common
Stock.
15. An exchanging noteholder who was not previously required to
include in income accrued but unpaid interest attributable to ownership of
the senior subordinated notes will be treated as receiving ordinary income
to the extent that the consideration received in the Debt Exchange is
allocable to interest which accrued while the note was held by the
noteholder.
16. Although the conclusion is not free from doubt, a nontendering
PageNet noteholder will likely not recognize gain or loss on the
Transactions.
This opinion is rendered to you in connection with the Transactions. This
opinion may not be used or relied upon by any other person or for any other
purpose without our prior written consent. We consent, however, to the filing of
this opinion as an exhibit to the Registration Statement and the Joint
Proxy/Prospectus, and to the use of our name under the caption "Material Federal
Income Tax Considerations" in the Registration Statement and Joint
Proxy/Prospectus.
This opinion is based on facts and circumstances existing on the date
hereof, and assumes no charge in material facts prior to the Closing Date. The
opinion is further conditioned on the representations of Arch and PageNet and
the confirmation of Houlihan Lokey being reconfirmed as of the Closing Date.
Sincerely,
MAYER, BROWN & PLATT
<PAGE> 1
EXHIBIT 21.1
The following is a list of all subsidiaries of Paging Network, Inc.:
<TABLE>
<CAPTION>
OWNERSHIP
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION PERCENTAGE
------------------ ----------------------------- ----------
<S> <C> <C>
PageNet, Inc. Delaware 100%
Paging Network of America, Inc. Delaware 100%
Paging Network Canadian Holdings, Inc. Delaware 100%
Paging Network of Colorado, Inc. Delaware 100%
Paging Network Finance Corp. Delaware 100%
Paging Network International, Inc. Delaware 100%
Paging Network of Michigan, Inc. Delaware 100%
Paging Network of Northern California, Inc. Delaware 100%
Paging Network of San Francisco, Inc. Delaware 100%
Vast Solutions, Inc. Delaware 100%
PageNet de Argentina S.A. Argentina 99%
Paging Network do Brasil S.A. Brazil 17.5%
Paging Network of Canada Inc. Canada 100%
PageNet Chile S.A. Chile 100%
Paging Network International N.V. The Netherlands 100%
Paging Network (UK), Limited England 100%
Madison Telecommunications Holdings, Inc. Canada 80%
Madison Telecommunications, Inc. Canada 80%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated May 3, 2000, with respect to the consolidated
financial statements and financial statement schedule of Paging Network, Inc. as
of December 31, 1998 and 1999, and for each of the three years in the period
ended December 31, 1999, in the Registration Statement (Form S-4) and related
Prospectus of Paging Network, Inc. for the registration of 616,830,757 shares of
Paging Network, Inc. common stock and 13,780,000 shares of Class B common stock
of Vast Solutions, Inc., a wholly-owned subsidiary of Paging Network, Inc., to
be exchanged for all of the outstanding 8.875% senior subordinated notes due
2006, 10.125% senior subordinated notes due 2007, and 10% senior subordinated
notes due 2008 of Paging Network, Inc. (the Registration Statement).
We also consent to use our report dated February 12, 1999, except for the
eighth paragraph of Note 1 and the second paragraph of Note 6, as to which the
date is March 26, 1999, and the ninth paragraph of Note 1, as to which the date
is April 12, 1999, with respect to the financial statements of MobileMedia
Communications, Inc. as of December 31, 1997 and 1998, and for each of the three
years in the period ended December 31, 1998, in the Registration Statement.
/s/ ERNST & YOUNG LLP
--------------------------------------
Dallas, Texas
May 10, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 16, 2000 (except with respect to the matters discussed in
Note 3, as to which the date is March 16, 2000) included herein and to all
references to our firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 11, 2000
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John P.
Frazee, Jr., Ruth Williams and Julian B. Castelli, acting severally, as his
attorney-in-fact and agent, to sign any registration statement on Form S-4 and
any and all amendments (including post-effective amendments) to such
registration statement in connection with the registration under the Securities
and Exchange Act of 1933 of up to 616,830,757 shares of common stock, par value
$.01 per share, of Paging Network, Inc. to be issued in connection with the
offer to exchange such common stock for PageNet's outstanding debt securities,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting to
said attorney-in-fact and agent full power and authority to perform any act in
connection with any of the foregoing as fully as he might do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent may lawfully
do or cause to be done. Each attorney-in-fact and agent is hereby granted full
power of substitution and revocation with respect hereto.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD C. ALBERDING Director December 23, 1999
- ------------------------------------------------
Richard C. Alberding
/s/ HERMANN BUERGER Director December 30, 1999
- ------------------------------------------------
Hermann Buerger
/s/ JEFFREY M. CUNNINGHAM Director December 23, 1999
- ------------------------------------------------
Jeffrey M. Cunningham
/s/ GARY J. FERNANDES Director December 23, 1999
- ------------------------------------------------
Gary J. Fernandes
/s/ JOHN P. FRAZEE, JR. Chairman of the Board of December 22, 1999
- ------------------------------------------------ Directors and Chief Executive
John P. Frazee, Jr. Officer
/s/ JOHN S. LLEWELLYN Director December 23, 1999
- ------------------------------------------------
John S. Llewellyn
/s/ ROBERT J. MILLER Director December 23, 1999
- ------------------------------------------------
Robert J. Miller
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PAGING NETWORK, INC.
EXCHANGE OFFER AND CONSENT SOLICITATION
---------------------
VOTE ON PREPACKAGED BANKRUPTCY PLAN
To Our Clients:
Enclosed for your consideration is a prospectus dated as of ,
2000 and various other documents relating to the offer of Paging Network, Inc.,
a Delaware corporation, to exchange its [ % Senior Subordinated Notes] upon the
terms and subject to the conditions set forth in the prospectus and in the
accompanying Letter of Transmittal/Consent Form. Also enclosed is a prepackaged
bankruptcy plan ballot to be used to vote to accept or to reject the prepackaged
bankruptcy plan.
The exchange offer is part of an overall transaction in which PageNet will
merge into Arch Communications Group, Inc. A condition to the merger is the
recapitalization of each of PageNet's three series of senior subordinated notes.
PageNet is offering to exchange shares of PageNet common stock and shares of
Class B common stock of Vast Solutions, Inc., a wholly owned subsidiary of
PageNet, for all of PageNet's outstanding senior subordinated notes. The shares
of PageNet common stock received by noteholders will immediately be converted
into Arch common stock as a result of the merger, as more fully described in the
prospectus accompanying this letter.
Additionally, PageNet is soliciting votes to accept a prepackaged
bankruptcy plan. PageNet has prepared the prepackaged bankruptcy plan as an
alternative means to implement the recapitalization and merger in the event that
97.5% of the senior subordinated notes are not tendered in the exchange offer.
As beneficial owner of senior subordinated notes, you are entitled to vote on
the prepackaged bankruptcy plan. PLEASE NOTE THAT THE VALID TENDER OF YOUR
SENIOR SUBORDINATED NOTES DOES NOT CONSTITUTE A VOTE TO ACCEPT THE PREPACKAGED
BANKRUPTCY PLAN.
THE EXCHANGE OFFER AND CONSENT SOLICITATION (USE THIS FORM TO RESPOND)
PageNet is offering to exchange for each $1,000 principal amount of senior
subordinated notes, together with accrued interest, a pro rata portion of
616,830,757 shares of PageNet common stock and a pro rata portion of 13,780,000
shares of Vast Class B common stock. The pro rata portion to be exchanged for
senior subordinated notes is to be computed immediately prior to the time the
merger occurs by dividing:
- the principal amount, together with all accrued interest through the
expiration date of the exchange offer of each PageNet senior subordinated
note validly tendered and not withdrawn in the exchange offer; by
- the principal amount, together with all accrued interest through the
expiration date of the exchange offer of all outstanding PageNet senior
subordinated notes.
This material is being forwarded to you as the beneficial owner of senior
subordinated notes carried by us in your account but not registered in your
name. A tender of such senior subordinated notes may only be made by us as the
registered holder and pursuant to your instructions. Accordingly, we request
instructions as to whether you wish us to tender any or all senior subordinated
notes held by us for your account. A valid tender of senior subordinated notes
also constitutes consent to the proposed amendments to the indenture, pursuant
to the terms and conditions set forth in the prospectus and the Letter of
Transmittal/Consent Form enclosed herewith.
If you wish to tender your senior subordinated notes, your instructions to
us should be forwarded as promptly as possible in order to permit us to tender
senior subordinated notes in accordance with the
<PAGE> 2
provisions of the exchange offer. The exchange offer will expire at 12:00
midnight, New York City time on , 2000, unless extended by PageNet and
Arch. Your instructions as to whether to tender your senior subordinated notes
must be received by the exchange agent by 12:00 midnight New York City time, on
, 2000, unless extended by PageNet and Arch.
Please instruct us regarding your wishes as to the senior subordinated
notes held by us for your account, by completing, executing and returning to us
the instruction form that appears on the reverse side of this letter. The
accompanying Letter of Transmittal/Consent Form is furnished for your
information only and may not be used by you to tender senior subordinated notes
held by us for your account.
PREPACKAGED BANKRUPTCY PLAN (USE THE ENCLOSED BALLOT TO RESPOND)
PageNet is also soliciting votes to accept a prepackaged bankruptcy plan.
The enclosed ballot is to be used by you in your capacity as beneficial owner of
[ %] Senior Subordinated Notes. Please follow the instructions contained in the
ballot so that your vote to accept or reject the proposed prepackaged bankruptcy
plan will be submitted in a timely manner and counted. If you own other senior
subordinated notes issued by PageNet you will receive separate materials and
ballots in order to accept or reject the proposed prepackaged bankruptcy plan
with respect to your other senior subordinated notes.
2
<PAGE> 3
YOUR INSTRUCTIONS ON THE EXCHANGE OFFER
Your ballot, or a master ballot prepared by us reflecting your vote on the
prepackaged bankruptcy plan as evidenced by your ballot, must be received by the
information agent by 12:00 midnight, New York City time, on , 2000,
unless extended by PageNet and Arch.
The undersigned acknowledge(s) receipt of your letter relating to the
exchange offer and the enclosed material referred to therein.
This will instruct you regarding the senior subordinated notes held by you
for my account:
[ ] Please tender senior subordinated notes held by you for my account. I
have identified on a signed schedule attached hereto the principal
amount of the senior subordinated notes to be tendered if I wish to
tender with respect to less than all of my senior subordinated notes. I
further understand that a valid tender of my senior subordinated notes
will constitute consent to the proposed amendments to the indenture.
[ ] Please do not tender senior subordinated notes held by you for my
account.
- --------------------------------------------------------------------------------
Signature(s)
- --------------------------------------------------------------------------------
Please print name(s) here
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED, YOUR
SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OF YOUR
SENIOR SUBORDINATED NOTES.
NOTE THAT THE VALID TENDER OF YOUR SENIOR SUBORDINATED NOTES DOES NOT CONSTITUTE
A VOTE TO ACCEPT THE PREPACKAGED BANKRUPTCY PLAN.
3
<PAGE> 1
EXHIBIT 99.2
PAGING NETWORK, INC.
EXCHANGE OFFER AND CONSENT SOLICITATION
---------------------
VOTE ON PREPACKAGED BANKRUPTCY PLAN
To Securities Dealers, Commercial Banks,
Trust Companies, and Other Nominees:
Paging Network, Inc., a Delaware corporation (the "Company"), is offering
to exchange its [ % Senior Subordinated Notes], upon the terms and subject to
the conditions set forth in the prospectus dated as of , 2000 and in
the accompanying Letter of Transmittal/Consent Form, which together constitute
the exchange offer.
The exchange offer is part of an overall transaction in which PageNet will
merge into Arch Communications Group, Inc. A condition to the merger is the
recapitalization of each of PageNet's three series of senior subordinated notes.
PageNet is offering to exchange shares of PageNet common stock and shares of
Class B common stock of Vast Solutions, Inc., a wholly owned subsidiary of
PageNet, for all of PageNet's outstanding senior subordinated notes. The shares
of PageNet common stock received by noteholders will immediately be converted
into Arch common stock as a result of the merger, as more fully described in the
prospectus accompanying this letter.
Additionally, PageNet is soliciting votes to accept a prepackaged
bankruptcy plan. PageNet has prepared the prepackaged bankruptcy plan as an
alternative means to implement the recapitalization and merger in the event that
97.5% of the senior subordinated notes are not tendered in the exchange offer.
Beneficial owners of senior subordinated notes are entitled to vote on the
prepackaged bankruptcy plan. PLEASE NOTE THAT THE VALID TENDER OF SENIOR
SUBORDINATED NOTES DOES NOT CONSTITUTE A VOTE TO ACCEPT THE PREPACKAGED
BANKRUPTCY PLAN.
THE EXCHANGE OFFER
PageNet is offering to exchange for each $1,000 principal amount of senior
subordinated notes, together with accrued interest, a pro rata portion of
616,830,757 shares of PageNet common stock and a pro rata portion of 13,780,000
shares of Vast Class B common stock. The pro rata portion to be exchanged for
senior subordinated notes is to be computed immediately prior to the time the
merger occurs by dividing:
- the principal amount, together with all accrued interest through the
expiration date of the exchange offer of each PageNet senior subordinated
note validly tendered and not withdrawn in the exchange offer; by
- the principal amount, together with all accrued interest through the
expiration date of the exchange offer of all outstanding PageNet senior
subordinated notes.
We are asking you to contact your clients for whom you hold senior
subordinated notes registered in your name or in the name of your nominee or who
hold senior subordinated notes registered in their own names. A valid tender of
senior subordinated notes also constitutes consent to the proposed amendments to
the indenture, pursuant to the terms and conditions set forth in the prospectus
and the Letter of Transmittal/Consent Form enclosed herewith.
PageNet will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of senior subordinated notes pursuant to the
Exchange Offer, and no such solicitation shall be made. You will be reimbursed
for customary mailing and handling expenses incurred by you in forwarding any of
the enclosed materials to your clients. PageNet will pay all transfer taxes, if
any, applicable to the
<PAGE> 2
transfer and exchange of senior subordinated notes to them or their order,
except as otherwise provided in the Letter of Transmittal/Consent Form.
PREPACKAGED BANKRUPTCY PLAN
PageNet is also soliciting votes to accept a prepackaged bankruptcy plan.
We have enclosed ballots to be provided to your clients for purposes of voting
to accept or reject the prepackaged bankruptcy plan. You may obtain the votes of
your clients, consistent with customary practices for obtaining the votes of
securities held in "street name," in one of the following two ways:
You may "prevalidate" a ballot by (a) signing the ballot, (b) indicating on
the ballot your name, the amount of securities held by you for the beneficial
owner, and the account numbers for the accounts in which you hold such
securities, and (c) forwarding such ballot, together with the prospectus, return
envelope, and other materials requested to be forwarded, to the beneficial owner
for voting. The beneficial owner must then indicate his, her or its vote to
accept or to reject the prepackaged bankruptcy plan in the ballot, review the
certifications contained in the ballot, and return the ballot directly to the
information agent in the pre-addressed, postage-paid envelope, so that it is
received by the information agent before the voting deadline. You should
maintain for inspection a list of the beneficial owners to whom "prevalidated"
ballots are delivered for at least one year from the voting deadline.
If you elect not to "prevalidate" ballots, you should obtain the votes of
beneficial owners by forwarding to the beneficial owners the unsigned ballots,
together with the prospectus, a return envelope provided by, and addressed to,
you, and other materials requested to be forwarded. Each such beneficial owner
must then indicate his, her or its vote to accept or to reject the prepackaged
bankruptcy plan in the ballot, review the certifications contained in the
ballot, execute the ballot, and return the ballot to you. After collecting the
ballots, you should, in turn, complete a master ballot for each series of senior
subordinated notes compiling the votes and other information from the ballots
received from the beneficial owners of such securities, execute the master
ballots, and deliver the master ballots to the information agent so that they
are received by the information agent before the voting deadline. You should
retain for inspection all ballots returned by beneficial owners for at least one
year from the voting deadline. Please note: If this option is selected, you
should advise the beneficial owners to return their ballots to you by a date
calculated by you to allow you to prepare and return the master ballot(s) to the
information agent so that the master ballot(s) are received by the information
agent before the voting deadline.
ENCLOSED DOCUMENTS
The following documents are enclosed:
1. Prospectus dated , 2000.
2. Letter of Transmittal/Consent Form.
3. A return envelope addressed to Harris Trust Company of New York,
the Exchange Agent for use in returning the Letter of Transmittal/Consent
Form.
4. A form letter which may be sent to your clients for whose account
you hold senior subordinated notes registered in your name or in the name
of your nominee.
5. The form of Notice of Guaranteed Delivery.
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
7. A ballot to be used by your clients to vote to accept or to reject
the prepackaged bankruptcy plan.
We will provide to you under separate cover, at a later date, master
ballots to be used by you to record and submit the votes of your customers with
respect to the prepackaged bankruptcy plan in the event you do not "prevalidate"
the enclosed ballots before sending them to your clients.
2
<PAGE> 3
Participants in The Depository Trust Company will be able to execute
tenders and deliver consents through The Depository Trust Company's Automated
Tender Offer Program.
Your prompt action is requested. The exchange offer will expire at 12:00
midnight, New York City time, on , 2000 and the time by which all
ballots to accept or reject the prepackaged bankruptcy plan must be submitted
prior to 12:00 midnight, New York City time, on , 2000, in each
case unless extended by PageNet and Arch. Senior subordinated notes tendered
pursuant to the exchange offer may be withdrawn, subject to the procedures
described in the section of the prospectus entitled "Procedure for Tendering
Senior Subordinated Notes and Delivery of Consents -- Withdrawal," at any time
prior to 12:00 midnight, New York City time, on , 2000 and upon
the occurrence of certain events specified in the prospectus.
Additional copies of the enclosed material and additional information about
the exchange offer may be obtained from Innisfree M & A Incorporated (the
information agent for the exchange offer) at (212) 750-5833 (call collect).
Very truly yours,
Paging Network, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY, THE INFORMATION AGENT, OR THE EXCHANGE AGENT,
OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
3
<PAGE> 1
EXHIBIT 99.3
LETTER OF TRANSMITTAL/CONSENT FORM
to tender for exchange and give consents in respect of
[ % Senior Subordinated Notes due ]
of
PAGING NETWORK, INC.
Pursuant to the Prospectus
Dated , 2000
THE WITHDRAWAL DEADLINE FOR THE EXCHANGE OFFER IS 12:00
MIDNIGHT, NEW YORK CITY TIME, ON , 2000. THE EXCHANGE
OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME
ON , 2000, UNLESS EXTENDED.
THE EXCHANGE AGENT:
Harris Trust Company of New York will act as exchange agent for the
exchange offer. All correspondence in connection with the exchange offer and the
letter of transmittal should be addressed to the exchange agent as follows:
<TABLE>
<S> <C>
By Mail: By Hand and Overnight Courier:
Harris Trust Company of New York Harris Trust Company of New York
Wall Street Station 88 Pine Street
P.O. Box 1023 19th Floor
New York, New York 10268-1023 New York, New York 10005
</TABLE>
By Facsimile Transmission: (212) 701-7636 or (212) 701-7637
(For Eligible Institutions Only)
Confirm Facsimile by Telephone: (212) 701-7624
For Information Call: (212) 701-7624
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE
NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This letter of transmittal is to be used (A) to tender [ % Senior
Subordinated Notes due ] of Paging Network, Inc., a Delaware
corporation, which are enclosed herewith, or (B) to tender senior subordinated
notes in accordance with the guaranteed delivery procedures set forth in the
prospectus dated , 2000 under "Procedure for Tendering Senior
Subordinated Notes and Delivery of Consents -- Guaranteed Delivery Procedures."
PLEASE NOTE THAT THE VALID TENDER OF YOUR SENIOR SUBORDINATED NOTES DOES NOT
CONSTITUTE A VOTE TO ACCEPT THE PREPACKAGED BANKRUPTCY PLAN. PageNet urges
noteholders to properly complete and deliver a ballot, or if applicable, a
master ballot voting to accept or reject the prepackaged bankruptcy plan. For a
description of the procedures for delivery by beneficial owners,
<PAGE> 2
nominees and securities clearing agencies of ballots and master ballots, see
"The Prepackaged Bankruptcy Plan -- Voting Instructions and Procedures" in the
prospectus.
A VALID TENDER OF SENIOR SUBORDINATED NOTES WILL CONSTITUTE CONSENT TO THE
PROPOSED AMENDMENTS TO THE INDENTURE, AS SUCH PROPOSED AMENDMENTS ARE DESCRIBED
IN THE PROSPECTUS.
The exchange offer is part of an overall transaction in which PageNet will
merge into Arch Communications Group, Inc. A condition to the merger is the
recapitalization of each of PageNet's three series of senior subordinated notes.
PageNet is offering to exchange shares of PageNet common stock and shares of
Class B common stock of Vast Solutions, Inc., a wholly owned subsidiary of
PageNet, for all of PageNet's outstanding senior subordinated notes. The shares
of PageNet common stock received by noteholders will immediately be converted
into Arch common stock as a result of the merger, as more fully described in the
prospectus accompanying this letter of transmittal.
The undersigned acknowledges receipt of the prospectus and this letter of
transmittal, which together constitute the offer by PageNet to exchange for each
$1,000 principal amount of senior subordinated notes, together with accrued
interest, a pro rata portion of 616,830,757 shares of PageNet common stock and a
pro rata portion of 13,780,000 shares of Vast Class B common stock. The pro rata
portion to be exchanged for senior subordinated notes is to be computed
immediately prior to the time the merger occurs by dividing:
- the principal amount, together with all accrued interest through the
expiration date of the exchange offer, of each PageNet senior
subordinated note validly tendered and not withdrawn in the exchange
offer; by
- the principal amount, together with all accrued interest through the
expiration date of the exchange offer, of all outstanding PageNet senior
subordinated notes.
The exchange offer is not being made to, and tenders will not be accepted
from or on behalf of, holders of senior subordinated notes in any jurisdiction
in which the making or acceptance of the exchange offer would not be in
compliance with the laws of such jurisdiction.
The undersigned has completed, signed and delivered this letter of
transmittal and checked the appropriate box(es) below to indicate the action the
undersigned desires to take with respect to the exchange offer.
Holders of senior subordinated notes who wish to tender their senior
subordinated notes must, at a minimum, complete columns (1), (2) and (3) in the
"Description of Senior Subordinated Notes" table and complete the "Holder Sign
Here" box. If only those columns are completed, such holder will have tendered
all senior subordinated notes listed in column (2). If the holder of senior
subordinated notes wishes to tender less than all of such senior subordinated
notes, column (4) must be completed in full. A partial tender of senior
subordinated notes will constitute consent to the proposed amendments to the
indenture to the extent of the principal amount of senior subordinated notes
being tendered.
BOOK-ENTRY TRANSFER FACILITY
The exchange agent will establish an account with respect to the senior
subordinated notes at the book-entry transfer facility promptly after the date
of the prospectus. A financial institution that is a participant in the
book-entry transfer facility's system may make book-entry delivery of senior
subordinated notes by causing the book-entry transfer facility to transfer such
senior subordinated notes into the exchange agent's account at the book-entry
transfer facility in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of such senior subordinated
notes may be effected through book-entry delivery at the book-entry transfer
facility, in any case either (A) the letter of transmittal (or manually-signed
facsimile thereof), with any required signature guarantees, or an agent's
message, in the case of a book-entry transfer, and any other required documents,
must be transmitted to and received by the exchange agent on or prior to the
expiration date of the exchange offer or (B) the guaranteed delivery procedure
set forth in the prospectus under "Procedure for Tendering Senior
2
<PAGE> 3
Subordinated Notes and Delivery of Consents -- Guaranteed Delivery Procedures"
must be followed. Delivery of documents to the book-entry transfer facility in
accordance with the book-entry transfer facility's procedure does not constitute
delivery to the exchange agent.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SENIOR SUBORDINATED NOTES
- ------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
CERTIFICATES
NUMBER(S) OF
SENIOR
SUBORDINATED AGGREGATE
NOTES(A) PRINCIPAL
(ATTACH SIGNED AMOUNT PRINCIPAL
NAME(S) AND ADDRESS(ES) LIST IF REPRESENTED BY AMOUNT
OF REGISTERED HOLDER(S) NECESSARY) CERTIFICATE(S) TENDERED(B)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(a) Need not be completed by holders tendering by book-entry transfer.
(b) Need not be completed by holders who wish to tender the principal amount of senior subordinated notes listed in
column (3). Completion of column (4) will indicate that the holder wishes to tender only the principal amount of
senior subordinated notes indicated in column (4). The valid tender of any of your senior subordinated notes will
constitute a consent to the proposed amendments to the indenture to the extent of the principal amount of such
senior subordinated notes validly tendered.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Holder of senior subordinated notes may elect to tender their senior
subordinated notes in whole or in part. See Instruction 5. A holder of senior
subordinated notes who tenders only a portion of such holder's senior
subordinated notes will have consented to the proposed amendments to the
indenture to the extent of the principal amount of senior subordinated notes
being tendered.
Holders of the senior subordinated notes who desire to tender their senior
subordinated notes and who cannot deliver their senior subordinated notes and
any other documents required hereby to the exchange agent prior to the
expiration of the exchange offer, may tender their senior subordinated notes
according to the guaranteed delivery procedures set forth in the prospectus
under "Procedures for Tendering Senior Subordinated Notes and Delivery of
Consents -- Guaranteed Delivery Procedures." See Instruction 2.
3
<PAGE> 4
(THE BOX BELOW IS FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SENIOR SUBORDINATED NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF A GUARANTEED DELIVERY PREVIOUSLY SENT TO THE
EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
-------------------------------------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------------------------------------------
Name of Eligible Institution which Guaranteed Delivery:
----------------------------------------------------
If Delivered by Book-Entry Transfer:
Account Number with DTC:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
4
<PAGE> 5
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to PageNet the principal amount of senior
subordinated notes indicated above, in accordance with and upon the terms and
subject to the conditions set forth in the exchange offer. The proper execution
and delivery of this letter of transmittal, together with the delivery of senior
subordinated notes pursuant to the instructions set forth herein will constitute
a valid tender of senior subordinated notes to PageNet of the principal amount
of senior subordinated notes indicated above. A VALID TENDER OF SENIOR
SUBORDINATED NOTES CONSTITUTES CONSENT TO THE PROPOSED AMENDMENTS TO THE
INDENTURE TO THE EXTENT OF THE PRINCIPAL AMOUNT OF SENIOR SUBORDINATED NOTES
TENDERED.
The undersigned hereby consents to the proposed amendments to the indenture
with respect to the senior subordinated notes tendered hereby and subject to,
and effective upon, the acceptance for exchange and exchange of the senior
subordinated notes tendered herewith in accordance with the terms of the
exchange offer, the undersigned hereby sells, assigns and transfers to PageNet
all right, title and interest in and to all such senior subordinated notes as
are being tendered hereby. The undersigned hereby irrevocably constitutes and
appoints the exchange agent as the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that the exchange agent also acts as the
agent of PageNet), with respect to the senior subordinated notes tendered hereby
and accepted for exchange pursuant to the exchange offer, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to deliver the senior subordinated notes tendered
hereby to PageNet or cause ownership of such senior subordinated notes to be
transferred to PageNet on PageNet's books and deliver all accompanying evidences
of transfer and authenticity to or upon the order of PageNet upon receipt by the
exchange agent, as the undersigned's agent, of common stock to which the
undersigned is entitled upon the acceptance for exchange by PageNet of such
senior subordinated notes pursuant to the exchange offer.
The name and address of the holder(s) should be printed above under
"Description of Senior Subordinated Notes" exactly as they appear on the senior
subordinated notes tendered hereby. The certificate number(s) and the principal
amount of senior subordinated notes to which this letter of transmittal relates,
together with the principal amount of senior subordinated notes that the
undersigned wishes to tender, should be indicated in the appropriate boxes above
under "Description of Senior Subordinated Notes".
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer any senior
subordinated notes tendered hereby, that the undersigned has full power and
authority to consent to the proposed amendments to the indenture and that when
the senior subordinated notes are accepted for exchange by PageNet, that PageNet
will acquire good, indefeasible and unencumbered title thereto, free and clear
of all liens, restrictions, claims and encumbrances and not subject to any
adverse claim. The undersigned, upon request, will execute and deliver any
additional documents deemed by the exchange agent or PageNet to be necessary or
desirable to complete the sale, assignment and transfer of the senior
subordinated notes tendered hereby and the valid giving of consents to the
proposed amendments with respect hereto.
All authority conferred or agreed to be conferred in this letter of
transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned. Any tender of senior subordinated
notes hereunder may be withdrawn only in accordance with the procedures set
forth in the instructions contained in this letter of transmittal. See
Instruction 4.
For the proposed amendments to the indenture to become effective with
respect to the senior subordinated notes, PageNet must complete the exchange
outside of bankruptcy. The proposed amendments would, among other things,
eliminate substantially all restrictive covenants and events of
5
<PAGE> 6
default currently contained in the indenture. If the registered holders of not
less than a majority in aggregate principal amount of the senior subordinated
notes consent to the proposed amendments, PageNet will, together with the
trustee, execute an amendment to the indenture, which will amend and restate the
indenture in its entirety. The amendment to the indenture will be executed
promptly after the expiration date. Following completion of the exchange offer,
any non-tendering holders of senior subordinated notes will be bound by the
amendments to the indenture regardless of whether they consent to the proposed
amendments.
Pursuant to the indenture, any registered holder of senior subordinated
notes who has consented to the proposed amendments by validly tendering such
holder's senior subordinated notes may effectively revoke such consent by filing
written notice with the exchange agent as described in the prospectus under
"Procedure for Tendering Senior Subordinated Notes and Delivery of Consents
-- Revocation of Consents" at any time prior to (but not after) the expiration
date. THE VALID REVOCATION OF CONSENT TO THE PROPOSED AMENDMENTS WILL CONSTITUTE
THE VALID WITHDRAWAL OF THE TENDER OF THE SENIOR SUBORDINATED NOTES.
Prior to the execution of the amendment to the indenture, PageNet intends
to consult with the exchange agent and the trustee to determine whether either
the exchange agent or the trustee shall have received any revocations of
consents to the proposed amendments previously obtained through a valid tender
of senior subordinated notes, whether such revocations are valid and whether
PageNet shall have received the requisite consents to effect the proposed
amendments. PageNet reserves the right to contest the validity of any such
revocations. A purported notice of revocation which is not received by the
exchange agent or trustee in a timely fashion will not be effective to revoke a
consent previously given.
The undersigned understands that the tender of senior subordinated notes
pursuant to one of the procedures described in the prospectus under "Procedure
for Tendering Senior Subordinated Notes and Delivery of Consents" and the
instructions to this letter of transmittal will constitute the tendering
holder's acceptance of the terms and the conditions of the exchange offer. The
undersigned acknowledges that by tendering senior subordinated notes to PageNet
the undersigned is releasing PageNet and certain other parties from certain
claims and liabilities, as set forth in the prospectus under "The Exchange
Offer -- Release of Claims by Tendering Holders of Senior Subordinated Notes."
PageNet's acceptance for exchange of senior subordinated notes tendered pursuant
to the exchange offer will constitute a binding agreement between the tendering
holder and PageNet upon the terms and subject to the conditions of the exchange
offer.
Unless otherwise indicated below under "Special Issuance Instructions,"
please issue the Arch common stock and Vast Class B common stock with respect to
senior subordinated notes accepted for exchange, and/or principal amount of
senior subordinated notes not tendered or not accepted for exchange, in the name
of the registered holder(s) appearing above under "Description of Senior
Subordinated Notes." In addition, unless otherwise indicated below under
"Special Delivery Instructions," please mail the Arch common stock and Vast
Class B common stock with respect to senior subordinated notes accepted for
exchange, and/or any senior subordinated notes for any principal amount not
tendered or not accepted for exchange (and accompanying documents, as
appropriate), to the registered holder(s) at the address(es) appearing above
under "Description of Senior Subordinated Notes." If both the "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the Arch common stock and Vast Class B common stock with respect to senior
subordinated notes accepted for exchange, and/or any senior subordinated notes
for any principal amount not tendered or accepted for exchange, in the name of,
and send Arch common stock and Vast Class B common stock and/or senior
subordinated notes to, the person(s) so indicated. The undersigned recognizes
that neither PageNet nor Arch has any obligation pursuant to the "Special
Issuance Instructions" to transfer any senior subordinated notes from the
name(s) of the registered holder(s) thereof if neither PageNet nor Arch accept
for exchange any of the senior subordinated notes so tendered.
6
<PAGE> 7
------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 6 and 7)
To be completed ONLY if the Arch common stock and Vast Class B common
stock with respect to senior subordinated notes accepted for exchange is
to be issued, or certificates for senior subordinated notes for principal
amounts not tendered or not accepted for exchange are to be reissued, in
the name of someone other than the undersigned.
Issue:
[ ] Arch common stock and Vast Class B common stock and/or
[ ] Senior subordinated notes
To:
Name
----------------------------------------------
(Please Type or Print)
Address
--------------------------------------------
------------------------------------------------------
------------------------------------------------------
(Zip Code)
------------------------------------------------------
(Taxpayer Identification or Social Security Number)
------------------------------------------------------
------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 7)
To be completed ONLY if the Arch common stock and Vast Class B common
stock with respect to senior subordinated notes accepted for exchange, or
any certificates for senior subordinated notes for principal amounts not
tendered or not accepted for exchange, are to be sent to someone other
than the undersigned or to the undersigned at an address other than that
appearing above under "Description of Senior Subordinated Notes."
Mail:
[ ] Arch common stock and Vast Class B common stock and/or
[ ] Senior subordinated notes
To:
Name
----------------------------------------------
(Please Type or Print)
Address
--------------------------------------------
------------------------------------------------------
------------------------------------------------------
(Zip Code)
------------------------------------------------------
7
<PAGE> 8
HOLDER SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON THE BOTTOM HEREOF)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated:
- ------------------------------
(Must be signed by registered holder(s) exactly as name(s) appear(s) on senior
subordinated notes or on a security position listing or by the person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by an officer of a corporation,
attorney-in-fact, executor, administrator, trustee, guardian or other person(s)
acting in a fiduciary or representative capacity, please set forth full title
and see Instruction 6.)
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity (full title)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
Area Code and Telephone No.
- --------------------------------------------------------------------------
Tax Identification or Social Security No.
- ---------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 6)
Authorized Signature
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Name of Firm
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
Area Code and Telephone No.
- --------------------------------------------------------------------------
Dated:
- ------------------------------
8
<PAGE> 9
CONSENT OF REGISTERED HOLDER TO PROPOSED AMENDMENTS
If certificates for senior subordinated notes are being delivered and the holder
signing above is not the registered holder of such senior subordinated notes,
the registered holder(s) must complete the applicable information above and sign
below. Pursuant to the exchange offer the undersigned registered holder(s) of
the senior subordinated notes indicated above hereby consent(s) to the proposed
amendments to the indenture in response of such senior subordinated notes.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Registered Holder(s)
Dated:
- ------------------------------------
(Must be signed by registered holder(s) exactly as name(s) appear(s) on senior
subordinated notes or on a security position listing. If signature is by an
officer of a corporation, attorney-in-fact, executor, administrator, trustee,
guardian or other person(s) acting in a fiduciary or representative capacity,
please set forth full title and see Instruction 6.)
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity (full title)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
Area Code and Telephone No.
- --------------------------------------------------------------------------
Tax Identification or Social Security No.
- ---------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 6)
Authorized Signature
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Name of Firm
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
Area Code and Telephone No.
- --------------------------------------------------------------------------
Dated
- ------------------------------------
9
<PAGE> 10
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Signatures on this letter of transmittal must
be guaranteed by an eligible institution unless (A) the senior subordinated
notes tendered hereby are tendered by a registered holder(s) of the senior
subordinated notes who has (have) not completed either the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on this letter of
transmittal or (B) the senior subordinated notes are tendered for the account of
an eligible institution.
2. Delivery of this Letter of Transmittal and Senior subordinated
notes. This letter of transmittal is to be used if senior subordinated notes
tendered hereby are enclosed herewith. A valid tender of senior subordinated
notes shall constitute a consent to the proposed amendments to the indenture.
CERTIFICATES FOR ALL PHYSICALLY DELIVERED SENIOR SUBORDINATED NOTES, OR A
CONFIRMATION OF A BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT THE
BOOK-ENTRY TRANSFER FACILITY OF ALL SENIOR SUBORDINATED NOTES DELIVERED
ELECTRONICALLY, AS WELL AS A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL (OR MANUALLY-SIGNED FACSIMILE THEREOF OR, IN THE CASE OF A
BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE) AND ANY OTHER DOCUMENTS REQUIRED BY
THIS LETTER OF TRANSMITTAL, MUST BE RECEIVED BY THE EXCHANGE AGENT AT ONE OF ITS
ADDRESSES SET FORTH ON THE FRONT PAGE OF THIS LETTER OF TRANSMITTAL PRIOR TO THE
EXPIRATION DATE. The "expiration date" will be 12:00 midnight, New York City
time, on , 2000 unless extended by PageNet and Arch, in their sole
discretion, in which event the term "expiration date" shall mean the latest time
and date as so extended. PageNet and Arch expressly reserve the right, at any
time or from time to time, to extend the expiration date by giving oral or
written notice of such extension to the exchange agent and by making a public
announcement of such extension.
Holders whose senior subordinated notes are not immediately available or
who cannot deliver senior subordinated notes and all other required documents to
the Exchange Agent prior to the expiration date may tender their senior
subordinated notes by properly completing, and duly executing, the Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
the prospectus under "Procedure for Tendering Senior Subordinated Notes and
Delivery of Consents -- Guaranteed Delivery Procedures." Pursuant to such
procedures, (A) such tender must be made by or through an eligible institution,
(B) a properly completed and duly executed Notice of Guaranteed Delivery must be
received by the exchange agent prior to the expiration date and (C) all tendered
senior subordinated notes, or a confirmation of a book-entry transfer into the
exchange agent's account at the book-entry transfer facility of all senior
subordinated notes delivered electronically, as well as a properly completed and
duly executed letter of transmittal (or manually- signed facsimile thereof or,
in the case of a book-entry transfer, an agent's message), with any required
signature guarantees and all other required documents, must be received by the
exchange agent within three New York Stock Exchange trading days after the date
of execution of the Notice of Guaranteed Delivery, all as provided in the
prospectus under "Procedure for Tendering Senior Subordinated Notes and Delivery
of Consents."
Unless the senior subordinated notes tendered are deposited with the
exchange agent prior to the expiration date (accompanied by a properly completed
letter of transmittal and any other documents required by this letter of
transmittal) or tendered pursuant to the guaranteed delivery procedures set
forth above, PageNet may, at its option, reject such tender. Issuance of Arch
common stock and Vast Class B common stock in exchange for senior subordinated
notes will be made only against deposit of the tendered senior subordinated
notes. If less than the entire principal amount of any senior subordinated notes
evidenced by a submitted certificate is tendered, the tendering holder of senior
subordinated notes should fill in the principal amount tendered in the
appropriate box above with respect to the deposit being made, but only to the
extent of the principal amount of senior subordinated notes being tendered. The
exchange agent will then return to the tendering holder (unless otherwise
requested by the holder under "Special Delivery Instructions" above), as
promptly as practicable following the expiration date, senior subordinated notes
in principal amount equal to the portion of such delivered senior subordinated
notes not tendered. The entire principal amount of all senior subordinated
notes, as the case may be, deposited with the exchange agent will be deemed to
have been tendered unless otherwise indicated.
10
<PAGE> 11
The method of delivery of senior subordinated notes, this letter of
transmittal (or manually-signed facsimile hereof) and any other required
documents is at the option and risk of the tendering holder, but, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the exchange agent. Instead of delivery by mail, we
recommend that you use an overnight or hand delivery service. If sent by mail,
registered mail with return receipt requested, properly insured, is recommended.
In all cases, sufficient time should be allowed to assure timely delivery.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders, by execution of this letter of transmittal (or
manually-signed facsimile hereof), waive any right to receive notice of
acceptance of their senior subordinated notes for exchange.
Only a registered holder of senior subordinated notes may consent to the
proposed amendments to the indenture. Any beneficial owner of senior
subordinated notes who is not the registered holder must arrange with the
registered holder to execute and deliver the consent on his or her behalf. The
registered holder may provide such consent either by executing the "Consent of
Registered Holder to Proposed Amendments" box provided herein or by executing a
separate consent substantially in the form of such "Consent of Registered Holder
to Proposed Amendments." In either case, the signature of the registered holder
must be guaranteed by an eligible institution.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and the principal amount of the senior subordinated notes to
which this letter of transmittal relates should be listed on a separate signed
schedule attached hereto.
4. Withdrawal of Tender. Holders who tender senior subordinated notes
pursuant to the exchange offer may withdraw tenders of senior subordinated notes
at any time before 12:00 midnight, on the expiration date, except as otherwise
provided below.
To withdraw a tender of senior subordinated notes, a written or facsimile
transmission notice of withdrawal must be received by the exchange agent at its
address as set forth in this prospectus before 12:00 midnight, New York City
time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the holder who deposited the notes to be withdrawn;
- identify the notes to be withdrawn, including the certificate number(s)
and principal amount of such notes; and
- be signed by such holder in the same manner as the original signature on
the letter of transmittal by which the notes were tendered, including any
required signature guarantees.
If senior subordinated notes have been tendered pursuant to the procedures
for book-entry transfers any notice of withdrawal must specify the name and
number of the account at The Depository Trust Company to be credited with the
withdrawn senior subordinated notes and must otherwise comply with The
Depository Trust Company's procedures.
PageNet will determine, in its sole discretion, all questions as to
validity, form and eligibility of withdrawal notices including the time of
receipt. PageNet's determination will be final and binding on all parties. Any
withdrawn senior subordinated notes will not be deemed to be validly tendered
for purposes of the exchange offer and no shares of common stock will be issued
in exchange for them unless the withdrawn senior subordinated notes are later
validly retendered. Properly withdrawn senior subordinated notes may be
retendered by following one of the procedures described herein at any time
before the expiration date.
PRIOR TO THE EXPIRATION DATE A WITHDRAWAL OF THE TENDER OF A SENIOR
SUBORDINATED NOTE WILL ALSO EFFECT A REVOCATION OF A CONSENT TO THE PROPOSED
AMENDMENTS. Consents to the proposed amendments to the indentures cannot be
revoked after the expiration date.
5. Partial Tenders. Holders may elect to tender their senior subordinated
notes in whole or in part. A partial tender shall constitute consent to the
proposed amendments to the extent of the principal amount
11
<PAGE> 12
of senior subordinated notes being tendered. If less than the entire principal
amount of senior subordinated notes evidenced by a certificate is to be
tendered, fill in the principal amount that is to be tendered in part in the box
entitled "Principal Amount Tendered" above. In such case, a new certificate for
the principal amount of senior subordinated notes not so tendered will be sent
to such holder, unless otherwise provided in the appropriate box of this letter
of transmittal, as soon as practicable after the expiration date. The entire
principal amount of senior subordinated notes represented by a certificate
delivered to the exchange agent will be deemed to have been tendered unless
otherwise indicated.
6. Signatures on this Letter of Transmittal; Bond Powers and
Endorsements. If this letter of transmittal is signed by the registered
holder(s) of the senior subordinated notes tendered hereby, the signature must
correspond with the name as written on the face of the senior subordinated notes
without alteration, enlargement or any change whatsoever.
If any of the senior subordinated notes tendered hereby are owned of record
by two or more joint owners, all such owners must sign this letter of
transmittal.
If any senior subordinated notes tendered hereby are registered in
different names, it will be necessary to complete, sign and submit as many
separate copies of this letter of transmittal and any necessary accompanying
documents as there are different registrations.
If the certificates for senior subordinated notes are registered in the
name of a person other than the signer of a letter of transmittal, then, in
order to tender such notes pursuant to the exchange offer, the certificates
representing such senior subordinated notes must be endorsed or accompanied by
appropriate bond powers, signed exactly as the name or names of such holder or
holders appear on the certificates, with the signatures on the certificates or
bond powers guaranteed as provided below.
If this letter of transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and proper evidence satisfactory to PageNet of their
authority so to act must be submitted.
7. Special Issuance and Delivery Instructions. Tendering holders should
indicate in the applicable box the name and address to which the Arch common
stock and Vast Class B common stock, with respect to senior subordinated notes
accepted for exchange, or senior subordinated notes for principal amounts not
exchanged or not tendered, are to be issued or sent, if different from the name
and address of the person signing this letter of transmittal. In the case of
issuance in a different name, the tax identification or Social Security number
of the person named must also be indicated.
8. Waiver of Conditions. PageNet reserves the right upon certain limited
conditions specified in the prospectus under the heading "The Exchange Offer
-- Conditions," to waive certain of the specified conditions of the exchange
offer, in whole at any time or in part from time to time, in the case of any
senior subordinated notes tendered hereby. See "The Exchange
Offer -- Conditions" in the prospectus.
9. Transfer Taxes. PageNet shall pay all transfer taxes, if any, applicable
to the transfer and exchange of senior subordinated notes to it or its order
pursuant to the exchange offer. If, however, delivery of Arch common stock and
Vast Class B common stock with respect to senior subordinated notes accepted for
such exchange and/or senior subordinated notes for principal amounts not
tendered are to be made to, or are to be registered or issued in the name of,
any person other than the registered holder of the senior subordinated notes
tendered hereby, or if tendered senior subordinated notes are registered in the
name of any person other than the person signing this letter of transmittal, or
if a transfer tax is imposed for any reason other than the transfer and exchange
of senior subordinated notes to PageNet or its order pursuant to the exchange
offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other person) will be payable by the tendering holder.
10. Replacement Notes. If a holder desires to tender senior subordinated
notes pursuant to the exchange offer but is unable to locate the senior
subordinated notes to be tendered, such holder should write to or telephone the
trustee under the indenture, , , , Attn:
,
12
<PAGE> 13
(800) - , about procedures for replacing senior subordinated
notes or arranging for indemnification. Letters of transmittal should not be
sent to the trustee under the indenture but to the exchange agent as described
above.
11. Substitute Form W-9. Each tendering holder is required to provide the
exchange agent with a correct taxpayer identification number on Substitute Form
W-9 which is provided under "Important Tax Information" below, and, if
applicable, to indicate that the holder is not subject to backup withholding.
Failure to provide the information on the form for an adequate basis for
exemption may subject the tendering holder to a $50 (or greater) penalty imposed
by the Internal Revenue Service, and 31% backup withholding on the payments made
to the holder or other payee with respect to senior subordinated notes exchanged
pursuant to the exchange offer. The box in Part 3 of the Form W-9 may be checked
if the tendering holder has not been issued a taxpayer identification number and
has applied for a number or intends to apply for a number in the near future. If
the box in Part 3 is checked and the exchange agent is not provided with a
taxpayer identification number within sixty days, 31% of any payments may be
withheld until a taxpayer identification number is provided to the exchange
agent.
12. Requests for Assistance and Additional Copies. Request for assistance
or for additional copies of the prospectus, this letter of transmittal, the
Notice of Guaranteed Delivery and/or Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9, may be directed to the information
agent at the address and telephone numbers set forth below:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Phone: (212) 750-5833
Fax: (212) 750-5799
Important: For a tender of senior subordinated notes to be valid, this
letter of transmittal (or manually-signed facsimile hereof), together with the
senior subordinated notes and all other required documents, or a Notice of
Guaranteed Delivery, must be received by the exchange agent prior to the
expiration date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a holder whose tendered senior subordinated
notes are accepted for exchange is required by law to provide the exchange agent
with such holder's correct taxpayer identification number on Substitute Form W-9
below. If the exchange agent is not provided with the correct taxpayer
identification number, the holder or other payee may be subject to a $50 (or
greater) penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such holder or other payee with respect to senior subordinated
notes exchanged pursuant to the exchange offer may be subject to backup
withholding at a rate of 31%.
Certain holders of senior subordinated notes (including, among others, all
corporations and certain foreign individuals) are not generally subject to these
backup withholding and reporting requirements. In order for a foreign person to
qualify for exemption from U.S. withholding taxes, that holder must submit to
the exchange agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that person's exemption from
withholding taxes. Forms W-8 can be obtained from the exchange agent. See the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional instructions.
By tendering senior subordinated notes pursuant to the exchange offer, a
holder that does not comply with the conditions described above authorizes the
exchange agent to withhold payment otherwise due so as to enable it to satisfy
its backup withholding obligation. Pursuant to the backup withholding provisions
of federal income tax law, unless the conditions described above are satisfied,
the exchange agent will
13
<PAGE> 14
withhold an amount of any cash payable to a tendering holder of senior
subordinated notes pursuant to the exchange offer that will enable the exchange
agent to remit the appropriate amount of backup withholding due to the Internal
Revenue Service with respect to the exchange. Backup withholding is not an
additional tax. Rather, the federal income tax liability of persons subject to
backup withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be sought from the Internal
Revenue Services.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made to a holder or other payee
with respect to senior subordinated notes exchanged pursuant to the exchange
offer, the holder is required to notify the exchange agent of the holder's
correct taxpayer identification number by completing the form below, certifying
that the taxpayer identification number provided on Substitute From W-9 is
correct (or that such holder is awaiting a taxpayer identification number) and
that (i) the holder has not been notified by the Internal Revenue Service that
the holder is subject to backup withholding as a result of failure to report all
interest or dividends or (ii) the Internal Revenue Service has notified the
holder that the holder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The holder is required to give the exchange agent the taxpayer
identification number (e.g., Social Security number or employer identification
number) of the registered holder of the senior subordinated notes. If the senior
subordinated notes are in more than one name are not in the name of the actual
owner, consult the Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9, included in the materials sent herewith, for
additional guidance on which number to report.
14
<PAGE> 1
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO [ % SENIOR SUBORDINATED NOTES DUE ] OF
PAGING NETWORK, INC.
This form or one substantially equivalent hereto must be used to accept the
exchange offer if any [ % Senior Subordinated Notes due ] of Paging
Network, Inc. are not lost but are not immediately available or time will not
permit all required documents to reach the exchange agent by the expiration
date. Such form may be delivered by telegram, telex, facsimile transmission,
mail or hand delivery to the exchange agent. See "Procedure for Tendering Senior
Subordinated Notes and Delivery of Consents -- Guaranteed Delivery Procedures"
in the prospectus dated as of , 2000. All correspondence should be
addressed to the exchange agent as follows:
<TABLE>
<S> <C>
By Mail: By Hand and Overnight Courier:
Harris Trust Company of New York Harris Trust Company of New York
Wall Street Station 88 Pine Street
P.O. Box 1023 19th Floor
New York 10268-1023 New York, New York 10005
</TABLE>
By Facsimile Transmission: (212) 701-7636 or (212) 701-7637
(For Eligible Institutions Only)
Confirm Facsimile by Telephone: (212) 701-7624
For Information Call: (212) 701-7624
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION OF THIS
INSTRUMENT VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tenders to Paging Network, Inc., upon terms and
subject to the conditions set forth in the prospectus and the accompanying
Letter of Transmittal/Consent Form receipt of which is hereby acknowledged, the
principal amount of senior subordinated notes specified below, pursuant to the
guaranteed delivery procedures set forth in the prospectus under "Procedure for
Tendering Senior Subordinated Notes and Delivery of Consents -- Guaranteed
Delivery Procedures."
<PAGE> 2
The undersigned hereby tenders the senior subordinated notes listed below and
acknowledges that such tender also constitutes a consent to the proposed
amendments to the indenture, as such proposed amendments are described in the
prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SENIOR SUBORDINATED NOTES CERTIFICATE NUMBERS (IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
</TABLE>
SIGN HERE
- --------------------------------------------------------------------------------
Signature(s)
- --------------------------------------------------------------------------------
Name(s) (Please Print)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
Area Code & Tel. No.
Dated:
--------------------------------------------------------------------------
2
<PAGE> 3
GUARANTEE
(Not to Be Used for Signature Guarantee)
The undersigned, an eligible institution, guarantees that the certificates
representing the principal amount of senior subordinated notes tendered hereby
in proper form for transfer, or timely confirmation of the book-entry transfer
of such senior subordinated notes into the exchange agent's account at The
Depository Trust Company pursuant to the procedures set forth in the "Procedure
for Tendering Senior Subordinated Notes and Delivery of Consents -- Book-Entry
Transfers" section of the prospectus, together with a properly completed and
duly executed letter of transmittal (or manually-signed facsimile thereof or
agent's message in lieu thereof) and any required signature guarantee and any
other documents required by the letter of transmittal, will be received by the
exchange agent at the address set forth above, no later than three New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm: ------------------------------------- Title:
-----------------------------------------------
Authorized Signature: ----------------------------- Address: --------------------------------------------
- ----------------------------------------------------- -----------------------------------------------------
Zip Code
Area Code and Telephone Number:
Name: ---------------------------------------------- -----------------------------------------------------
Dated: ----------------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES WITH THIS FORM. CERTIFICATES SHOULD BE SENT WITH
THE LETTER OF TRANSMITTAL.
3
<PAGE> 1
EXHIBIT 99.5
CLASS 5 MASTER BALLOT -- 8.875% NOTES DUE 2006
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS INCLUDED IN THE MATERIAL MAILED PREVIOUSLY
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re:
CHAPTER 11
PAGING NETWORK, INC., et al., Case No. ( )
Debtors, Jointly Administered
</TABLE>
MASTER BALLOT FOR ACCEPTING OR REJECTING THE
PREPACKAGED PLAN OF REORGANIZATION TO BE FILED BY
PAGING NETWORK, INC., A DELAWARE CORPORATION AND CERTAIN
OF ITS OPERATING SUBSIDIARIES IN THE EVENT A
CHAPTER 11 CASE IS COMMENCED ON THEIR BEHALF
<TABLE>
<S> <C>
8.875% SENIOR SUBORDINATED NOTES DUE 2006 CUSIP NO.
</TABLE>
RECORD DATE: , 2000
VOTING DEADLINE: 12:00 MIDNIGHT, NEW YORK CITY TIME, ON , 2000
THE MASTER BALLOT IS TO BE USED BY BROKERS, BANKS, PROXY INTERMEDIARIES OR
OTHER NOMINEES FOR VOTING ON BEHALF OF BENEFICIAL OWNERS OR REGISTERED HOLDERS
WHO ARE BENEFICIAL OWNERS OF THE 8.875% SENIOR SUBORDINATED NOTES DUE 2006
(CUSIP NO. ) ISSUED BY PAGING NETWORK, INC., A DELAWARE CORPORATION.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE,
SIGN AND DATE THIS MASTER BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE
PROMPTLY. IF INNISFREE M&A INCORPORATED (THE "INFORMATION AGENT") HAS NOT
RECEIVED THE MASTER BALLOT BY 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
, 2000, UNLESS THIS DATE IS EXTENDED BY THE COMPANY (THE "VOTING
DEADLINE"), THE MASTER BALLOT WILL NOT BE COUNTED.
<PAGE> 2
Paging Network, Inc. and its designated operating subsidiaries (the
"Company") are soliciting votes with respect to the joint prepackaged plan of
reorganization (the "Prepackaged Plan") under chapter 11 of title 11 of the
United States Code (the "Bankruptcy Code") referred to, described in, and
attached as Annex C to the Prospectus dated , 2000 that may be filed
on behalf of the Company. This Master Ballot is to be used by brokers, banks,
proxy intermediaries or other nominees for voting to accept or reject the
Prepackaged Plan on behalf of beneficial owners or registered owners who are
beneficial owners of the 8.875% Senior Notes due 2006 (the "8.875% Notes").
Claims with respect to the 8.875% Notes, together with the claims arising under
the Company's 10.125% notes due 2007 and its 10% notes due 2008 (collectively,
the "Senior Subordinated Notes"), are classified as Class 5 Claims under the
Prepackaged Plan. Capitalized terms not otherwise defined herein shall have the
meanings ascribed them in the Prepackaged Plan.
Although the Company is soliciting votes to accept or reject the
Prepackaged Plan, the Company has not commenced a chapter 11 case. As discussed
in the Prospectus, in the event that less than 97.5% of the Senior Subordinated
Notes are validly tendered in the exchange offer, the Company may seek to
implement its exchange offer and related restructuring transactions pursuant to
the Prepackaged Plan. Accordingly, the Company is seeking the votes of the
beneficial owners of the 8.875% Notes to accept or reject the Prepackaged Plan.
In the event that the Company seeks to implement the exchange offer and
related restructuring transactions through the Prepackaged Plan, the Prepackaged
Plan can be confirmed (approved) by the Bankruptcy Court if it is accepted by
holders of two-thirds in amount and more than one-half in number of Senior
Subordinated Notes that vote on the Prepackaged Plan and if it otherwise
satisfies the requirements of Section 1129(a) of the Bankruptcy Code.
TO HAVE YOUR VOTE COUNTED, THIS MASTER BALLOT MUST BE COMPLETED AND
RETURNED SO THAT IT IS RECEIVED BY THE INFORMATION AGENT, INNISFREE M&A
INCORPORATED, TELEPHONE NUMBER (212) 750-5833, BY 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THE , 2000 VOTING DEADLINE (AS THE SAME MAY BE EXTENDED BY
THE COMPANY) AT THE FOLLOWING ADDRESS:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE
NEW YORK, NY 10022
ATTN: PAGENET BALLOT TABULATION
The Company reserves the right to amend the Prepackaged Plan before or
after the date a chapter 11 case is commenced. Amendments to the Prepackaged
Plan that do not materially and adversely affect the treatment of holders of
8.875% Notes may be approved by the bankruptcy court at a hearing on
confirmation without the necessity of resoliciting votes of such holders. If
resolicitation is required, the Company will furnish new Ballots and/or Master
Ballots to be used to accept or reject the Prepackaged Plan, as amended.
2
<PAGE> 3
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
BEFORE COMPLETING THE MASTER BALLOT:
ITEM 1. CERTIFICATE OF AUTHORITY TO VOTE. The undersigned certifies that as of
the , 2000 record date, the undersigned (please check
applicable box):
[ ] Is a broker, bank, or other nominee for the beneficial owners of the
aggregate principal amount of 8.875% Notes listed in Item 2 below, or
[ ] Is acting under a power of attorney and/or agency (a copy of which will
be provided upon request) granted by a broker, bank, or other nominee
that is the registered holder of the aggregate principal amount of
8.875% Notes listed in Item 2 below, or,
[ ] Has been granted a proxy (an original of which is attached hereto) from
a broker, bank or other nominee, or a beneficial owner, that is the
registered holder of the 8.875% Notes listed in Item 2 below.
and accordingly, has full power and authority to vote to accept or reject
the Prepackaged Plan on behalf of the beneficial owners of the 8.875% Notes
described in Item 2 below.
ITEM 2. CLASS 5 (SENIOR SUBORDINATED NOTES) VOTE. The undersigned certifies that
the following beneficial owners of 8.875% Notes, or those on the
attached list, as identified by their respective customer account
numbers or the respective sequence numbers set forth below, have
delivered to the undersigned Ballots casting such votes on the
Prepackaged Plan. (Indicate in the appropriate column the aggregate
amount voted for each respective account. Please attach additional
sheets of paper if necessary. Please Note: each beneficial owner must
vote all of his, her or its 8.875% Notes either to accept or reject the
Prepackaged Plan, and may not split such vote.):
<TABLE>
<CAPTION>
CUSTOMER ACCOUNT NUMBER FOR EACH BENEFICIAL OWNER OF NUMBER AND AGGREGATE AMOUNT OF 8.875% NOTES
THE 8.875% NOTES (IF CUSTOMER HAS MORE THAN ONE ACCOUNT, TO ACCEPT THE PREPACKAGED PLAN TO REJECT THE PREPACKAGED PLAN
PLEASE INDICATE BY LISTING EACH ACCOUNT A, B, C, ETC.) AGGREGATE AMOUNT AGGREGATE AMOUNT
<S> <C> <C>
$ $
$ $
$ $
$ $
$ $
$ $
$ $
</TABLE>
ITEM 3. CERTIFICATION AS TO OTHER SENIOR SUBORDINATED NOTES. The undersigned
certifies that the undersigned has transcribed in the following table
the information, if any, as to any other Senior Subordinated
3
<PAGE> 4
Notes held in additional accounts as provided in Item 3 of each Ballot
received from a beneficial owner:
<TABLE>
<CAPTION>
TRANSCRIBE FROM ITEM 3 OF 8.875% SENIOR
SUBORDINATED NOTE BALLOT:
NAME OF CUSTODIAN
BANK, BROKER OR
ACCOUNT NUMBER FOR NOMINEE OF OTHER
YOUR CUSTOMER ACCOUNT OTHER SENIOR SENIOR SUBORDINATED
NUMBER SUBORDINATED NOTES NOTES
<S> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
<CAPTION>
TRANSCRIBE FROM ITEM 3 OF 8.875% SENIOR
SUBORDINATED NOTE BALLOT:
TYPE OF OTHER SENIOR PRINCIPAL AMOUNT OF
SUBORDINATED NOTES OTHER SENIOR
YOUR CUSTOMER ACCOUNT VOTED SUBORDINATED NOTES
NUMBER (8.875%, 10.125%, 10%) VOTED
<S> <C> <C>
1. $
2. $
3. $
4. $
5. $
6. $
7. $
8. $
9. $
10. $
</TABLE>
ITEM 4.By signing and returning this Master Ballot, the undersigned certifies
that each beneficial owner of 8.875% Notes listed in Item 2, above, whose
votes are being transmitted by this Master Ballot has been provided with
a copy of the Ballot and the Prospectus.
ITEM 5.By signing and returning this Master Ballot, the undersigned certifies
that each beneficial owner of 8.875% Notes listed in Item 2, above, has
been provided with a copy of the Prospectus, including the Annexes
thereto and acknowledges that the solicitation of votes is subject to all
terms and conditions set forth in the Prospectus.
Name of Broker, Bank, Proxy Intermediary
or Other Nominee:
-------------------------------------------------------------------------
Name of Proxy Holder or Agent for Broker, Bank,
Proxy Intermediary, or Other Nominee (if applicable):
----------------------------------------------------
Social Security or Federal Tax I.D. No.:
--------------------------------------------------------------------
Signature: X
-------------------------------------------------------------------------
By:
-------------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Address:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Telephone Number: ( )
-------------------------------------------------------------------------
Facsimile Number: ( )
-------------------------------------------------------------------------
Date Completed:
-------------------------------------------------------------------------
4
<PAGE> 5
THIS MASTER BALLOT MUST BE RECEIVED BY THE INFORMATION AGENT, INNISFREE M&A
INCORPORATED, AT THE ADDRESS LISTED BELOW, BY 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON , 2000, UNLESS EXTENDED BY THE COMPANY, OR THE VOTES
TRANSMITTED HEREBY WILL NOT BE COUNTED.
INNISFREE M&A INCORPORATED
501 MADISON AVENUE
NEW YORK, NY 10022
ATTN: PAGENET BALLOT TABULATION
5
<PAGE> 6
INSTRUCTIONS TO BROKERAGE FIRMS/BANKS/PROXY INTERMEDIARIES/NOMINEES
The Company is soliciting the votes of your customers who are beneficial
owners of the 8.875% Notes as of the , 2000 record date with respect
to the Prepackaged Plan referred to in the Prospectus. By signing this Master
Ballot, the signer certifies that each beneficial owner whose votes are being
transmitted by this Master Ballot has been provided a copy of the Ballot, the
Prospectus and the Prepackaged Plan.
To have the vote of your customers count, you must first have delivered to
each such customer a Ballot and a copy of the Prepackaged Plan and the
Prospectus. If you have elected not to send prevalidated Ballots to your
customer, then you must instruct your customers to complete the Ballots and
return them to you. You must (a) retain such Ballots in your files and transfer
the requested information from each such Ballot onto the attached Master Ballot,
(b) complete and execute the Master Ballot, and (c) ARRANGE FOR DELIVERY AS SET
FORTH BELOW OF THE ORIGINAL MASTER BALLOT TO THE INFORMATION AGENT, INNISFREE
M&A INCORPORATED, AT THE ADDRESS AND TELEPHONE LISTED BELOW:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE
NEW YORK, NY 10022
ATTN: PAGENET BALLOT TABULATION
BANKS SHOULD CALL LLOYD LEFCOURT AT (212) 750-7419
BROKERS SHOULD CALL FRANK LENTINI AT (212) 750-7946
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT:
To complete the Master Ballot, follow these instructions:
(a) Check the appropriate box in Item 1 of the Master Ballot.
(b) Indicate in Item 2 the votes to accept or reject the Prepackaged
Plan transmitted to you by the beneficial owners. To identify such
beneficial owners without disclosing their names, please use the customer
account number assigned by you to each such beneficial owner, or if no such
customer account number exists, please assign a number to each account
(making sure to retain a separate list of each beneficial owner and the
assigned number). IMPORTANT: BENEFICIAL OWNERS MAY NOT SPLIT THEIR VOTES.
EACH BENEFICIAL OWNER MUST VOTE ALL OF HIS, HER OR ITS 8.875% NOTES EITHER
TO ACCEPT OR REJECT THE PREPACKAGED PLAN. IF ANY BENEFICIAL OWNER HAS
ATTEMPTED TO SPLIT SUCH VOTE, PLEASE CONTACT INNISFREE M&A INCORPORATED AT
ONE OF THE NUMBERS LISTED ABOVE. Any Ballot or Master Ballot which is
validly executed but which does not indicate acceptance or rejection of the
Prepackaged Plan by the indicated beneficial owner or which impermissibly
attempts to split a vote will not be counted.
(c) Transcribe in Item 3 of the Master Ballot any information provided
in Item 3 of each Ballot received from a beneficial owner of Other Senior
Subordinated Notes.
(d) SIGN and date the Master Ballot and provide the remaining
information requested. If you are signing the Master Ballot on behalf of
another entity, state your relationship or title with respect to such
entity, and provide proof of authorization to so sign.
FOR YOUR CUSTOMERS' VOTES TO COUNT, YOUR MASTER BALLOT MUST BE RECEIVED BY
THE INFORMATION AGENT ON OR BEFORE THE VOTING DEADLINE (12:00 MIDNIGHT, NEW YORK
CITY TIME, ON , 2000) UNLESS EXTENDED BY THE COMPANY. PLEASE ADVISE
YOUR CUSTOMERS TO RETURN THEIR BALLOTS TO YOU IN TIME TO PREPARE THE MASTER
BALLOT AND DELIVER IT TO THE INFORMATION AGENT. YOU MUST RETURN YOUR MASTER
BALLOT(S) TO THE INFORMATION AGENT
6
<PAGE> 7
BY MAIL, OVERNIGHT DELIVERY OR HAND DELIVERY IN SUFFICIENT TIME SO THAT THEY ARE
RECEIVED PRIOR TO THE VOTING DEADLINE. VOTES NOT RECEIVED BY THE VOTING DEADLINE
WILL NOT BE COUNTED UNLESS SUCH VOTING DEADLINE IS EXTENDED BY THE COMPANY. ANY
BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION
OF THE PREPACKAGED PLAN WILL NOT BE COUNTED.
No Ballot or Master Ballot shall constitute or be deemed a proof of claim
or equity interest or an assertion of a claim or equity interest.
No fees or commissions or other remuneration will be payable to any broker,
dealer or other person for soliciting Ballots in accepting the Prepackaged Plan.
The Company will, however, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding the Ballots and other enclosed
materials to your clients. The Company will also pay all transfer taxes, if any,
applicable to the transfer and exchange of your securities pursuant to and
following confirmation of the Prepackaged Plan.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING
PROCEDURES, OR IF YOU NEED A BALLOT OR ADDITIONAL COPIES OF THE PROSPECTUS OR
OTHER ENCLOSED MATERIAL, INCLUDING THE PREPACKAGED PLAN, PLEASE CALL:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
BANKS SHOULD CALL LLOYD LEFCOURT AT (212) 750-7419
BROKERS SHOULD CALL FRANK LENTINI AT (212) 750-7946
7
<PAGE> 1
EXHIBIT 99.6
CLASS 5 BALLOT -- 8.875% NOTES DUE 2006
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS INCLUDED IN THE MATERIAL MAILED WITH THIS
BALLOT
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C>
In re:
CHAPTER 11
PAGING NETWORK, INC., et al., Case No. ( )
Debtors Jointly Administered
</TABLE>
BALLOT FOR BENEFICIAL OWNERS OF 8.875% SENIOR SUBORDINATED
NOTES DUE 2006 (CUSIP NO. ) OF PAGING NETWORK, INC.,
A DELAWARE CORPORATION, ACCEPTING OR REJECTING THE
PREPACKAGED PLAN OF REORGANIZATION TO BE FILED BY
PAGING NETWORK, INC., A DELAWARE CORPORATION AND
CERTAIN OF ITS OPERATING SUBSIDIARIES IN THE EVENT
A CHAPTER 11 CASE IS COMMENCED ON THEIR BEHALF
RECORD DATE: , 2000
VOTING DEADLINE: 12:00 MIDNIGHT, NEW YORK CITY TIME, ON , 2000
THIS BALLOT IS TO BE USED BY BENEFICIAL OWNERS OF THE 8.875% SENIOR
SUBORDINATED NOTES DUE 2006 (CUSIP NO. ) ISSUED BY PAGING NETWORK, INC., A
DELAWARE CORPORATION. PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS
CAREFULLY. PLEASE COMPLETE, SIGN AND DATE THIS BALLOT AND RETURN IT IN THE
ENCLOSED ENVELOPE PROMPTLY.
IF THE ENCLOSED RETURN ENVELOPE IS ADDRESSED TO YOUR BROKER, BANK, PROXY
INTERMEDIARY OR OTHER NOMINEE, PLEASE MAIL YOUR BALLOT SUFFICIENTLY IN ADVANCE
OF THE VOTING DEADLINE SO THAT IT MAY BE PROCESSED AND FORWARDED BY YOUR BROKER,
BANK, PROXY INTERMEDIARY OR OTHER NOMINEE TO THE INFORMATION AGENT BEFORE THE
VOTING DEADLINE.
Paging Network, Inc. and its designated operating subsidiaries (the
"Company") are soliciting votes with respect to the joint prepackaged plan of
reorganization (the "Prepackaged Plan") under chapter 11 of title 11 of the
United States Code (the "Bankruptcy Code") referred to, described in, and
attached as Annex C to the Prospectus dated , 2000 that may be filed
on behalf of the Company. This Ballot is to be used by a beneficial owner of the
8.875% Senior Notes due 2006 (the "8.875% Notes) issued by the Company to cast
its vote to accept or reject the Prepackaged Plan. Pursuant to the Prepackaged
Plan, beneficial owners of 8.875% Notes, together with the holders of the
Company's 10.125% notes due 2007 and 10% notes due 2008 (collectively, the
"Senior Subordinated Notes"), hold a Class 5 Claim. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Prepackaged Plan.
Although the Company is soliciting votes to accept or reject the
Prepackaged Plan, the Company has not commenced a chapter 11 case. As discussed
in the Prospectus, in the event that less than 97.5% of the Senior Subordinated
Notes are validly tendered in the exchange offer, the Company may seek to
implement its exchange offer and related restructuring transactions pursuant to
the Prepackaged Plan.
<PAGE> 2
Accordingly, the Company is seeking the votes of the beneficial owners of the
8.875% Notes to accept or reject the Prepackaged Plan.
In the event that the Company seeks to implement the exchange offer and
related restructuring transactions through the Prepackaged Plan, the Prepackaged
Plan can be confirmed (approved) by the Bankruptcy Court and thereby made
binding upon you if it is accepted by holders of two-thirds in amount and more
than one-half in number of Senior Subordinated Notes that vote on the
Prepackaged Plan and if it otherwise satisfies the requirements of Section
1129(a) of the Bankruptcy Code.
TO HAVE YOUR VOTE COUNT, THIS BALLOT MUST BE COMPLETED AND RETURNED TO YOUR
BROKER, BANK, PROXY INTERMEDIARY OR OTHER NOMINEE, OR TO THE INFORMATION AGENT,
AS INDICATED BY THE ENCLOSED RETURN ENVELOPE SUFFICIENTLY IN ADVANCE OF THE
VOTING DEADLINE SO THAT YOUR BROKER, BANK, PROXY INTERMEDIARY OR OTHER NOMINEE
CAN COMPLETE AND FILE A MASTER BALLOT INCLUDING YOUR VOTE. PLEASE SEE THE
"INSTRUCTIONS FOR COMPLETING THE BALLOT" BELOW FOR ADDITIONAL INFORMATION.
The Company reserves the right to amend the Prepackaged Plan before or
after the date a chapter 11 case is commenced. Amendments to the Prepackaged
Plan that do not materially and adversely affect the treatment of holders of
8.875% Notes may be approved by the bankruptcy court at a hearing on
confirmation without the necessity of resoliciting votes of such holders. If
resolicitation is required, the Company will furnish new Ballots and/or Master
Ballots to be used to accept or reject the Prepackaged Plan, as amended.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE BALLOT BEFORE
COMPLETING THE BALLOT:
ITEM 1. AGGREGATE PRINCIPAL AMOUNT OF 8.875% NOTES. This Ballot is cast by or on
behalf of the beneficial owner of the aggregate principal amount of
8.875% Notes indicated immediately below as of the , 2000
record date:
$
------------------------------------------
If you own 8.875% Notes but they are held by someone else on your
behalf and you do not know the amount, please contact that individual
or entity immediately.
ITEM 2. CLASS 5 (SENIOR SUBORDINATED NOTES) VOTE. The beneficial owner of the
aggregate principal amount of 8.875% Notes set forth in Item 1 votes
with respect to the proposed treatment of its Claim against the Company
as follows (check one box only):
[ ] to ACCEPT the Prepackaged Plan [ ] to REJECT the Prepackaged
Plan
ITEM 3. CERTIFICATION AS TO OTHER SENIOR SUBORDINATED NOTES HELD IN ADDITIONAL
ACCOUNTS. By returning this Ballot, the undersigned certifies that the
beneficial owner either (a) has not submitted any other Ballots for
other Senior Subordinated Notes held in other accounts or record names,
OR (b) has provided the information specified in the following table for
all other Senior Subordinated Notes for which the beneficial owner has
submitted additional Ballots (please use additional sheets if
necessary):
<TABLE>
<S> <C> <C> <C>
AMOUNT OF OTHER
NAME OF CUSTODIAN BANK OR BROKER TYPE OF OTHER SENIOR SENIOR
OTHER ACCOUNT NOMINEE OF OTHER SENIOR SUBORDINATED SUBORDINATED NOTES VOTED SUBORDINATED
NUMBER NOTES (8.875%, 10.125%, 10%) NOTES VOTED
$
$
$
</TABLE>
2
<PAGE> 3
ITEM 4. By returning this Ballot, the voter certifies and/or acknowledges that:
(a) the beneficial owner of the 8.875% Notes set forth in Item 1 above
has been provided with a copy of the Prospectus, including the Prepackaged
Plan;
(b) the beneficial owner of the 8.875% Notes set forth in Item 1 above
has full power and authority to vote to accept or reject the Prepackaged
Plan;
(c) the beneficial owner of the 8.875% Notes set forth in Item 1 above
has voted to accept or reject the Prepackaged Plan as set forth in Item 2
above;
(d) this Ballot has been executed on behalf of a single beneficial
owner;
(e) this solicitation of Prepackaged Plan acceptances is subject to
all the terms and conditions set forth in the Prospectus; and
(f) the beneficial owner of the 8.875% Notes set forth in Item 1 above
has voted all of his, her or its other Senior Subordinated Notes (as set
forth in Item 3 above) either to accept or reject the Prepackaged Plan and
each of such beneficial owner's Senior Subordinated Notes has been voted
only once.
ITEM 5.By returning this Ballot, the voter certifies that (i) this Ballot has
been executed on behalf of a single entity or individual and (ii) the
voter has full power and authority to execute this Ballot on behalf of
such entity:
Name:
-------------------------------------------------------------------------
(print or type)
Social Security or Federal Tax I.D. No.:
-------------------------------------------------------------------
(optional)
Signature:
X
-------------------------------------------------------------------------
By:
-------------------------------------------------------------------------
(if appropriate)
Title:
-------------------------------------------------------------------------
(if appropriate)
Street Address:
-------------------------------------------------------------------------
City, State, Zip Code:
-------------------------------------------------------------------------
Telephone Number: ( )
- --------------------------------------------------------------------------------
Date Completed:
-------------------------------------------------------------------------
3
<PAGE> 4
THE VOTING DEADLINE IS 12:00 MIDNIGHT, NEW YORK CITY TIME, ON ,
2000, UNLESS EXTENDED BY THE COMPANY. ALL BALLOTS AND MASTER BALLOTS MUST BE
RECEIVED BY THE VOTING DEADLINE. IF YOU MUST RETURN YOUR BALLOT TO YOUR BANK OR
BROKER, ITS PROXY AGENT, OR OTHER NOMINEE, PLEASE ALLOW ENOUGH TIME FOR THAT
FIRM TO RECEIVE AND PROCESS YOUR VOTE.
THE INFORMATION AGENT IS:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE
NEW YORK, NY 10022
CALL TOLL FREE: (877) 750-2689
4
<PAGE> 5
INSTRUCTIONS FOR COMPLETING THE BALLOT
The Company is soliciting your vote with respect to the Prepackaged Plan
referred to in the Prospectus. Please review the Prospectus in its entirety,
including the annexes thereto, before you vote.
INSTRUCTIONS: PLEASE COMPLETE THIS BALLOT AS FOLLOWS:
(a) complete Item 1 (if not already filled out by your nominee) with the
understanding that the information provided by you will be used for the
tabulation of votes on the Prepackaged Plan, except to the extent that the
official records of the Company or your nominee differ from the amount indicated
by you. Please contact your nominee if you are unsure of the amount due with
respect to the 8.875% Notes you own;
(b) vote to accept or reject the Prepackaged Plan by checking the
appropriate box in Item 2;
(c) provide the information required in Item 3 if you have submitted any
other Ballots for other Senior Subordinated Notes held in other accounts or
record names;
(d) review the acknowledgment set forth in Item 4;
(e) date this Ballot, and provide your address if it does not appear on the
Ballot. By returning this Ballot you are voting all of your 8.875% Notes
described in Item 1 with respect to the Prepackaged Plan;
(f) please use additional sheets of paper if additional space is required
to respond to any item on the Ballot (clearly marked to indicate the applicable
item on the Ballot);
(g) if you are completing this Ballot on behalf of another entity, indicate
your relationship with such entity and the capacity in which you are signing,
and provide proof of your authorization to so sign; and
(h) return your Ballot as indicated below:
1. if your bank, broker, proxy intermediary or other nominee has
"prevalidated" this Ballot by signing the Ballot and indicating
thereon, its name as record holder of your Senior Subordinated
Notes: return this prevalidated Ballot in the enclosed return
envelope to the Information Agent SO THAT IT IS RECEIVED BY THE
INFORMATION AGENT BY 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
, 2000, UNLESS EXTENDED BY THE COMPANY. If you also
hold other Senior Subordinated Notes and received a prevalidated
Ballot to vote those other Senior Subordinated Notes, return that
Ballot to the Information Agent in the envelope provided with that
Ballot. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE
AN ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN WILL NOT BE
COUNTED; or
2. if your broker, bank, proxy intermediary or other nominee has not
"prevalidated" this Ballot: SIGN this Ballot and return it in the
enclosed return envelope EARLY ENOUGH FOR YOUR VOTE TO BE
PROCESSED BY YOUR BROKER, BANK, PROXY INTERMEDIARY OR OTHER
NOMINEE AND THEN FORWARDED TO THE INFORMATION AGENT SO THAT IT IS
RECEIVED BY 12:00 MIDNIGHT, NEW YORK CITY TIME, ON ,
2000, UNLESS EXTENDED BY THE COMPANY. If you also hold other
Senior Subordinated Notes and received a Ballot to vote those
other Senior Subordinated Notes which was not prevalidated, return
that Ballot to your broker, bank, proxy intermediary or other
nominee in the envelope provided with that Ballot. ANY BALLOT
WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR
REJECTION OF THE PREPACKAGED PLAN WILL NOT BE COUNTED.
- YOU MUST VOTE ALL YOUR 8.875% NOTES EITHER TO ACCEPT OR REJECT THE
PREPACKAGED PLAN AND YOU MAY NOT SPLIT YOUR VOTE.
5
<PAGE> 6
- IF YOU ACQUIRED BENEFICIAL OWNERSHIP OF YOUR 8.875% NOTES AFTER THE
, 2000 RECORD DATE, IN ORDER TO VOTE ON THE PREPACKAGED PLAN
YOU MUST SUBMIT WITH YOUR BALLOT A PROXY FROM THE BENEFICIAL OWNER AS OF
THE , 2000 RECORD DATE IN WHICH SUCH BENEFICIAL OWNER
CERTIFIES THAT HE, SHE, OR IT WAS THE BENEFICIAL OWNER OF THE 8.875%
NOTES ON , 2000, THAT SUCH BENEFICIAL OWNER HAS NOT ALREADY
VOTED ON THE PREPACKAGED PLAN AND THAT SUCH BENEFICIAL OWNER IS
AUTHORIZING YOU TO VOTE ON THE PREPACKAGED PLAN. IF YOU HAVE ANY
QUESTIONS WITH RESPECT TO THE FORM OF PROXY REQUIRED OR ANY MATTER
RELATED THERETO, PLEASE CONTACT THE INFORMATION AGENT.
- IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE INFORMATION
AGENT, PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE RECEIVED BY THE VOTING
DEADLINE.
- IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, PROXY
INTERMEDIARY OR OTHER NOMINEE YOU MUST RETURN YOUR BALLOT EARLY ENOUGH
FOR YOUR VOTE TO BE PROCESSED AND THEN FORWARDED TO THE INFORMATION AGENT
BY THE VOTING DEADLINE. PLEASE ALLOW ADDITIONAL TIME.
- IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING PROCEDURES,
OR IF YOU NEED A BALLOT OR ADDITIONAL COPIES OF THE PROSPECTUS OR OTHER
ENCLOSED MATERIAL, INCLUDING THE PREPACKAGED PLAN, PLEASE CALL:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
CALL TOLL FREE: (877) 750-2689
Please Note:
This Ballot shall not constitute or be deemed a proof of claim, equity
interest or an assertion of a claim or equity interest.
No fees, commissions, or other remuneration will be payable to any broker,
dealer, or other person for soliciting votes on the Prepackaged Plan.
6
<PAGE> 1
EXHIBIT 99.7
CLASS 6 MASTER BALLOT -- OLD STOCK INTERESTS
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS INCLUDED IN THE MATERIAL MAILED PREVIOUSLY
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re:
CHAPTER 11
PAGING NETWORK, INC., et al., Case No. ( )
Debtors, Jointly Administered
</TABLE>
MASTER BALLOT FOR ACCEPTING OR REJECTING THE
PREPACKAGED PLAN OF REORGANIZATION TO BE FILED BY
PAGING NETWORK, INC., A DELAWARE CORPORATION AND CERTAIN
OF ITS OPERATING SUBSIDIARIES IN THE EVENT A
CHAPTER 11 CASE IS COMMENCED ON THEIR BEHALF
<TABLE>
<S> <C>
PAGING NETWORK, INC. COMMON STOCK CUSIP NO. ---------------
</TABLE>
RECORD DATE: , 2000
VOTING DEADLINE: 12:00 MIDNIGHT, NEW YORK CITY TIME, ON , 2000
THE MASTER BALLOT IS TO BE USED BY BROKERS, BANKS, PROXY INTERMEDIARIES OR
OTHER NOMINEES FOR VOTING ON BEHALF OF BENEFICIAL OWNERS OR REGISTERED HOLDERS
WHO ARE BENEFICIAL OWNERS OF THE COMMON STOCK (CUSIP NO. ) ISSUED BY PAGING
NETWORK, INC., A DELAWARE CORPORATION. PLEASE READ AND FOLLOW THE ATTACHED
INSTRUCTIONS CAREFULLY. PLEASE COMPLETE, SIGN AND DATE THIS MASTER BALLOT AND
RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF INNISFREE M&A INCORPORATED (THE
"INFORMATION AGENT") HAS NOT RECEIVED THE MASTER BALLOT BY 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON , 2000, UNLESS THIS DATE IS EXTENDED BY THE COMPANY
(THE "VOTING DEADLINE"), THE MASTER BALLOT WILL NOT BE COUNTED.
Paging Network, Inc. and its designated operating subsidiaries (the
"Company") is soliciting votes with respect to the joint prepackaged plan of
reorganization (the "Prepackaged Plan") under chapter 11 of title 11 of the
United States Code (the "Bankruptcy Code") referred to, described in, and
attached as Annex C to the Prospectus dated , 2000 that may be filed
on behalf of the Company. This Master Ballot is to be used by brokers, banks,
proxy intermediaries or other nominees for voting to accept or reject the
Prepackaged Plan on behalf of beneficial owners of PageNet's common stock (the
"Common Stock"). Interests with respect to PageNet's Common Stock are classified
as Class 6 Interests under the Prepackaged Plan. Capitalized terms not otherwise
defined herein shall have the meanings ascribed them in the Prepackaged Plan.
<PAGE> 2
Although the Company is soliciting votes to accept or reject the
Prepackaged Plan, the Company has not commenced a chapter 11 case. As discussed
in the Prospectus, in the event that less than 97.5% of PageNet's senior
subordinated notes are validly tendered in the exchange offer, the Company may
seek to implement its exchange offer and related restructuring transactions
pursuant to the Prepackaged Plan. Accordingly, the Company is seeking the votes
of the beneficial owners of the Common Stock to accept or reject the Prepackaged
Plan.
In the event that the Company seeks to implement the exchange offer and
related restructuring transactions through the Prepackaged Plan, the Prepackaged
Plan can be confirmed (approved) by the Bankruptcy Court if it is accepted by
holders of two-thirds of the shares of Common Stock that vote on the Prepackaged
Plan and if it otherwise satisfies the requirements of Section 1129(a) of the
Bankruptcy Code.
TO HAVE YOUR VOTE COUNTED, THIS MASTER BALLOT MUST BE COMPLETED AND
RETURNED SO THAT IT IS RECEIVED BY THE INFORMATION AGENT, INNISFREE M&A
INCORPORATED, TELEPHONE NUMBER (212) 750-5833 BY 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THE , 2000 VOTING DEADLINE (AS THE SAME MAY BE EXTENDED BY
THE COMPANY) AT THE FOLLOWING ADDRESS:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
ATTN: PAGENET BALLOT TABULATION
The Company reserves the right to amend the Prepackaged Plan before or
after the date a chapter 11 case is commenced. Amendments to the Prepackaged
Plan that do not materially and adversely affect the treatment of holders of the
Common Stock may be approved by the bankruptcy court at a hearing on
confirmation without the necessity of resoliciting votes of such holders. If
resolicitation is required, the Company will furnish new Ballots and/or Master
Ballots to be used to accept or reject the Prepackaged Plan, as amended.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
BEFORE COMPLETING THE MASTER BALLOT:
ITEM 1. CERTIFICATE OF AUTHORITY TO VOTE. The undersigned certifies that as of
the , 2000 record date, the undersigned (please check
applicable box):
[ ] Is a broker, bank or other nominee for the beneficial owners of the
aggregate shares of Common Stock listed in Item 2 below, or
[ ] Is acting under a power of attorney and/or agency (a copy of which
will be provided upon request) granted by a broker, bank or other
nominee that is the registered holder of the aggregate shares of
Common Stock listed in Item 2 below, or,
[ ] Has been granted a proxy (an original of which is attached hereto)
from a broker, bank or other nominee, or a beneficial owner, that is
the registered holder of the shares of Common Stock listed in Item 2
below.
and accordingly, has full power and authority to vote to accept or reject
the Prepackaged Plan on behalf of the beneficial owners of the shares of
Common Stock described in Item 2 below.
ITEM 2. CLASS 6 (OLD STOCK INTERESTS) VOTE. The undersigned certifies that
beneficial owners of the following shares of Common Stock have delivered
to the undersigned Ballots casting such votes on the Prepackaged Plan.
Please attach additional sheets of paper if necessary. (Please Note:
each
2
<PAGE> 3
beneficial owner must vote all of his, her or its shares of Common Stock either
to accept or reject the Prepackaged Plan, and may not split such vote.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
NUMBER OF SHARES OF PAGING NETWORK, INC. COMMON STOCK
- -------------------------------------------------------------------------------------------
TO ACCEPT THE PREPACKAGED PLAN TO REJECT THE PREPACKAGED PLAN
- -------------------------------------------------------------------------------------------
<S> <C>
- -------------------------------------------------------------------------------------------
</TABLE>
ITEM 3.By signing and returning this Master Ballot, the undersigned certifies
that each beneficial owner of shares of Common Stock listed in Item 2,
above, whose votes are being transmitted by this Master Ballot has been
provided with a copy of the Ballot and the Prospectus.
ITEM 4. By signing and returning this Master Ballot, the undersigned certifies
that each beneficial owner of shares of Common Stock listed in Item 2,
above, has been provided with a copy of the Prospectus, including the
Annexes thereto and acknowledges that the solicitation of votes is
subject to all terms and conditions set forth in the Prospectus.
Name of Broker, Bank, Proxy Intermediary
or Other Nominee:
-------------------------------------------------------------------------
Name of Proxy Holder or Agent for Broker, Bank,
Proxy Intermediary, or Other Nominee (if applicable):
---------------------------------------------------
Social Security or Federal Tax I.D. No.:
--------------------------------------------------------------------
Signature: X
-------------------------------------------------------------------------
By:
-------------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Address:
-------------------------------------------------------------------------
Telephone Number: ( )
-------------------------------------------------------------------------------
Facsimile Number: ( )
- --------------------------------------------------------------------------------
Date Completed:
-------------------------------------------------------------------------
THIS MASTER BALLOT MUST BE RECEIVED BY THE INFORMATION AGENT, INNISFREE M&A
INCORPORATED, AT THE ADDRESS LISTED BELOW, BY 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON , 2000, UNLESS EXTENDED BY THE COMPANY, OR THE VOTES
TRANSMITTED HEREBY WILL NOT BE COUNTED.
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
ATTN: PAGENET BALLOT TABULATION
3
<PAGE> 4
INSTRUCTIONS TO BROKERAGE FIRMS/BANKS/PROXY INTERMEDIARIES/NOMINEES
The Company is soliciting the votes of your customers who are beneficial
owners of the Common Stock of Paging Network, Inc. as of the ,
2000 record date with respect to the Prepackaged Plan referred to in the
Prospectus. By signing this Master Ballot, the signer certifies that each
beneficial owner whose votes are being transmitted by this Master Ballot has
been provided a copy of the Prospectus and the Prepackaged Plan.
To have the vote of your customers count, you must first have delivered to
each such customer a Ballot and a copy of the Prepackaged Plan and the
Prospectus. If you have elected not to send prevalidated Ballots to your
customers, then you must instruct your customers to complete the Ballots and
return them to you. You must (a) retain such Ballots in your files and transfer
the requested information from each such Ballot onto the attached Master Ballot,
(b) complete and execute the Master Ballot, and (c) ARRANGE FOR DELIVERY AS SET
FORTH BELOW OF THE ORIGINAL MASTER BALLOT TO THE INFORMATION AGENT, INNISFREE
M&A INCORPORATED, AT THE ADDRESS AND TELEPHONE LISTED BELOW:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
BANKS SHOULD CALL LLOYD LEFCOURT AT (212) 750-7419
BROKERS SHOULD CALL FRANK LENTINI AT (212) 750-7946
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT:
To complete the Master Ballot, follow these instructions:
(a) Check the appropriate box in Item 1 of the Master Ballot.
(b) Indicate in Item 2 the votes to accept or reject the Prepackaged
Plan transmitted to you by the beneficial owners. To identify such
beneficial owners without disclosing their names, please use the customer
account number assigned by you to each such beneficial owner, or if no such
customer account number exists, please assign a number to each account
(making sure to retain a separate list of each beneficial owner and the
assigned number). IMPORTANT: BENEFICIAL OWNERS MAY NOT SPLIT THEIR VOTES.
EACH BENEFICIAL OWNER MUST VOTE ALL OF HIS, HER OR ITS COMMON STOCK EITHER
TO ACCEPT OR REJECT THE PREPACKAGED PLAN. IF ANY BENEFICIAL OWNER HAS
ATTEMPTED TO SPLIT SUCH VOTE, PLEASE CONTACT INNISFREE M&A INCORPORATED AT
ONE OF THE NUMBERS LISTED ABOVE. Any Ballot or Master Ballot which is
validly executed but which does not indicate acceptance or rejection of the
Prepackaged Plan by the indicated beneficial owner or which impermissibly
attempts to split a vote will not be counted.
(c) SIGN and date the Master Ballot and provide the remaining
information requested. If you are signing the Master Ballot on behalf of
another entity, state your relationship or title with respect to such
entity, and provide proof of authorization to so sign. Print your name and
mailing address if no preprinted address appears on the Master Ballot, or
if the preprinted address is incorrect.
FOR YOUR CUSTOMERS' VOTES TO COUNT, YOUR MASTER BALLOT MUST BE RECEIVED BY
THE INFORMATION AGENT ON OR BEFORE THE VOTING DEADLINE (12:00 MIDNIGHT, NEW YORK
CITY TIME, ON , 2000) UNLESS EXTENDED BY THE COMPANY. PLEASE ADVISE
YOUR CUSTOMERS TO RETURN THEIR BALLOTS TO YOU IN TIME TO PREPARE THE MASTER
BALLOT AND DELIVER IT TO THE INFORMATION AGENT. YOU MUST RETURN YOUR MASTER
BALLOT(S) TO THE INFORMATION AGENT BY MAIL, OVERNIGHT DELIVERY OR HAND DELIVERY
IN SUFFICIENT TIME SO THAT THEY ARE RECEIVED PRIOR TO THE VOTING DEADLINE. VOTES
NOT RECEIVED BY THE VOTING DEADLINE WILL NOT BE COUNTED UNLESS SUCH VOTING
DEADLINE IS EXTENDED BY THE COMPANY. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES
4
<PAGE> 5
NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN WILL
NOT BE COUNTED.
No Ballot or Master Ballot shall constitute or be deemed proof of claim or
equity interest or an assertion of a claim or equity interest.
No fees or commissions or other remuneration will be payable to any broker,
dealer or other person for soliciting Ballots in accepting the Prepackaged Plan.
The Company will, however, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding the Ballots and other enclosed
materials to your clients. The Company will also pay all transfer taxes, if any,
applicable to the transfer and exchange of your securities pursuant to and
following confirmation of the Prepackaged Plan.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING
PROCEDURES, OR IF YOU NEED A BALLOT OR ADDITIONAL COPIES OF THE PROSPECTUS OR
OTHER ENCLOSED MATERIAL, INCLUDING THE PREPACKAGED PLAN, PLEASE CALL:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
BANKS SHOULD CALL LLOYD LEFCOURT AT (212) 750-7419
BROKERS SHOULD CALL FRANK LENTINI AT (212) 750-7946
5
<PAGE> 1
EXHIBIT 99.8
CLASS 6 BALLOT-- OLD STOCK INTERESTS
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS INCLUDED IN THE MATERIAL MAILED WITH THIS
BALLOT
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re:
CHAPTER 11
PAGING NETWORK, INC., et al., Case No. ( )
Debtors Jointly Administered
</TABLE>
BALLOT FOR BENEFICIAL OWNERS OF COMMON STOCK
(CUSIP NO. ) OF PAGING NETWORK, INC.,
A DELAWARE CORPORATION, ACCEPTING OR REJECTING THE
PREPACKAGED PLAN OF REORGANIZATION TO BE FILED BY
PAGING NETWORK, INC., A DELAWARE CORPORATION AND
CERTAIN OF ITS OPERATING SUBSIDIARIES IN THE EVENT
A CHAPTER 11 CASE IS COMMENCED ON THEIR BEHALF
RECORD DATE: , 2000
VOTING DEADLINE: 12:00 MIDNIGHT, NEW YORK CITY TIME, ON , 2000
THIS BALLOT IS TO BE USED BY BENEFICIAL OWNERS OF THE COMMON STOCK (CUSIP
NO. ) ISSUED BY PAGING NETWORK, INC., A DELAWARE CORPORATION. PLEASE
READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE, SIGN AND
DATE THIS BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY.
IF THE ENCLOSED RETURN ENVELOPE IS ADDRESSED TO YOUR BROKER, BANK, PROXY
INTERMEDIARY OR OTHER NOMINEE, PLEASE MAIL YOUR BALLOT SUFFICIENTLY IN ADVANCE
OF THE VOTING DEADLINE SO THAT IT MAY BE PROCESSED AND FORWARDED BY YOUR BROKER,
BANK, PROXY INTERMEDIARY OR OTHER NOMINEE TO THE INFORMATION AGENT BEFORE THE
VOTING DEADLINE.
Paging Network, Inc. and its designated operating subsidiaries (the
"Company") is soliciting votes with respect to the joint prepackaged plan of
reorganization (the "Prepackaged Plan") under chapter 11 of title 11 of the
United States Code (the "Bankruptcy Code") referred to, described in, and
attached as Annex C to the Prospectus dated , 2000 that may be filed
on behalf of the Company. This Ballot is to be used by a beneficial owner of the
common stock issued by the Company (the "Common Stock") to cast its vote to
accept or reject the Prepackaged Plan. Pursuant to the Prepackaged Plan,
beneficial owners of the Company's Common Stock hold a Class 6 Interest.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Prepackaged Plan.
Although the Company is soliciting votes to accept or reject the
Prepackaged Plan, the Company has not commenced a chapter 11 case. As discussed
in the Prospectus, in the event that less than 97.5% of the Company's senior
subordinated notes are validly tendered in the exchange offer, the Company may
seek to implement its exchange offer and related restructuring transactions
pursuant to the Prepackaged Plan. Accordingly, the Company is seeking the votes
of the beneficial owners of the Common Stock to accept or reject the Prepackaged
Plan.
<PAGE> 2
In the event that the Company seeks to implement the exchange offer and
related restructuring transactions through the Prepackaged Plan, the Prepackaged
Plan can be confirmed (approved) by the Bankruptcy Court and thereby made
binding upon you if it is accepted by holders of two-thirds of the shares of the
Common Stock that are voted on the Prepackaged Plan and if it otherwise
satisfies the requirements of Section 1129(a) of the Bankruptcy Code.
TO HAVE YOUR VOTE COUNT, THIS BALLOT MUST BE COMPLETED AND RETURNED TO YOUR
BROKER, BANK, PROXY INTERMEDIARY OR OTHER NOMINEE, OR TO THE INFORMATION AGENT,
AS INDICATED BY THE ENCLOSED RETURN ENVELOPE SUFFICIENTLY IN ADVANCE OF THE
VOTING DEADLINE SO THAT YOUR BROKER, BANK, PROXY INTERMEDIARY OR OTHER NOMINEE
CAN COMPLETE AND FILE A MASTER BALLOT INCLUDING YOUR VOTE. PLEASE SEE THE
"INSTRUCTIONS FOR COMPLETING THE BALLOT" BELOW FOR ADDITIONAL INFORMATION.
The Company reserves the right to amend the Prepackaged Plan before or
after the date a chapter 11 case is commenced. Amendments to the Prepackaged
Plan that do not materially and adversely affect the treatment of holders of the
Common Stock may be approved by the bankruptcy court at a hearing on
confirmation without the necessity of resoliciting votes of such holders. If
resolicitation is required, the Company will furnish new Ballots and/or Master
Ballots to be used to accept or reject the Prepackaged Plan, as amended.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE BALLOT BEFORE
COMPLETING THE BALLOT:
ITEM 1. AGGREGATE SHARES OF COMMON STOCK. This Ballot is cast by or on behalf of
the beneficial owner of the aggregate principal amount of PageNet Common
Stock indicated immediately below as of the , 2000 record date:
-------------------------------------------- shares
If you own Common Stock but the shares are held by someone else on
your behalf and you do not know the amount, please contact that
individual or entity immediately.
ITEM 2. CLASS 6 (OLD STOCK INTERESTS) VOTE. The beneficial owner of the
aggregate number of shares of Common Stock set forth in Item 1 votes
with respect to the proposed treatment of its Old Stock Interests in the
Company as follows (check one box only):
[ ] to ACCEPT the Prepackaged Plan [ ] to REJECT the Prepackaged Plan
ITEM 3. By returning this Ballot, the voter certifies and/or acknowledges that:
(a) the beneficial owner of the shares of Common Stock set forth in
Item 1 above has been provided with a copy of the Prospectus, including the
Prepackaged Plan;
(b) the beneficial owner of the shares of Common Stock set forth in
Item 1 above has full power and authority to vote to accept or reject the
Prepackaged Plan;
(c) the beneficial owner of the shares of Common Stock set forth in
Item 1 above has voted to accept or reject the Prepackaged Plan as set
forth in Item 2 above;
(d) this Ballot has been executed on behalf of a single beneficial
owner; and
(e) this solicitation of Prepackaged Plan acceptances is subject to
all the terms and conditions set forth in the Prospectus.
2
<PAGE> 3
ITEM 4. By returning this Ballot, the voter certifies that (i) this Ballot has
been executed on behalf of a single entity or individual and (ii) the
voter has full power and authority to execute this Ballot on behalf of
such entity:
Name:
- --------------------------------------------------------------------------------
(print or type)
Social Security or Federal Tax I.D. No.:
- ----------------------------------------------------------------
(optional)
Signature: X
- --------------------------------------------------------------------------------
By:
- --------------------------------------------------------------------------------
(if appropriate)
Title:
- --------------------------------------------------------------------------------
(if appropriate)
Street Address:
- --------------------------------------------------------------------------------
City, State, Zip Code:
- --------------------------------------------------------------------------------
Telephone Number: ( )
- --------------------------------------------------------------------------------
Date Completed:
- --------------------------------------------------------------------------------
THE VOTING DEADLINE IS 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
, 2000, UNLESS EXTENDED BY THE COMPANY. ALL BALLOTS AND MASTER BALLOTS MUST BE
RECEIVED BY THE VOTING DEADLINE. IF YOUR MUST RETURN YOUR BALLOT TO YOUR BANK OR
BROKER, ITS PROXY AGENT, OR OTHER NOMINEE, PLEASE ALLOW ENOUGH TIME FOR THAT
FIRM TO RECEIVE AND PROCESS YOUR VOTE.
THE INFORMATION AGENT IS:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
ATTN: PAGENET BALLOT TABULATION
CALL TOLL FREE: (877) 750-2689
3
<PAGE> 4
INSTRUCTIONS FOR COMPLETING THE BALLOT
The Company is soliciting your vote pursuant to the provisions of chapter
11 of the Bankruptcy Code with respect to the Prepackaged Plan referred to in
the Prospectus. Please review the Prospectus in its entirety, including the
annexes thereto, before you vote.
INSTRUCTIONS: PLEASE COMPLETE THIS BALLOT AS FOLLOWS:
(a) complete Item 1 (if not already filled out by your nominee) with the
understanding that the information provided by you will be used for the
tabulation of votes on the Prepackaged Plan, except to the extent that the
official records of the Company or your nominee differ from the amount indicated
by you. Please contact your nominee if you are unsure how many shares of PageNet
Common Stock you own;
(b) vote to accept or reject the Prepackaged Plan by checking the
appropriate box in Item 2;
(c) review the acknowledgment set forth in Item 3;
(d) date this Ballot, and provide your address if it does not appear on the
Ballot. By returning this Ballot you are voting all of your shares of PageNet
Common Stock with respect to the Prepackaged Plan;
(e) please use additional sheets of paper if additional space is required
to respond to any item on the Ballot (clearly marked to indicate the applicable
item on the Ballot);
(f) if you are completing this Ballot on behalf of another entity, indicate
your relationship with such entity and the capacity in which you are signing,
and provide proof of your authorization to so sign; and
(g) return your Ballot as provided below:
1. if your broker, bank, proxy intermediary or other nominee has
"prevalidated" this Ballot by signing the Ballot and indicating
thereon its name as record holder of your common stock: return
this prevalidated Ballot in the enclosed return envelope to the
Information Agent SO THAT IT IS RECEIVED BY THE INFORMATION AGENT
BY 12:00 MIDNIGHT, NEW YORK CITY TIME, ON , 2000,
UNLESS EXTENDED BY THE COMPANY. ANY BALLOT WHICH IS EXECUTED BUT
WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE
PREPACKAGED PLAN WILL NOT BE COUNTED; or
2. if your broker, bank, proxy intermediary or other nominee has NOT
"prevalidated" this Ballot: SIGN this Ballot and return in the
enclosed return envelope EARLY ENOUGH FOR YOUR VOTE TO BE
PROCESSED BY YOUR BROKER, BANK, PROXY INTERMEDIARY OR OTHER
NOMINEE AND THEN FORWARDED TO THE INFORMATION AGENT SO THAT IT IS
RECEIVED BY 12:00 MIDNIGHT, NEW YORK CITY TIME, ON ,
2000, UNLESS EXTENDED BY THE COMPANY. ANY BALLOT WHICH IS EXECUTED
BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE
PREPACKAGED PLAN WILL NOT BE COUNTED.
- YOU MUST VOTE ALL YOUR SHARES OF COMMON STOCK EITHER TO ACCEPT OR
REJECT THE PREPACKAGED PLAN AND YOU MAY NOT SPLIT YOUR VOTE.
- IF YOU ACQUIRED BENEFICIAL OWNERSHIP OF YOUR SHARES OF COMMON STOCK
AFTER THE , 2000 RECORD DATE, IN ORDER TO VOTE ON THE
PREPACKAGED PLAN YOU MUST SUBMIT WITH YOUR BALLOT A PROXY FROM THE
BENEFICIAL OWNER AS OF THE , 2000 RECORD DATE IN WHICH
SUCH BENEFICIAL OWNER CERTIFIES THAT HE, SHE, OR IT WAS THE BENEFICIAL
OWNER OF THE SHARES OF COMMON STOCK ON , 2000, THAT SUCH
BENEFICIAL OWNER HAS NOT ALREADY VOTED ON THE PREPACKAGED PLAN AND
THAT SUCH BENEFICIAL OWNER IS AUTHORIZING
4
<PAGE> 5
YOU TO VOTE ON THE PREPACKAGED PLAN. IF YOU HAVE ANY QUESTIONS WITH
RESPECT TO THE FORM OF PROXY REQUIRED OR ANY MATTER RELATED THERETO,
PLEASE CONTACT THE INFORMATION AGENT.
- IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE
INFORMATION AGENT, PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE RECEIVED
BY THE VOTING DEADLINE.
- IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, PROXY
INTERMEDIARY OR OTHER NOMINEE YOU MUST RETURN YOUR BALLOT EARLY ENOUGH
FOR YOUR VOTE TO BE PROCESSED AND THEN FORWARDED TO THE INFORMATION
AGENT BY THE VOTING DEADLINE. PLEASE ALLOW ADDITIONAL TIME.
- IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING
PROCEDURES, OR IF YOU NEED A BALLOT OR ADDITIONAL COPIES OF THE
PROSPECTUS OR OTHER ENCLOSED MATERIAL, INCLUDING THE PREPACKAGED PLAN,
PLEASE CALL:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
CALL TOLL FREE: (877) 750-2689
Please Note:
This Ballot shall not constitute or be deemed a proof of claim, equity
interest or an assertion of a claim or equity interest.
No fees, commissions, or other remuneration will be payable to any broker,
dealer, or other person for soliciting votes on the Prepackaged Plan.
5
<PAGE> 1
EXHIBIT 10.1
VAST SOLUTIONS, INC. 2000
LONG-TERM STOCK INCENTIVE PLAN
SECTION 1
GENERAL
1.1. Purpose. The Vast Solutions, Inc. 2000 Long-Term Stock Incentive
Plan (the "Plan") has been established by Vast Solutions, Inc. (the "Company")
to (i) attract and retain persons eligible to participate in the Plan; (ii)
motivate Participants, by means of appropriate incentives, to achieve long-range
goals; (iii) provide incentive compensation opportunities that are competitive
with those of other similar companies; and (iv) further identify Participants'
interests with those of the Company's other shareholders through compensation
that is based on the Company's common stock; and thereby promote the long-term
financial interest of the Company and the Subsidiaries, including the growth in
value of the Company's equity and enhancement of long-term shareholder return.
1.2. Participation. Subject to the terms and conditions of the Plan,
the Committee shall determine and designate, from time to time, from among the
Eligible Persons (including transferees of Eligible Persons to the extent the
transfer is permitted by the Plan and the applicable Award Agreement), those
persons who will be granted one or more Awards under the Plan, and thereby
become "Participants" in the Plan.
1.3. Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 4 (relating to operation and
administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 8 of the Plan). The
terms of this Plan shall be subject to the restrictions and limitations set
forth in Appendix A to this Plan, which is attached to and forms a part of the
Plan.
SECTION 2
OPTIONS AND SARS
2.1. Definitions.
(a) The grant of an "Option" entitles the Participant to purchase shares of
Stock at an Exercise Price established by the Committee. Any Option
granted under this Section 2 may be either an incentive stock option
(an "ISO") or a non-qualified option (an "NQO"), as determined in the
discretion of the Committee. An "ISO" is an Option that is intended to
satisfy the requirements applicable to an "incentive stock option"
described in section 422(b) of the Code. An "NQO" is an Option that is
not intended to be an "incentive stock option" as that term is
described in section 422(b) of the Code.
<PAGE> 2
(b) A stock appreciation right (an "SAR") entitles the Participant to
receive, in cash or Stock (as determined in accordance with subsection
2.5), value equal to (or otherwise based on) the excess of: (a) the
Fair Market Value of a specified number of shares of Stock at the time
of exercise; over (b) an Exercise Price established by the Committee.
2.2. Exercise Price. The "Exercise Price" of each Option and SAR
granted under this Section 2 shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option or
SAR is granted; provided that, for NQOs and SARs, the Exercise Price shall not
be less than 85% of the Fair Market Value of a share of Stock on the date of
grant, and for ISOs, the Exercise Price shall not be less than 100% of the Fair
Market Value of a share of Stock on the date of grant; and further provided that
the Exercise Price for an Option or SAR with respect to a share of Stock shall
not be less than the par value of a share of Stock.
2.3. Exercise. An Option and an SAR shall be exercisable in accordance
with such terms and conditions and during such periods as may be established by
the Committee.
2.4. Payment of Option Exercise Price. The payment of the Exercise
Price of an Option granted under this Section 2 shall be subject to the
following:
(a) Subject to the following provisions of this subsection 2.4, the full
Exercise Price for shares of Stock purchased upon the exercise of any
Option shall be paid at the time of such exercise (except that, in the
case of an exercise arrangement approved by the Committee and described
in paragraph 2.4(c), payment may be made as soon as practicable after
the exercise).
(b) The Exercise Price shall be payable in cash or by tendering, by either
actual delivery of shares or by attestation, shares of Stock acceptable
to the Committee, and valued at Fair Market Value as of the day of
exercise, or in any combination thereof, as determined by the
Committee.
(c) The Committee may permit a Participant to elect to pay the Exercise
Price upon the exercise of an Option by irrevocably authorizing a third
party to sell shares of Stock (or a sufficient portion of the shares)
acquired upon exercise of the Option and remit to the Company a
sufficient portion of the sale proceeds to pay the entire Exercise
Price and any tax withholding resulting from such exercise.
2.5. Settlement of Award. Settlement of Options and SARs is subject to
subsection 4.7.
-2-
<PAGE> 3
SECTION 3
OTHER STOCK AWARDS
3.1. Definitions.
(a) A "Stock Unit" Award is the grant of a right to receive shares of Stock
in the future.
(b) A "Performance Share" Award is a grant of a right to receive shares of
Stock or Stock Units which is contingent on the achievement of
performance or other objectives during a specified period.
(c) A "Performance Unit" Award is a grant of a right to receive a
designated dollar value amount of Stock which is contingent on the
achievement of performance or other objectives during a specified
period.
(d) A "Restricted Stock" Award is a grant of shares of Stock, and a
"Restricted Stock Unit" Award is the grant of a right to receive shares
of Stock in the future, with such shares of Stock or right to future
delivery of such shares of Stock subject to a risk of forfeiture or
other restrictions that will lapse upon the achievement of one or more
goals relating to completion of service by the Participant, or
achievement of performance or other objectives, as determined by the
Committee.
3.2. Restrictions on Awards. Each Stock Unit Award, Restricted Stock
Award, Restricted Stock Unit Award, Performance Share Award, and Performance
Unit Award shall be subject to such conditions, restrictions and contingencies
as the Committee shall determine.
SECTION 4
OPERATION AND ADMINISTRATION
4.1. Effective Date. Subject to the approval of the shareholder of the
Company, the Plan shall be effective as of February 16, 2000 (the "Effective
Date"); provided, however, that to the extent that Awards are granted under the
Plan prior to its approval by shareholder, the Awards shall be contingent on
approval of the Plan by the shareholders of the Company. The Plan shall be
unlimited in duration and, in the event of Plan termination, shall remain in
effect as long as any Awards under it are outstanding; provided, however, that
no Awards may be granted under the Plan after the ten-year anniversary of the
Effective Date (except for Awards granted pursuant to commitments entered into
prior to such ten-year anniversary).
4.2. Shares Subject to Plan. The shares of Stock for which Awards may
be granted under the Plan shall be subject to the following:
(a) The shares of Stock with respect to which Awards may be made under the
Plan shall be shares currently authorized but unissued or currently
held or subsequently acquired by
-3-
<PAGE> 4
the Company as treasury shares, including shares purchased in the open
market or in private transactions.
(b) Subject to the following provisions of this subsection 4.2, the maximum
number of shares of Stock that may be delivered to Participants and
their beneficiaries under the Plan shall be 5,000,000 shares of Stock.
(c) To the extent provided by the Committee, any Award may be settled in
cash rather than Stock. To the extent any shares of Stock covered by an
Award are not delivered to a Participant or beneficiary because the
Award is forfeited or canceled, or the shares of Stock are not
delivered because the Award is settled in cash or used to satisfy the
applicable tax withholding obligation, such shares shall not be deemed
to have been delivered for purposes of determining the maximum number
of shares of Stock available for delivery under the Plan.
(d) If the exercise price of any stock option granted under the Plan is
satisfied by tendering shares of Stock to the Company (by either actual
delivery or by attestation), only the number of shares of Stock issued
net of the shares of Stock tendered shall be deemed delivered for
purposes of determining the maximum number of shares of Stock available
for delivery under the Plan.
(e) Subject to paragraph 4.2(g), the maximum number of shares of Stock that
may be issued by Options intended to be ISOs shall be 5,000,000 shares.
(f) Subject to paragraph 4.2(g), the maximum number of shares that may be
covered by Awards granted to any one individual pursuant to Section 2
(relating to Options and SARs) shall be 5,000,000 shares during any one
calendar-year period. If an Option is in tandem with an SAR, such that
the exercise of the Option or SAR with respect to a share of Stock
cancels the tandem SAR or Option right, respectively, with respect to
such share, the tandem Option and SAR rights with respect to each share
of Stock shall be counted as covering but one share of Stock for
purposes of applying the limitations of this paragraph (f).
(g) In the event of a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares),
the Committee may adjust Awards to preserve the benefits or potential
benefits of the Awards. Action by the Committee may include: (i)
adjustment of the number and kind of shares which may be delivered
under the Plan; (ii) adjustment of the number and kind of shares
subject to outstanding Awards; (iii) adjustment of the Exercise Price
of outstanding Options and SARs; and (iv) any other adjustments that
the Committee determines to be equitable.
-4-
<PAGE> 5
4.3. General Restrictions. Delivery of shares of Stock or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall have
no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock certificates
to reflect the issuance of shares of Stock, the issuance may be
effected on a non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
4.4. Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the Participant, through the surrender of shares of
Stock which the Participant already owns, or through the surrender of shares of
Stock to which the Participant is otherwise entitled under the Plan.
4.5. Grant and Use of Awards. In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the Plan,
and more than one Award may be granted to a Participant. Awards may be granted
as alternatives to or replacement of awards granted or outstanding under the
Plan, or any other plan or arrangement of the Company or a Subsidiary (including
a plan or arrangement of a business or entity, all or a portion of which is
acquired by the Company or a Subsidiary). Subject to the overall limitation on
the number of shares of Stock that may be delivered under the Plan, the
Committee may use available shares of Stock as the form of payment for
compensation, grants or rights earned or due under any other compensation plans
or arrangements of the Company or a Subsidiary, including the plans and
arrangements of the Company or a Subsidiary assumed in business combinations.
4.6. Dividends and Dividend Equivalents. An Award (including without
limitation an Option or SAR Award) may provide the Participant with the right to
receive dividend payments or dividend equivalent payments with respect to Stock
subject to the Award (both before and after the Stock subject to the Award is
earned, vested, or acquired), which payments may be either made currently or
credited to an account for the Participant, and may be settled in cash or Stock,
as determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Stock, may be
subject to such conditions, restrictions and contingencies as the Committee
shall establish, including the reinvestment of such credited amounts in Stock
equivalents.
-5-
<PAGE> 6
4.7. Settlement of Awards. The obligation to make payments and
distributions with respect to Awards may be satisfied through cash payments, the
delivery of shares of Stock, the granting of replacement Awards, or combination
thereof as the Committee shall determine. Satisfaction of any such obligations
under an Award, which is sometimes referred to as "settlement" of the Award, may
be subject to such conditions, restrictions and contingencies as the Committee
shall determine. The Committee may permit or require the deferral of any Award
payment, subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest or dividend
equivalents, and may include converting such credits into deferred Stock
equivalents. Each Subsidiary shall be liable for payment of cash due under the
Plan with respect to any Participant to the extent that such benefits are
attributable to the services rendered for that Subsidiary by the Participant.
Any disputes relating to liability of a Subsidiary for cash payments shall be
resolved by the Committee.
4.8. Transferability. Awards under the Plan are not transferable except
as designated by the Participant by will or by the laws of descent and
distribution.
4.9. Form and Time of Elections. Unless otherwise specified herein,
each election required or permitted to be made by any Participant or other
person entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
4.10. Agreement With Company. An Award under the Plan shall be subject
to such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion, prescribe. The terms and conditions of any Award
to any Participant shall be reflected in such form of written document as is
determined by the Committee. A copy of such document shall be provided to the
Participant, and the Committee may, but need not require that the Participant
sign a copy of such document. Such document is referred to in the Plan as an
"Award Agreement" regardless of whether any Participant signature is required.
4.11. Action by Company or Subsidiary. Any action required or permitted
to be taken by the Company or any Subsidiary shall be by resolution of its board
of directors, or by action of one or more members of the board (including a
committee of the board) who are duly authorized to act for the board, or (except
to the extent prohibited by applicable law or applicable rules of any stock
exchange) by a duly authorized officer of such company.
4.12. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
-6-
<PAGE> 7
4.13. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets,
funds or property of the Company or any Subsidiary whatsoever,
including, without limitation, any specific funds, assets, or other
property which the Company or any Subsidiary, in its sole discretion,
may set aside in anticipation of a liability under the Plan. A
Participant shall have only a contractual right to the Stock or
amounts, if any, payable under the Plan, unsecured by any assets of the
Company or any Subsidiary, and nothing contained in the Plan shall
constitute a guarantee that the assets of the Company or any Subsidiary
shall be sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and selection as
a Participant will not give any participating employee the right to be
retained in the employ of the Company or any Subsidiary, nor any right
or claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan. Except as otherwise
provided in the Plan, no Award under the Plan shall confer upon the
holder thereof any rights as a shareholder of the Company prior to the
date on which the individual fulfills all conditions for receipt of
such rights.
4.14. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
SECTION 5
CHANGE IN CONTROL
Subject to the provisions of paragraph 4.2(g) (relating to the
adjustment of shares), and except as otherwise provided in the Plan or the Award
Agreement reflecting the applicable Award:
(a) If a Participant who is employed by the Company or a Subsidiary at the
time of a Change in Control then holds one or more outstanding Options,
all such Options (regardless of whether in tandem with SARs) then held
by the Participant shall become fully exercisable on and after the date
of the Change in Control (subject to the expiration provisions
otherwise applicable to the Options), and any Stock purchased by the
Participant under such Option following such Change in Control shall be
fully vested upon exercise.
(b) If a Participant who is employed by the Company or a Subsidiary at the
time of a Change in Control then holds one or more outstanding SARs,
all such SARs (regardless of whether in tandem with Options) then held
by the Participant shall become fully exercisable on and after the date
of the Change in Control (subject to the expiration
-7-
<PAGE> 8
provisions otherwise applicable to the SARs), and any cash or stock
acquired by the Participant under such SAR following such Change in
Control shall be fully vested upon exercise.
(c) If a Participant who is employed by the Company or a Subsidiary at the
time of a Change in Control then holds one or more Stock Units,
Restricted Stock, Restricted Stock Units, Performance Shares, or
Performance Units, all such Restricted Stock, Performance Shares, and
units shall become fully vested on the date of the Change in Control;
provided that, if the amount of the award or the vesting is to be
determined based on the level of performance achieved, the target level
of performance shall be deemed to have been achieved.
SECTION 6
COMMITTEE
6.1. Administration. The authority to control and manage the operation
and administration of the Plan shall be vested in a committee (the "Committee")
in accordance with this Section 6. The Committee shall be selected by the Board.
If the Committee does not exist, or for any other reason determined by the
Board, the Board may take any action under the Plan that would otherwise be the
responsibility of the Committee.
6.2. Powers of Committee. The Committee's administration of the Plan
shall be subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Persons
those persons who shall receive Awards, to determine the time or times
of receipt, to determine the types of Awards and the number of shares
covered by the Awards, to establish the terms, conditions, performance
criteria, restrictions, and other provisions of such Awards, and
(subject to the restrictions imposed by Section 7) to cancel or suspend
Awards.
(b) To the extent that the Committee determines that the restrictions
imposed by the Plan preclude the achievement of the material purposes
of the Awards in jurisdictions outside the United States, the Committee
will have the authority and discretion to modify those restrictions as
the Committee determines to be necessary or appropriate to conform to
applicable requirements or practices of jurisdictions outside of the
United States.
(c) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend, and rescind any rules and regulations
relating to the Plan, to determine the terms and provisions of any
Award Agreement made pursuant to the Plan, and to make all other
determinations that may be necessary or advisable for the
administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision made
by it under the Plan is final and binding on all persons.
-8-
<PAGE> 9
(e) In controlling and managing the operation and administration of the
Plan, the Committee shall take action in a manner that conforms to the
articles and by-laws of the Company, and applicable state corporate
law.
6.3. Delegation by Committee. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.
6.4. Information to be Furnished to Committee. The Company and
Subsidiaries shall furnish the Committee with such data and information as it
determines may be required for it to discharge its duties. The records of the
Company and Subsidiaries as to an employee's or Participant's employment,
termination of employment, leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined to be incorrect. Participants and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.
SECTION 7
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that
no amendment or termination may, in the absence of written consent to the change
by the affected Participant (or, if the Participant is not then living, the
affected beneficiary), adversely affect the rights of any Participant or
beneficiary under any Award granted under the Plan prior to the date such
amendment is adopted by the Board; and further provided that adjustments
pursuant to paragraph 4.2(g) shall not be subject to the foregoing limitations
of this Section 7.
SECTION 8
DEFINED TERMS
In addition to the other definitions contained herein, the following
definitions shall apply:
(a) Award. The term "Award" shall mean any award or benefit granted under
the Plan, including, without limitation, the grant of Options, SARs,
Stock Unit Awards, Restricted Stock Awards, Restricted Stock Unit
Awards, Performance Unit Awards, and Performance Share Awards.
(b) Board. The term "Board" shall mean the Board of Directors of the
Company.
(c) Change in Control. For purposes of the Plan, the term "Change in
Control" means the occurrence, after the consummation of the
transactions contemplated by the Agreement and Plan of Merger among
Paging Network, Inc., Arch Communications Group, Inc. and
-9-
<PAGE> 10
St. Louis Acquisition Corp., dated November 7, 1999, of the events
described in any of paragraphs (i), (ii), (iii), or (iv) below:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of any shares of Stock or any voting securities of the
Company entitled to vote generally in the election of directors
("Voting Securities") if, immediately after such acquisition, such
person beneficially owns twenty-five percent (25%) or more of either
the outstanding shares of common stock, of whatever class, of the
Company (the "Outstanding Company Common Stock"), or the combined
voting power of the outstanding Voting Securities (the "Outstanding
Company Voting Securities"). The foregoing provisions of this paragraph
(i) shall be subject to the following:
(A) The following shall not constitute a "Change in Control": (I)
any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company (a "Company Plan"); (II) any
acquisition by an underwriter temporarily holding securities
pursuant to an offering of such securities; or (III) any
acquisition by any person pursuant to a transaction which
complies with subsections (c)(iii)(A), (c)(iii)(B), and
(c)(iii)(C) of this definition.
(B) For purposes of the foregoing provisions of this subsection
(i), the following shall not be deemed to constitute an
"acquisition" by any Person: (I) any acquisition directly from
the Company (excluding any acquisition resulting from the
exercise of an exercise, conversion, or exchange privilege
unless the security being so exercised, converted, or
exchanged was acquired directly from the Company); and (II)
any acquisition by the Company of shares of Stock or other
Voting Securities.
(ii) Individuals who, as of the date hereof, constitute the Board (for
purposes of this paragraph (ii), the "Incumbent Board") cease for any
reason to constitute at least a majority of the Incumbent Board;
provided, however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for election by the
Company shareholders, was approved by a vote of a least a majority of
the directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or publicly
threatened election contest (as such terms are used in Rule 14a-11
promulgated under the Exchange Act) or other actual or publicly
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board.
-10-
<PAGE> 11
(iii) Consummation of (I) a reorganization, merger, consolidation, or
other business combination involving the Company or (II) the sale or
other disposition of more than 50% of the operating assets of the
Company (determined on a consolidated basis), other than in connection
with a sale-leaseback or other arrangement resulting in the continued
utilization of such assets (or the operating products of such assets)
by the Company (any transaction described in part (I) or (II) being
referred to as a "Corporate Transaction"); excluding, however, a
Corporate Transaction pursuant to which all of paragraphs (A), (B), and
(C) below are applicable:
(A) All or substantially all of the individuals and entities who
are the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction beneficially
own, directly or indirectly, more than 50% of, respectively,
the then outstanding shares of common equity securities and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the ultimate parent entity
resulting from such Corporate Transaction (including, without
limitation, an entity which, as a result of such transaction,
owns the Company or all or substantially all of the assets of
the Company either directly or through one or more
subsidiaries) in substantially the same relative proportions
as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
(B) No Person (other than the Company, any Company Plan or related
trust, the corporation resulting from such Corporate
Transaction, and any Person which beneficially owned,
immediately prior to such Corporate Transaction, directly or
indirectly, twenty-five percent (25%) or more of the
Outstanding Company Common Stock or the Outstanding Company
Voting Securities, as the case may be) will beneficially own,
directly or indirectly, twenty-five percent (25%) or more of,
respectively, the then outstanding common stock of the
ultimate parent entity resulting from such Corporate
Transaction or the combined voting power of the then
outstanding voting securities of such entity.
(C) Individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the ultimate parent entity resulting from such
Corporate Transaction.
(iv) Approval by the shareholders of the Company of a plan of complete
liquidation or dissolution of the Company.
-11-
<PAGE> 12
(d) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include
reference to any successor provision of the Code.
(e) Eligible Person. The term "Eligible Person" shall mean any employee of
the Company or a Subsidiary or any person providing or that has
provided services to the Company or a Subsidiary. An Award may be
granted to an employee, in connection with hiring, retention or
otherwise, prior to the date the employee first performs services for
the Company or the Subsidiaries, provided that such Awards shall not
become vested prior to the date the employee first performs such
services.
(f) Fair Market Value. For purposes of determining the "Fair Market Value"
of a share of Stock as of any date, the following rules shall apply:
(i) If the principal market for the Stock is a national securities
exchange or the Nasdaq stock market, then the "Fair Market Value" as of
that date shall be the mean between the lowest and highest reported
sale prices of the Stock on that date on the principal exchange or
market on which the Stock is then listed or admitted to trading.
(ii) If sale prices are not available or if the principal market for
the Stock is not a national securities exchange and the Stock is not
quoted on the Nasdaq stock market, the average between the highest bid
and lowest asked prices for the Stock on such day as reported on the
Nasdaq OTC Bulletin Board Service or by the National Quotation Bureau,
Incorporated or a comparable service.
(iii) If the day is not a business day, and as a result, paragraphs (i)
and (ii) next above are inapplicable, the Fair Market Value of the
Stock shall be determined as of the next earlier business day. If
paragraphs (i) and (ii) next above are otherwise inapplicable, then the
Fair Market Value of the Stock shall be determined in good faith by the
Committee.
(g) Subsidiaries. The term "Subsidiary" means any company during any period
in which it is a "subsidiary corporation" (as that term is defined in
Code section 424(f)) with respect to the Company.
(h) Stock. The term "Stock" shall mean shares of common stock of the
Company or, if there is more than one class of common stock of the
Company, shares of the class of common stock having the rights which
are most comparable to those of the common stock outstanding on the
Effective Date.
-12-
<PAGE> 13
SECTION 9
EMPLOYEE STOCK PURCHASE PROGRAM
The Committee shall have the authority to implement the Employee Stock
Purchase Program (the "ESPP") which is set forth in Appendix B, which is
attached to and forms a part of this Plan. Subject to Appendix A, any shares of
Stock available for delivery pursuant to paragraph 4.2(b) shall also be
available for delivery under the ESPP.
-13-
<PAGE> 14
APPENDIX A
VAST SOLUTIONS, INC. 2000
LONG-TERM STOCK INCENTIVE PLAN
Notwithstanding any other provision of the Plan to the contrary, the
following provisions shall be applicable to the Plan:
A-1. Exercise Price. With respect to any Option or SAR granted to any
person who possesses more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or Parent (as defined in Code
section 424(e)) of the Company such Option or SAR shall have an exercise price
not less than 110% of the Fair Market Value of a share of Stock on the date of
grant.
A-2. Expiration. All Options granted under the Plan shall expire not
later than the 10- year anniversary of the date of grant.
A-3. Transferability. Awards granted pursuant to the Plan are not
transferable except by the laws of descent and distribution.
A-4. Adjustment. In the event of a corporate transaction involving the
Company (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reclassification, reorganization,
merger, consolidation, split-up, spin-off, combination or exchange of shares),
the Committee shall adjust Awards to preserve the benefits or potential benefits
of the Awards. Action by the Committee may include: (i) adjustment of the number
and kind of shares which may be delivered under the Plan; (ii) adjustment of the
number and kind of shares subject to outstanding Awards; (iii) adjustment of the
Exercise Price of outstanding Options and SARs; and (iv) any other adjustments
that the Committee determines to be equitable.
A-5. Exercisability. Any Option granted under the Plan shall become
exercisable at a rate of at least 20% per year over 5 years from the date the
Option is granted, provided the Participant is employed by the Company at such
time. In addition, if the Participant resigns from employment, or is terminated
by the Company for any reason other than cause (as defined by applicable law),
any Options which have become exercisable prior to the time of such termination,
shall remain exercisable for:
(a) 12 months from the date of such termination if such termination was
caused by death or disability; or
(b) 90 days from the date of such termination if such termination was
caused by reasons other than death or disability.
-14-
<PAGE> 1
EXHIBIT 10.8
SOFTWARE SUBLICENSE AGREEMENT
This Software Sublicense Agreement (this "Sublicense"), is entered into as of
March 30, 2000 (the "Effective Date"), by and between Paging Network, Inc., a
Delaware corporation (hereinafter, "PageNet"), and Vast Solutions, Inc., a
Delaware corporation ("Vast") with respect to all of the software licensed to
PageNet under that certain Software License and Development Agreement dated
August 5, 1998 between TIBCO Software Inc. ("TIBCO"), as licensor, and PageNet,
as licensee, as subsequently amended (the "TIBCO License"). The parties hereby
agree as follows:
1. LICENSE. PageNet hereby grants Vast a non-exclusive, non-transferable
sublicense to use all of the computer software licensed to PageNet under the
TIBCO License, in both object code and, to the extent expressly authorized
under the TIBCO License, source code form (the "Software"), at no charge.
Vast agrees to abide by all of the terms and conditions of the TIBCO
License, a complete and accurate copy of which has been provided to it by
PageNet. Notwithstanding the foregoing, Vast agrees to use the Software
solely as provided in Section 4.A.II of Amendment No. 2 to the Software
License and Development Agreement dated January 4, 1999 (the "Second
Amendment").
2. TERM AND TERMINATION. This Sublicense will begin as of the Effective Date
and will terminate upon the earlier to occur of (i) the entering into of new
software license agreements between PageNet and TIBCO and Vast and TIBCO, or
(ii) the expiration of the Second Amendment as provided therein.
3. WARRANTY AND LIMITATION OF LIABILITY. THE SOFTWARE IS PROVIDED "AS-IS", AND
PAGENET DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE WARRANTIES OF FITNESS FOR A SPECIFIC PURPOSE,
MERCHANTABILITY, TITLE AND NON-INFRINGEMENT. IN NO EVENT SHALL EITHER PARTY
BE LIABLE TO THE OTHER FOR ANY DAMAGES ARISING OUT OF ITS USE OF THE
SOFTWARE, INCLUDING BUT NOT LIMITED TO ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER FORESEEABLE OR NOT, LOST BUSINESS OR LOST PROFITS.
4. NON-ASSIGNMENT. Vast shall not assign, transfer or hypothecate any of its
rights, obligations, or duties under this Sublicense, and any attempt to do
so will be void.
5. WAIVER. No delay in exercising or failure to exercise any right under this
Sublicense on the part of either party shall operate as a waiver of such
right by that party. Any waiver or modification of this Sublicense must be
in writing and signed by both parties.
6. ENTIRE AGREEMENT. This Sublicense contains the entire understanding of the
parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
7. JURISDICTION. This Sublicense shall be governed by Texas law. Any dispute
hereunder shall be subject to the sole jurisdiction of the state and/or
federal courts located in the County of Dallas, Texas, and each party
submits to the subject matter and personal jurisdiction of such courts.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Sublicense to be
executed by their duly authorized representatives as of the Effective Date.
PAGING NETWORK, INC. VAST SOLUTIONS, INC.
BY: /s/ Ted Mullinix BY: /s/ Mark Knickrehm
--------------------------------- --------------------------------
NAME: Ted Mullinix NAME: Mark Knickrehm
------------------------------- ------------------------------
TITLE: President and C.O.O. TITLE: President and C.O.O.
------------------------------ -----------------------------
The following sublicense is hereby consented to:
TIBCO SOFTWARE INC.
BY: /s/ Richard M. Tavan
---------------------------------
NAME: RICHARD M. TAVAN
-------------------------------
EXECUTIVE VICE PRESIDENT
TITLE: TIBCO SOFTWARE INC.
------------------------------
<PAGE> 1
EXHIBIT 10.9
LICENSE AGREEMENT
This License Agreement (this "License"), is entered into as of May 11, 2000
(the "Effective Date") by and between Paging Network, Inc., a Delaware
corporation having its principal offices at 14911 Quorum Drive, Dallas, Texas
75240 (hereinafter, "PageNet"), and Vast Solutions, Inc., a Delaware corporation
which is a wholly-owned subsidiary of PageNet, having its principal offices at
14131 Midway Road, Dallas, Texas 75001 ("Vast").
The parties hereby agree as follows:
1. LICENSE. PageNet hereby grants to Vast: (i) an exclusive (except as to
PageNet), non-transferable license to use all of the computer software,
trademarks, tradenames and other intellectual property of any type
whatsoever which is owned by PageNet and which is used or contemplated to
be used by Vast in connection with the operation of its wireless solutions
business as of the Effective Date, and (ii) an exclusive (except as to
PageNet), non-transferable sublicense to use all of the computer software
and related intellectual property licensed to PageNet under any license
agreements between third party licensors and PageNet which is used or
contemplated to be used by Vast in connection with the operation of its
wireless solutions business as of the Effective Date (all of the above
being collectively referred to as the "Intellectual Property"). The
aforesaid license and sublicense will be provided to Vast royalty free for
so long as Vast is a wholly-owned subsidiary of PageNet. PageNet has
provided or will provide Vast with complete and accurate copies of any such
software licenses with third party licensors and Vast agrees to abide by
all of the terms and conditions of such license agreements.
2. TERM AND TERMINATION. This License will begin as of the Effective Date and
will terminate upon the earlier to occur of: (i) the effective date of
fully executed Intercompany agreements between Vast and PageNet with
respect to the Intellectual Property, or (ii) the close of the merger
between PageNet and Arch Communications Group, Inc. and the spin-off of
Vast from PageNet contemplated in connection with such merger, or (iii) the
entering into of new software license agreements between Vast and any third
party providers, as to the specific software which is the subject of such
agreements.
3. WARRANTY AND LIMITATION OF LIABILITY. THE INTELLECTUAL PROPERTY IS PROVIDED
"AS IS", AND PAGENET DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF FITNESS FOR A SPECIFIC
PURPOSE, MERCHANTABILITY, TITLE AND NON-INFRINGEMENT. IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER FOR ANY DAMAGES ARISING OUT OF ITS
USE OF THE INTELLECTUAL PROPERTY, INCLUDING BUT NOT LIMITED TO ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, LOST
BUSINESS OR LOST PROFITS.
4. NON-ASSIGNMENT. Vast shall not assign, transfer, or hypothecate any of its
rights, obligations, or duties under this License without the prior written
consent of PageNet and, in the case of any third party software, the
licensor, and any attempt to do so will be void.
<PAGE> 2
5. WAIVER. No delay in exercising or failure to exercise any right under this
License on the part of either party shall operate as a waiver of such right
by that party. Any waiver or modification of this License must be in
writing and signed by both parties.
6. ENTIRE AGREEMENT. This License contains the entire understanding of the
parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
7. JURISDICTION. This License shall be governed by Texas law. Any dispute
hereunder shall be subject to the sole jurisdiction of the state and/or
federal courts located in the County of Dallas, Texas, and each party
submits to the subject matter and personal jurisdiction of such courts.
IN WITNESS WHEREOF, the parties hereto have caused this License to be executed
by their duly authorized representatives as of the Effective date.
PAGING NETWORK, INC. VAST SOLUTIONS, INC.
BY: /s/ Edward W. Mullinix, Jr. BY: /s/ Mark A. Knickrehm
--------------------------- -------------------------
NAME: Edward W. Mullinix, Jr. NAME: Mark A. Knickrehm
--------------------------- -------------------------
TITLE: President & COO TITLE: President & COO
--------------------------- -------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 3, 2000, with respect to the financial
statements of Vast Solutions, Inc., a wholly-owned subsidiary of Paging Network,
Inc., in the Registration Statement (Form S-1) and related Prospectus of Vast
Solutions, Inc. for the registration of 13,780,000 shares of Class B common
stock of Vast Solutions, Inc. (the Registration Statement).
We also consent to the use of our report dated December 23, 1999, with
respect to the financial statements of Silverlake Communications, Inc. as of
December 31, 1997 and December 9, 1998, and for the year ended December 31,
1997, and the period January 1, 1998, through December 9, 1998, in the
Registration Statement.
/s/ ERNST & YOUNG LLP
--------------------------------------
Dallas, Texas
May 10, 2000
<PAGE> 1
EXHIBIT 99.1
KPMG LETTERHEAD
May 12, 2000
Mr. Barry Duncan
Vice President and Controller
Vast Solutions, Inc.
14131 Midway Road
Suite 500
Addison, Texas 75001
We consent to the use of the terminology "independent third-party
appraiser" in reference to KPMG as the appraisers of the in-process research and
development acquired in the Silverlake transaction. This terminology is to be
included in the Vast Solutions, Inc. S-1.
/s/ KPMG LLP
Dallas, Texas
