<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1998
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
ARCH COMMUNICATIONS GROUP, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1) or Item 22(a)(2)
of Schedule 14A.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Certain indebtedness held by unsecured creditors of MobileMedia
Corporation and its subsidiaries as described in this Proxy Statement.
2) Aggregate number of securities to which transaction applies:
Principal amount of indebtedness at August 1, 1998: $480,000,000.
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
The underlying value of the transaction of $160,000,000 was calculated
pursuant to Exchange Act Rule 0-11(c)(1)(i) as one-third of the
$480,000,000 principal amount of unsecured debt to be exchanged in the
merger contemplated by this Proxy Statement.
One fiftieth of one percent of $160,000,000, or $32,000.00, is the
amount of the filing fee.
4) Proposed maximum aggregate value of transaction: $480,000,000
5) Total fee paid: $32,000.00
[X] Fee paid previously by preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
PRELIMINARY COPY--DATED AUGUST 21, 1998
[ARCH LETTERHEAD]
, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Arch Communications Group, Inc., a Delaware corporation
("Arch"), to be held on , 1998 at 10:00 a.m., local time, at the offices
of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109.
At the Special Meeting you will be asked to consider and vote upon two
related proposals which provide for:
1. The MobileMedia Proposal: The issuance of shares of Arch's Common
Stock, $.01 par value per share ("Arch Common Stock"), shares of Arch's
Class B Common Stock, $.01 par value per share ("Arch Class B Common
Stock", and, together with the Arch Common Stock, the "Arch Combined Common
Stock") and warrants to acquire shares of Arch Common Stock pursuant to (x)
an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
August 18, 1998, among Arch, Farm Team Corp., a wholly owned subsidiary of
Arch (the "Merger Subsidiary"), MobileMedia Corporation, a Delaware
corporation ("Parent") which is currently operating as a debtor-in-
possession under Chapter 11 ("Chapter 11") of the United States Bankruptcy
Code, and MobileMedia Communications, Inc., a Delaware corporation and
wholly owned subsidiary of Parent which is also currently operating as a
debtor-in-possession under Chapter 11 ("MMC" and, together with its
subsidiaries, "MobileMedia"), (y) a related plan of reorganization of
Parent and MobileMedia under Chapter 11 (the "Amended Plan") and (z)
certain separate commitment letters (collectively, the "Standby Purchase
Agreements"), dated as of August 18, 1998, among Arch, MMC and certain
unsecured creditors of Parent and MobileMedia (the "Unsecured Creditors")
(collectively, the "Standby Purchasers"), pursuant to which:
(i) Arch will contribute approximately $479.0 million for distribution to
certain secured creditors of Parent and MobileMedia in consideration of the
discharge of their claims against Parent and MobileMedia;
(ii) Arch will issue shares of Arch Common Stock to the Unsecured
Creditors in consideration of the discharge of their claims against Parent
and MobileMedia, which shares will represent approximately 25.7%(/1/) of
the total number of shares of Arch Common Stock (on an as-converted basis)
outstanding immediately following the Merger (as defined below);
(iii) Arch will distribute (the "Rights Offering") to the Unsecured
Creditors transferable rights (the "Rights") to acquire (a) shares of Arch
Combined Common Stock, which shares (the "Rights Shares"), assuming the
Rights are fully exercised, will represent approximately 41.4%(/1/) of the
total number of shares of Arch Common Stock (on an as-converted basis)
outstanding immediately following the Merger and (b) warrants to acquire
shares of Arch Common Stock representing approximately 2.5% of the total
number of shares of Arch Common Stock outstanding immediately following the
Merger, on an as-converted basis and after giving further effect to the
issuance of Arch Common Stock upon exercise of all warrants issued in
connection with the Merger ("Fully Diluted Basis");
- --------
(1) Based upon the mid-point of the range of shares which may be issued in
connection with the Merger Agreement and the Amended Plan. See "Risk
Factors--Uncertainties Related to the Transaction--Use of Pro Forma
Assumptions" and "The MobileMedia Plan of Reorganization--Calculation of
Shares" in the accompanying Proxy Statement.
<PAGE>
(iv) Arch will issue shares of Arch Combined Common Stock pursuant to the
Standby Purchase Agreements to the Standby Purchasers or their assignees
(or persons in substitution therefor) to the extent that any of the Rights
are not otherwise exercised;
(v) Arch will distribute warrants to acquire shares of Arch Common Stock
to the Standby Purchasers in consideration of their agreement to exercise
any rights distributed in the Rights Offering which are not otherwise
exercised, which warrants will represent approximately 2.5% of the total
number of shares of Arch Common Stock outstanding immediately following the
Merger (on a Fully Diluted Basis); and
(vi) Arch will distribute to the holders of shares of Arch Common Stock
and Arch's Series C Convertible Preferred Stock ("Series C Preferred
Stock") outstanding immediately prior to the Merger warrants to acquire
shares of Arch Common Stock, which warrants will represent approximately
7.0% of the total number of shares of Arch Common Stock outstanding
immediately following the Merger (on a Fully Diluted Basis) (collectively,
the "MobileMedia Proposal").
2. The Charter Amendment Proposal: Approval of an amendment to the
Restated Certificate of Incorporation of Arch increasing the number of
authorized shares of Arch Common Stock from 75,000,000 shares to
150,000,000 shares, a portion of which will be Class B Common Stock (the
"Charter Amendment Proposal").
Pursuant to the Merger Agreement, upon the satisfaction or, if legally
permissible, waiver of the conditions to the closing set forth therein or in
the Amended Plan, MMC will be merged with and into the Merger Subsidiary (the
"Merger"). Immediately prior to the Merger, Parent will contribute all of its
assets to MMC, and MMC's subsidiaries will be consolidated into a single
subsidiary which will become an indirect wholly owned subsidiary of Arch as a
result of the Merger. If the requisite approval of the stockholders of Arch is
received and the other conditions to the Merger are satisfied or, if legally
permissible, waived, the Merger is expected to be consummated in the first
quarter of 1999.
THE APPROVAL OF EACH OF THE MOBILEMEDIA PROPOSAL AND THE CHARTER AMENDMENT
PROPOSAL IS CONDITIONED UPON APPROVAL OF BOTH SUCH PROPOSALS. ACCORDINGLY, A
VOTE AGAINST EITHER OF THESE PROPOSALS WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST BOTH SUCH PROPOSALS.
In addition, at the Special Meeting you will be asked to consider and vote
upon an amendment to Arch's 1997 Stock Option Plan to increase the shares of
Arch Common Stock available for grant thereunder (the "Option Plan Proposal").
The MobileMedia Proposal, the Charter Amendment Proposal and the Option Plan
Proposal are more fully described in the accompanying Notice of Special
Meeting of Stockholders, Proxy Statement and the Annexes thereto, including
discussions therein concerning Arch's reasons for the Merger and the factors
which should be considered in connection with your vote on these proposals.
Please give this information your careful attention.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF ARCH HAS UNANIMOUSLY
CONCLUDED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF ARCH AND
RECOMMENDS THAT YOU VOTE FOR THE MOBILEMEDIA PROPOSAL, THE CHARTER AMENDMENT
PROPOSAL AND THE OPTION PLAN PROPOSAL.
The presence, either in person or by proxy, of the holders of a majority of
the shares of Arch Common Stock and Series C Preferred Stock (calculated on an
as-converted basis together as a single class) issued and outstanding and
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting.
<PAGE>
The affirmative vote of a majority of the shares of Arch Common Stock and
the Series C Preferred Stock (voting on an as-converted basis together as a
single class) present or represented at the Special Meeting is necessary to
approve each of the matters to be considered at the Special Meeting, except
that the affirmative vote of a majority of the outstanding shares of Arch
Common Stock and the Series C Preferred Stock (voting on an as-converted basis
together as a single class) is necessary to approve the Charter Amendment
Proposal. The Merger Agreement and the Merger will also require the
satisfaction or, if legally permissible, waiver of other conditions as
described in the attached Proxy Statement. Holders of Arch Common Stock and
Series C Preferred Stock do not have rights of appraisal under Delaware law in
connection with the Merger.
Your vote is important regardless of the number of shares you own. We urge
you to read the enclosed materials carefully and then to complete, sign and
date the enclosed proxy card and return it promptly in the enclosed prepaid
envelope, whether or not you plan to attend the Special Meeting. Your prompt
cooperation and continued support of Arch is greatly appreciated.
Sincerely,
C. Edward Baker, Jr.,
Chairman of the Board and Chief
Executive Officer
<PAGE>
PRELIMINARY COPY--DATED AUGUST 21, 1998
ARCH COMMUNICATIONS GROUP, INC.
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MA 01581
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
To the Stockholders of
Arch Communications Group, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Arch Communications Group, Inc., a Delaware corporation ("Arch"),
will be held on , 1998 at 10:00 a.m., local time, at the offices of Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, for the following
purposes:
To consider and vote upon two related proposals more fully described in the
accompanying Proxy Statement and the Annexes thereto, which provide for the
following:
1. The MobileMedia Proposal: The issuance of shares of Arch's Common
Stock, $.01 par value per share ("Arch Common Stock"), shares of Arch's
Class B Common Stock, $.01 par value per share ("Arch Class B Common
Stock", and, together with the Arch Common Stock, the "Arch Combined Common
Stock") and warrants to acquire shares of Arch Common Stock pursuant to (x)
an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
August 18, 1998, among Arch, Farm Team Corp., a wholly owned subsidiary of
Arch (the "Merger Subsidiary"), MobileMedia Corporation, a Delaware
corporation ("Parent") which is currently operating as a debtor-in-
possession under Chapter 11 ("Chapter 11") of the United States Bankruptcy
Code, and MobileMedia Communications, Inc., a Delaware corporation and
wholly owned subsidiary of Parent which is also currently operating as a
debtor-in-possession under Chapter 11 ("MMC" and, together with its
subsidiaries, "MobileMedia"), (y) a related plan of reorganization of
Parent and MobileMedia under Chapter 11 (the "Amended Plan") and (z)
certain separate commitment letters (collectively, the "Standby Purchase
Agreements"), dated as of August 18, 1998, among Arch, MMC and certain
unsecured creditors of Parent and MobileMedia (the "Unsecured Creditors")
(collectively, the "Standby Purchasers"), pursuant to which:
(i) Arch will contribute approximately $479.0 million for distribution to
certain secured creditors of Parent and MobileMedia in consideration of the
discharge of their claims against Parent and MobileMedia;
(ii) Arch will issue shares of Arch Common Stock to the Unsecured
Creditors in consideration of the discharge of their claims against Parent
and MobileMedia, which shares will represent approximately 25.7%(/1/) of
the total number of shares of Arch Common Stock (on an as-converted basis)
outstanding immediately following the Merger (as defined below);
(iii) Arch will distribute (the "Rights Offering") to the Unsecured
Creditors transferable rights (the "Rights") to acquire (a) shares of Arch
Combined Common Stock, which shares (the "Rights Shares"), assuming the
Rights are fully exercised, will represent approximately 41.4%(/1/) of the
total number of shares of Arch Common Stock (on an as-converted basis)
outstanding immediately following the Merger and (b) warrants to acquire
shares of Arch Common Stock representing approximately 2.5% of the total
number of shares of Arch Common Stock outstanding immediately following the
Merger, on an as-converted basis and after giving further effect to the
issuance of Arch Common Stock upon exercise of all warrants issued in
connection with the Merger ("Fully Diluted Basis");
- --------
(1) Based upon the mid-point of the range of shares which may be issued in
connection with the Merger Agreement and the Amended Plan. See "Risk
Factors--Uncertainties Related to the Transaction--Use of Pro Forma
Assumptions" and "The MobileMedia Plan of Reorganization--Calculation of
Shares" in the accompanying Proxy Statement.
<PAGE>
(iv) Arch will issue shares of Arch Combined Common Stock pursuant to the
Standby Purchase Agreements to the Standby Purchasers or their assignees
(or persons in substitution therefor) to the extent that any of the Rights
are not otherwise exercised;
(v) Arch will distribute warrants to acquire shares of Arch Common Stock
to the Standby Purchasers in consideration of their agreement to exercise
any rights distributed in the Rights Offering which are not otherwise
exercised, which warrants will represent approximately 2.5% of the total
number of shares of Arch Common Stock outstanding immediately following the
Merger (on a Fully Diluted Basis); and
(vi) Arch will distribute to the holders of shares of Arch Common Stock
and Arch's Series C Convertible Preferred Stock ("Series C Preferred
Stock") outstanding immediately prior to the Merger warrants to acquire
shares of Arch Common Stock, which warrants will represent approximately
7.0% of the total number of shares of Arch Common Stock outstanding
immediately following the Merger (on a Fully Diluted Basis) (collectively,
the "MobileMedia Proposal").
2. The Charter Amendment Proposal: Approval of an amendment to the
Restated Certificate of Incorporation of Arch increasing the number of
authorized shares of Arch Common Stock from 75,000,000 shares to
150,000,000 shares, a portion of which will be Class B Common Stock (the
"Charter Amendment Proposal").
THE APPROVAL OF EACH OF THE MOBILEMEDIA PROPOSAL AND THE CHARTER
AMENDMENT PROPOSAL IS CONDITIONED UPON APPROVAL OF BOTH SUCH PROPOSALS.
ACCORDINGLY, A VOTE AGAINST EITHER OF THESE PROPOSALS WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST BOTH SUCH PROPOSALS.
3. To consider and vote upon an amendment to Arch's 1997 Stock Option
Plan to increase the number of shares of Arch Common Stock issuable under
such plan from 1,500,000 to 6,000,000 (the "Option Plan Proposal").
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Pursuant to the Merger Agreement, upon the satisfaction or, if legally
permissible, waiver of the conditions to the closing set forth therein or in
the Amended Plan, MMC will be merged with and into the Merger Subsidiary (the
"Merger"). Immediately prior to the Merger, Parent will contribute all of its
assets to MMC, and MMC's subsidiaries will be consolidated into a single
subsidiary which will become an indirect wholly owned subsidiary of Arch as a
result of the Merger.
The Arch Board of Directors has fixed the close of business on , 1998
as the record date for the determination of Arch stockholders entitled to
notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. The complete list of Arch stockholders entitled to vote
at the Special Meeting will be available for examination, for purposes
pertaining to the Special Meeting, by any stockholder of Arch entitled to vote
at the Special Meeting, at the principal executive offices of Arch, 1800 West
Park Drive, Suite 250, Westborough, Massachusetts 01581, for ten days prior to
the Special Meeting.
The presence, either in person or by proxy, of the holders of a majority of
the shares of Arch Common Stock and Series C Preferred Stock (calculated on an
as-converted basis together as a single class) issued and outstanding and
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting.
The affirmative vote of a majority of the shares of Arch Common Stock and
Series C Preferred Stock (voting on an as-converted basis together as a single
class) present or represented at the Special Meeting is necessary to approve
each of the matters to be considered at the Special Meeting, except that the
affirmative vote of a majority of the outstanding shares of Arch Common Stock
and Series C Preferred Stock (voting on an as-converted basis together as a
single class) is necessary to approve the Charter Amendment Proposal. Holders
of Arch Common Stock and Series C Preferred Stock do not have rights of
appraisal under Delaware law in connection with the Merger.
<PAGE>
All Arch stockholders are cordially invited to attend the Special Meeting in
person. However, to ensure your representation at the Special Meeting, you are
urged to sign and return the enclosed proxy card as promptly as possible in
the enclosed postage prepaid envelope.
By order of the Board of Directors,
Garry B. Watzke, Secretary
, 1998
Westborough, MA
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE PROMPTLY
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED
STATES.
<PAGE>
PRELIMINARY COPY--DATED AUGUST 21, 1998
ARCH COMMUNICATIONS GROUP, INC.
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MA 01581
---------------
PROXY STATEMENT
---------------
This Proxy Statement is being furnished to holders of Common Stock, par
value $.01 per share ("Arch Common Stock"), and holders of Series C
Convertible Preferred Stock, par value $.01 per share ("Series C Preferred
Stock"), of Arch Communications Group, Inc., a Delaware corporation ("Arch"),
in connection with the solicitation of proxies by the Arch Board of Directors
(the "Arch Board") for use at the Special Meeting of Arch stockholders (the
"Special Meeting") to be held on , 1998, at the offices of Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109, commencing at 10:00 a.m.,
local time, and at any adjournments or postponements thereof.
At the Special Meeting you will be asked to consider and vote upon the
following:
To consider and vote upon two related proposals more fully described in
this Proxy Statement and the Annexes hereto, which provide for the
following:
1. The MobileMedia Proposal: The issuance of shares of Arch's Common
Stock, $.01 par value per share ("Arch Common Stock"), shares of Arch's
Class B Common Stock, $.01 par value per share ("Arch Class B Common
Stock", and, together with the Arch Common Stock, the "Arch Combined Common
Stock") and warrants to acquire shares of Arch Common Stock pursuant to (x)
an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
August 18, 1998, among Arch, Farm Team Corp., a wholly owned subsidiary of
Arch (the "Merger Subsidiary"), MobileMedia Corporation, a Delaware
corporation ("Parent") which is currently operating as a debtor-in-
possession under Chapter 11 ("Chapter 11") of the United States Bankruptcy
Code, and MobileMedia Communications, Inc., a Delaware corporation and
wholly owned subsidiary of Parent which is also currently operating as a
debtor-in-possession under Chapter 11 ("MMC" and, together with its
subsidiaries, "MobileMedia"), (y) a related plan of reorganization of
Parent and MobileMedia under Chapter 11 (the "Amended Plan"), and (z)
certain separate commitment letters (collectively, the "Standby Purchase
Agreements"), dated as of August 18, 1998, among Arch, MMC and certain
unsecured creditors of Parent and MobileMedia (the "Unsecured Creditors")
(collectively, the "Standby Purchasers"), pursuant to which:
(i) Arch will contribute approximately $479.0 million for distribution to
certain secured creditors of Parent and MobileMedia in consideration of the
discharge of their claims against Parent and MobileMedia;
(ii) Arch will issue shares of Arch Common Stock to the Unsecured
Creditors in consideration of the discharge of their claims against Parent
and MobileMedia, which shares will represent approximately 25.7%(/1/) of
the total number of shares of Arch Common Stock (on an as-converted basis)
outstanding immediately following the Merger (as defined below) (the
"Creditor Stock Pool");
(iii) Arch will distribute (the "Rights Offering") to the Unsecured
Creditors transferable rights (the "Rights") to acquire (a) shares of Arch
Combined Common Stock, which shares (the "Rights Shares"), assuming the
Rights are fully exercised, will represent approximately 41.4% (i) of the
total number of shares of Arch Common Stock (on an as-converted basis)
outstanding immediately following the Merger and (b) warrants to acquire
shares of Arch Common Stock representing approximately 2.5% of the total
number of shares of Arch Common Stock outstanding immediately following the
Merger, on an as-converted basis and after giving further effect to the
issuance of Arch Common Stock upon exercise of all warrants issued in
connection with the Merger ("Fully Diluted Basis");
(iv) Arch will issue Shares of Arch Combined Common Stock pursuant to the
Standby Purchase Agreements to the Standby Purchasers or their assignees
(or persons in substitution therefor) to the extent that any of the Rights
are not otherwise exercised.
(v) Arch will distribute warrants to acquire shares of Arch Common Stock
to the Standby Purchaser in consideration of their agreement to exercise
any rights distributed in the Rights Offering which are not otherwise
exercised, which warrants will represent approximately 2.5% of the total
number of shares of Arch Common Stock outstanding immediately following the
Merger (on a Fully Diluted Basis); and
(vi) Arch will distribute to the holders of shares of Arch Common Stock
and Arch's Series C Convertible Preferred Stock ("Series C Preferred
Stock") outstanding immediately prior to the Merger warrants to acquire
shares of Arch Common Stock, which warrants will represent approximately
7.0% of the total number of shares of Arch Common Stock outstanding
immediately following the Merger (on a Fully Diluted Basis) (collectively,
the "MobileMedia Proposal").
2. The Charter Amendment Proposal: Approval of an amendment to the
Restated Certificate of Incorporation of Arch increasing the number of
authorized shares of Arch Common Stock from 75,000,000 shares to
150,000,000 shares, a portion of which will be Class B Common Stock (the
"Charter Amendment Proposal").
THE APPROVAL OF EACH OF THE MOBILEMEDIA PROPOSAL AND THE CHARTER
AMENDMENT PROPOSAL IS CONDITIONED UPON APPROVAL OF BOTH SUCH PROPOSALS.
ACCORDINGLY, A VOTE AGAINST EITHER OF THESE PROPOSALS WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST BOTH SUCH PROPOSALS.
3. To consider and vote upon an amendment to Arch's 1997 Stock Option
Plan to increase the number of shares of Arch Common Stock issuable under
such plan from 1,500,000 to 6,000,000 (the "Option Plan Proposal").
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Pursuant to the Merger Agreement, upon the satisfaction or, if legally
permissible, waiver of the conditions to the closing set forth therein or in
the Amended Plan, MMC will be merged with and into the Merger Subsidiary (the
"Merger"). Immediately prior to the Merger, Parent will contribute all of its
assets to MMC, and MMC's subsidiaries will be consolidated into a single
subsidiary which will become an indirect wholly owned subsidiary of Arch as a
result of the Merger.
On , 1998, the record date for determination of stockholders of Arch
entitled to vote at the Special Meeting, there were outstanding and entitled
to vote an aggregate of shares of Arch Common Stock, no shares of Class B
Common Stock and 250,000 shares of Series C Preferred Stock. Each share of
Arch Common Stock entitles the record holder thereof to one vote, and each
share of Series C Preferred Stock currently entitles the record holder thereof
to 18 2/9 votes on each of the matters to be voted upon at the Special
Meeting. See "Description of Arch Capital Stock--Arch Series C Preferred
Stock".
This Proxy Statement and the accompanying form of proxy are first being
mailed to stockholders of Arch on or about , 1998. All information
contained in this Proxy Statement relating to Arch has been supplied by Arch,
and all information relating to Parent and MobileMedia has been supplied by
MobileMedia.
- -------
(1) Based upon the mid-point of the range of shares which may be issued in
connection with the Merger Agreement and the Amended Plan. See "The
MobileMedia Plan of Reorganization--Calculation of Shares".
---------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY ARCH OR ANY OTHER PERSON. THIS PROXY STATEMENT DOES
NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH PROXY SOLICITATION IN SUCH
JURISDICTION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF ARCH OR MOBILEMEDIA SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
THE DATE OF THIS PROXY STATEMENT IS , 1998.
<PAGE>
AVAILABLE INFORMATION
Arch is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Parent and MMC are also subject to the
informational requirements of the Exchange Act but have filed only limited
reports since the commencement of their bankruptcy proceedings in January
1997. See "Business--MobileMedia--Events Leading up to MobileMedia's
Bankruptcy Filings". Financial statements included in Parent's and MMC's
periodic reports for all periods since February 1997 have not been prepared in
accordance with generally accepted accounting principles ("GAAP") due to
Parent's and MMC's 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, 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 included herein reflect
adjustments from the unaudited statements, including but not limited to an
impairment adjustment of $792.5 million recorded as of December 31, 1996. The
reports, proxy statements and other information filed with the Commission by
Arch and, to the extent available, by Parent and MMC, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following
Regional Offices of the Commission: Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, Arch, Parent and MMC
are required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Arch Common Stock is traded on the Nasdaq National Market under
the symbol "APGR". Reports and other information filed by Arch can also be
inspected at the offices of the National Association of Securities Dealers,
Inc. (the "NASD"), Reports Section, 1735 K Street, N.W., Washington, D.C.
20006. Parent's Common Stock is not currently traded on any exchange.
COPIES OF ARCH'S FILINGS WITH THE COMMISSION MAY BE OBTAINED UPON WRITTEN OR
ORAL REQUEST WITHOUT CHARGE FROM ARCH, 1800 WEST PARK DRIVE, SUITE 250,
WESTBOROUGH, MASSACHUSETTS 01581, ATTENTION: INVESTOR RELATIONS, TELEPHONE
(508) 870-6700. COPIES OF PARENT'S AND MMC'S FILINGS WITH THE COMMISSION MAY
BE OBTAINED UPON WRITTEN OR ORAL REQUEST WITHOUT CHARGE FROM PARENT, FORT LEE
EXECUTIVE PARK, ONE EXECUTIVE DRIVE, SUITE 500, FORT LEE, NEW JERSEY 07024,
ATTENTION: SECRETARY, TELEPHONE (201) 224-9200.
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
The Companies........................................................... 1
Arch.................................................................. 1
MobileMedia........................................................... 2
The Combined Company.................................................... 3
The Merger and the Reorganization....................................... 3
The Merger............................................................ 3
The Reorganization.................................................... 3
Recommendation of the Arch Board...................................... 4
Opinion of Arch's Financial Advisor................................... 4
Interests of Certain Persons in the Merger............................ 4
Effective Time of the Merger.......................................... 5
Board of Directors of Arch upon the Merger............................ 5
Regulatory Approvals.................................................. 5
Conditions to the Merger.............................................. 5
Termination; Amendment and Waiver..................................... 5
Appraisal Rights...................................................... 6
Certain Federal Income Tax Consequences of the Merger................. 7
Accounting Treatment.................................................. 7
Restrictions on Resale of Securities Issued in the Merger;
Registration Rights.................................................. 7
The Special Meeting..................................................... 7
Date and Place of the Special Meeting................................. 7
Stockholders Entitled to Vote......................................... 7
Purpose of the Special Meeting........................................ 7
Vote Required......................................................... 8
Stockholdings Before and After the Merger............................. 8
Risk Factors............................................................ 8
FORWARD-LOOKING STATEMENTS................................................ 9
RISK FACTORS.............................................................. 11
Uncertainties Related to the Transaction................................ 11
Challenges of Business Integration.................................... 11
Certain Risks Associated with the Merger.............................. 11
Transaction Costs..................................................... 11
Substantial Amortization Charges...................................... 12
Use of Pro Forma Assumptions.......................................... 12
Risks Common to Arch and MobileMedia.................................... 12
Growth and Acquisition Strategy....................................... 12
Future Capital Needs; Uncertainty of Additional Funding............... 12
Competition and Technological Change.................................. 13
Government Regulation, Foreign Ownership and Possible Redemption...... 13
High Degree of Leverage After the Merger.............................. 15
Subscriber Turnover................................................... 15
Dependence on Third Parties........................................... 16
Possible Acquisition Transactions..................................... 16
Dependence on Key Personnel........................................... 16
Impact of the Year 2000 Issue......................................... 16
No Dividends.......................................................... 17
History of Losses..................................................... 17
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Volatility of Trading Price........................................... 18
Risks Relating to the Combined Company Projections.................... 18
Certain Federal Income Tax Considerations; Possible Loss of Corporate
Tax Benefits......................................................... 18
Risks Related to Arch................................................... 19
Arch's Indebtedness and High Degree of Leverage....................... 19
Lender Approval and Merger Cash Requirements.......................... 19
API Credit Facility, Bridge Facility and Indenture Restrictions....... 20
Possible Fluctuations in Revenues and Operating Results............... 20
Divisional Reorganization of Arch..................................... 20
Anti-Takeover Provisions.............................................. 21
Risks Related to MobileMedia............................................ 21
Disruption of Operations Prior to and Following Bankruptcy Filing..... 21
Assumptions Regarding Value of MobileMedia Assets..................... 21
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA--ARCH....... 22
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA--
MOBILEMEDIA.............................................................. 24
UNAUDITED SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA.................. 26
COMPARATIVE PER SHARE DATA................................................ 27
MARKET PRICE INFORMATION AND DIVIDEND POLICY.............................. 28
STOCKHOLDINGS BEFORE AND AFTER THE MERGER................................. 29
THE SPECIAL MEETING....................................................... 30
General................................................................. 30
Purpose of the Special Meeting.......................................... 30
Arch Board of Directors Recommendation.................................. 30
Date, Time and Place.................................................... 30
Record Date; Shares Outstanding......................................... 30
Voting at the Special Meeting........................................... 31
Solicitation of Proxies................................................. 31
Effect of Abstentions and "Broker Non-Votes"............................ 32
Appraisal Rights........................................................ 32
ITEM 1--THE MOBILEMEDIA PROPOSAL.......................................... 33
Background of the Merger................................................ 33
Arch Reasons for the Merger............................................. 35
Recommendation of the Arch Board of Directors........................... 36
Opinion of Arch's Financial Advisor..................................... 36
Pro Forma Company Trading Analysis.................................... 38
Contribution Analysis................................................. 39
MobileMedia Reasons for the Merger...................................... 40
Interests of Certain Persons in the Merger.............................. 42
Accounting Treatment.................................................... 42
Certain Federal Income Tax Consequences................................. 42
Regulatory Approvals.................................................... 43
FCC Approval.......................................................... 43
State Approvals....................................................... 44
Antitrust............................................................. 45
Federal Securities Law Consequences..................................... 45
Nasdaq National Market Listing.......................................... 45
Appraisal Rights........................................................ 45
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THE MERGER AGREEMENT...................................................... 46
The Merger.............................................................. 46
Effect of the Merger.................................................... 46
Representations and Warranties.......................................... 46
Certain Covenants and Agreements........................................ 46
Reimbursement of Arch's Expenses........................................ 55
Conditions.............................................................. 55
Termination............................................................. 58
Amendment and Waiver.................................................... 59
Related Agreements...................................................... 59
Related Matters After the Merger........................................ 63
THE MOBILEMEDIA PLAN OF REORGANIZATION.................................... 64
The Amended Plan........................................................ 64
Executory Contracts..................................................... 66
Implementation of Plan.................................................. 66
Conditions to Effectiveness of the Plan................................. 67
Discharge............................................................... 67
Releases and Indemnification............................................ 67
Jurisdiction............................................................ 67
Calculation of Shares................................................... 68
THE COMBINED COMPANY...................................................... 69
Overview................................................................ 69
Strategy................................................................ 69
Unaudited Financial Projections and Operational Cost Synergies.......... 70
Potential Cost Savings.................................................. 74
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .......... 76
ARCH COMMUNICATIONS GROUP, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET............................................................ 77
ARCH COMMUNICATIONS GROUP, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS.................................................. 78
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.. 80
INDUSTRY OVERVIEW......................................................... 82
General................................................................. 82
Paging and Messaging Services........................................... 83
Competition............................................................. 83
Regulation.............................................................. 84
Federal Regulation.................................................... 84
State Regulation...................................................... 87
Future Regulation..................................................... 87
BUSINESS.................................................................. 88
Arch.................................................................... 88
Business Strategy..................................................... 88
Paging and Messaging Services, Products and Operations................ 89
Investments in Narrowband PCS Licenses................................ 91
Subscribers and Marketing............................................. 92
Competition........................................................... 93
Regulation............................................................ 93
Sources of Equipment.................................................. 93
Employees............................................................. 93
Trademarks............................................................ 93
Properties............................................................ 93
Litigation............................................................ 94
Arch Management......................................................... 94
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Directors and Executive Officers...................................... 94
Board Committees...................................................... 96
Indemnification and Director Liability................................ 96
Arch Executive Compensation............................................. 97
Summary Compensation Table............................................ 97
Executive Retention Agreements........................................ 98
Stock Option Grants................................................... 98
Option Exercises and Year-End Option Table............................ 99
Compensation Committee Interlocks and Insider Participation........... 99
Principal Stockholders.................................................. 100
Arch Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 102
Overview.............................................................. 102
Shift in Operating Focus.............................................. 102
Divisional Reorganization............................................. 103
ACE/USAM Merger....................................................... 103
Results of Operations................................................. 104
Six Months Ended June 30, 1998 Compared with Six Months Ended June
30, 1997........................................................... 104
Year Ended December 31, 1997 Compared with Year Ended December 31,
1996............................................................... 105
Year Ended December 31, 1996 Compared with Year Ended December 31,
1995............................................................... 107
Liquidity and Capital Resources....................................... 108
Recent and Pending Accounting Pronouncements.......................... 110
MobileMedia............................................................. 111
Business Strategy..................................................... 111
Paging and Messaging Services Products and Operations................. 111
Networks and Licenses................................................. 112
Sales and Marketing................................................... 113
Competition........................................................... 114
Regulation............................................................ 114
Sources of Equipment.................................................. 114
Employees............................................................. 115
Trademarks............................................................ 115
Properties............................................................ 115
Events Leading Up To MobileMedia's Bankruptcy Filings................. 116
Litigation............................................................ 117
MobileMedia Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 120
Presentation of Financial Condition and Results of Operations......... 120
Overview.............................................................. 120
Pending FCC Action Against MobileMedia................................ 121
Results of Operations................................................. 123
Six Months Ended June 30, 1998 Compared with Six Months Ended June
30, 1997........................................................... 123
Year Ended December 31, 1997 Compared with Year Ended December 31,
1996............................................................... 125
Year Ended December 31, 1996 Compared with Year Ended December 31,
1995............................................................... 127
Liquidity and Capital Resources....................................... 128
New Authoritative Accounting Pronouncements........................... 133
DESCRIPTION OF ARCH CAPITAL STOCK......................................... 134
Arch Common Stock....................................................... 134
Arch Class B Common Stock............................................... 134
Arch Preferred Stock.................................................... 134
Arch Series C Preferred Stock........................................... 134
Foreign Ownership Restrictions.......................................... 135
Anti-Takeover Provisions................................................ 135
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Rights Plan........................................................... 135
Classified Board of Directors......................................... 136
Stockholder Actions and Meetings...................................... 136
Amendment of Certain Provisions of The Arch Certificate and Arch By-
laws................................................................. 137
Consideration of Non-Economic Factors in Acquisitions................. 137
Restrictions on Certain Purchasers of Stock by Arch................... 137
"Blank Check" Preferred Stock......................................... 137
Delaware Anti-Takeover Statute........................................ 138
Director Liability and Indemnification................................ 138
Transfer Agent and Registrar............................................ 139
Registration Rights..................................................... 139
DESCRIPTION OF CERTAIN ARCH INDEBTEDNESS.................................. 140
API Credit Facility..................................................... 140
Bridge Facility......................................................... 140
ACI 9 1/2% Notes........................................................ 141
ACI 14% Notes........................................................... 143
ACI 12 3/4% Notes....................................................... 144
Arch Discount Notes..................................................... 145
Arch Convertible Debentures............................................. 147
ITEM 2--AMENDMENT TO THE ARCH RESTATED CERTIFICATE OF INCORPORATION....... 149
Arch Board Recommendation............................................... 149
ITEM 3--APPROVAL OF AN AMENDMENT TO ARCH'S 1997 STOCK OPTION PLAN......... 150
Summary of the Plan..................................................... 150
Federal Income Tax Consequences......................................... 151
Incentive Stock Options............................................... 151
Non-Statutory Options................................................. 152
Delivery of Common Stock Upon Exercise of Stock Options............... 152
Maximum Income Rates on Capital Gain and Ordinary Income.............. 152
Tax Consequences to Company........................................... 152
Withholding........................................................... 153
Arch Board Recommendation............................................... 153
EXPERTS................................................................... 154
STOCKHOLDER PROPOSALS..................................................... 154
OTHER MATTERS............................................................. 154
INDEX TO FINANCIAL STATEMENTS............................................. F-1
ANNEX A: AGREEMENT AND PLAN OF MERGER..................................... A-1
ANNEX B: OPINION OF BEAR, STEARNS & CO. INC............................... B-1
ANNEX C: MOBILEMEDIA PLAN OF REORGANIZATION............................... C-1
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information contained in this Proxy Statement
and the Annexes hereto. Unless otherwise defined herein, capitalized terms used
in this Summary have the respective meanings ascribed to them elsewhere in this
Proxy Statement. Stockholders are urged to read this Proxy Statement and the
Annexes hereto in their entirety.
THE COMPANIES
ARCH
Arch is a leading provider of wireless messaging services, primarily paging
services, and is the second largest paging company in the United States based
on earnings before interest, taxes, depreciation and amortization ("EBITDA").
Arch had 4.1 million pagers in service at June 30, 1998. Arch operates in 41
states and more than 180 of the 200 largest markets in the United States. Arch
offers local, regional and nationwide paging services employing digital
networks covering approximately 85% of the United States population. Arch
offers four types of paging services through its networks: digital display,
alphanumeric display, tone-only and tone-plus-voice. Arch also offers enhanced
and complementary services, including voice mail, personalized greeting,
message storage and retrieval, pager loss protection and pager maintenance.
Arch has achieved significant growth in pagers in service and EBITDA through
a combination of internal growth and acquisitions. From January 1, 1995 through
June 30, 1998, Arch's total number of subscribers grew at a compound rate on an
annualized basis of 79.0%. For the same period on an annualized basis, Arch's
compound rate of internal subscriber growth (excluding pagers added through
acquisitions) was 56.1%. From commencement of operations in September 1986,
Arch has completed 33 acquisitions representing an aggregate of 1.7 million
pagers in service at the time of purchase. For the twelve months ended June 30,
1998, Arch's total revenues were $408.2 million, representing a compound growth
rate on an annualized basis of 61.7% since January 1, 1995. For the same
period, Arch's EBITDA was $136.2 million, representing a compound growth rate
on an annualized basis of 78.4% since January 1, 1995.
Arch's strategic objective is to strengthen its position as one of the
leading nationwide paging companies in the United States. Arch believes that
larger, multi-market paging companies enjoy a number of competitive advantages,
including: (i) operating efficiencies resulting from more intensive utilization
of existing paging systems; (ii) economies of scale in purchasing and
administration; (iii) broader geographic coverage of paging systems; (iv)
greater access to capital markets and lower costs of capital; (v) the ability
to obtain additional radio spectrum; (vi) the ability to offer high-quality
services at competitive prices; and (vii) enhanced ability to attract and
retain management personnel. Arch believes that the current size and scope of
its operations afford it many of these advantages and that it has the scope and
presence to effectively compete on a national level. In addition, Arch believes
that the paging industry will undergo further consolidation, and Arch expects
to participate in such consolidation.
Arch's operating objectives are to increase its EBITDA, deploy its capital
efficiently, reduce its financial leverage and expand its customer
relationships. To achieve its operating objectives, Arch: (i) has selected a
low-cost operating strategy as its principal competitive tactic; (ii) is
seeking to reduce its financial leverage by reducing capital requirements and
increasing EBITDA; (iii) has focused its capital and marketing resources on
one-way paging and enhanced services while taking steps to position itself to
participate in new and emerging services and applications in narrowband
personal communications services ("N-PCS"); and (iv) is pursuing new revenue
opportunities associated with its 4.1 million pagers in service.
A predecessor to Arch, also named Arch Communications Group, Inc. ("Old
Arch"), was incorporated in January 1986 in Delaware and conducted its
operations through wholly owned direct and indirect subsidiaries.
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On September 7, 1995, Old Arch completed its acquisition of USA Mobile
Communications Holdings, Inc. ("USA Mobile") through the merger (the "USA
Mobile Merger") of Old Arch with and into USA Mobile, which simultaneously
changed its name to Arch Communications Group, Inc. and continued in existence
as a Delaware corporation. In accordance with GAAP, Old Arch was treated as the
acquirer in such merger for accounting and financial reporting purposes, and
Arch reports the historical financial statements of Old Arch as its historical
financial statements. See Note 2 to Arch's Consolidated Financial Statements.
As used herein, unless the context otherwise requires the term "Arch" refers to
Arch Communications Group, Inc. from and after the USA Mobile Merger and Old
Arch prior to the USA Mobile Merger, in each case together with its wholly
owned direct and indirect subsidiaries. Arch's principal office is located at
1800 West Park Drive, Suite 250, Westborough, Massachusetts 01581 and its
telephone number is (508) 870-6700.
MOBILEMEDIA
Parent, through MobileMedia, operates one of the largest paging companies in
the United States, with approximately 3.2 million units in service as of June
30, 1998. Through its sales offices, nationwide retail distribution network,
company-operated retail stores and resellers, MobileMedia offers local,
regional and national coverage to subscribers in all 50 states and the District
of Columbia, including local coverage to each of the 100 most populated
metropolitan markets in the United States. MobileMedia markets its services
primarily under the MobileComm brand name. Parent's business is conducted
primarily through MobileMedia, and MMC and various subsidiaries of MMC hold the
Federal Communications Commission ("FCC") licenses and, where applicable, state
public utility commission authorizations that grant MobileMedia the authority
to operate its paging systems.
MobileMedia distributes its paging services using three primary distribution
channels: direct, reseller and retail. MobileMedia's paging and wireless
messaging services consist principally of numeric and alphanumeric paging
services, offering local, regional and national coverage. Parent and MMC were
each incorporated in Delaware in 1993. Unless the context otherwise requires,
references to MobileMedia refer to MMC and its consolidated subsidiaries. The
executive offices of Parent and MMC are located at Fort Lee Executive Park, One
Executive Drive, Suite 500, Fort Lee, New Jersey 07024 and their telephone
number is (201) 224-9200.
In January 1996, MMC completed the acquisition of Mobile Communications
Corporation of America ("MobileComm"). During 1996, MobileMedia experienced
difficulties executing its post-acquisition business strategy due largely to
problems encountered in integrating the operations of MobileComm and Dial Page
Inc. ("Dial Page"), which MMC had acquired in August 1995. Accordingly, during
1996 MobileMedia's financial position deteriorated. At September 30, 1996, MMC
was in violation of certain financial covenants under its $750.0 million senior
secured credit agreement (as amended, the "MobileMedia 1995 Credit Agreement"),
which resulted in the occurrence of "Events of Default" under that agreement
and precluded MobileMedia from borrowing additional funds thereunder. In the
fall of 1996, MobileMedia commenced negotiations with The Chase Manhattan Bank,
the agent (the "Pre-Petition Agent") for the lenders (the "Pre-Petition
Lenders") under the MobileMedia 1995 Credit Agreement, regarding the terms of a
possible financial restructuring. In addition, in the fall of 1996, MobileMedia
failed to make payments due to certain of its most important vendors, including
Motorola, Inc. ("Motorola"), MobileMedia's largest supplier of pagers and pager
repair parts. As a result, MobileMedia was unable to place orders with or
obtain shipments from Motorola and certain of MobileMedia's other important
vendors. In addition, MobileMedia disclosed in September and October of 1996
that misrepresentations had been made to the FCC by certain members of its
management (none of whom are now employed by MobileMedia) and that other
violations of law had occurred during the licensing process for as many as 400
to 500 authorizations, which authorizations relate to approximately 6% to 7% of
its approximately 8,000 local transmission one-way paging stations. MobileMedia
is still in the process of resolving these issues with the FCC. See "Business--
MobileMedia--Litigation" and "Business--MobileMedia Management's Discussion and
Analysis of Financial Condition and Results of Operations--Pending FCC Action
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Against MobileMedia". On January 30, 1997 (the "Petition Date"), Parent, MMC
and all of MMC's subsidiaries (collectively, the "Debtors") filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code with the
U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
During the pendency of these cases (the "Cases"), MobileMedia's management has
continued to manage the operations and affairs of the Debtors as debtors-in-
possession under the jurisdiction of the Bankruptcy Court. The Debtors filed an
initial plan of reorganization on January 27, 1998, which has now been
superseded by the Amended Plan.
THE COMBINED COMPANY
Arch, after giving effect to the acquisition of MobileMedia (together, the
"Combined Company"), would be the second largest paging operator in the United
States as measured by pagers in service, net revenues (total revenues less cost
of products sold) and EBITDA. On a pro forma basis (but excluding the impact of
expected operational cost synergies), at and for the six months ended June 30,
1998, the Combined Company had approximately 7.2 million pagers in service, net
revenues of $403.5 million, EBITDA (before reorganization expenses and
restructuring charges) of $125.5 million and total debt of $1.3 billion.
Leverage for the Combined Company on a pro forma basis (but excluding the
impact of expected operational cost synergies), as measured by the ratio of
total debt to annualized EBITDA for the six months ended June 30, 1998, was
5.3:1. See "The Combined Company" and "Unaudited Pro Forma Condensed
Consolidated Financial Statements".
Arch believes that the Combined Company will be well positioned to compete
effectively in the highly competitive paging industry for the following
reasons. The combination of MobileMedia's market presence in major metropolitan
markets with Arch's historical emphasis on middle and small markets will
significantly broaden the geographic scope of Arch's marketing presence and
should position the Combined Company to compete more effectively for large
corporate customers with diverse geographic operations. With a significantly
larger subscriber base, the Combined Company should be better able to serve
strategic distribution arrangements, as well as amortize marketing investments
over a larger revenue base. In addition, MobileMedia's third party retail
distribution agreements, which serve the more rapidly growing consumer market,
should complement Arch's over 200 company-owned retail outlets. Similarly,
MobileMedia's two nationwide paging networks (and the potential for higher
revenue nationwide services) should enhance Arch's local coverage and provide
the opportunity to take advantage of Arch's distribution platforms.
MobileMedia's plan to deploy its nationwide N-PCS spectrum over its existing
network infrastructure should permit Arch to market enhanced N-PCS services
(primarily multi-market alphanumeric and text messaging services) sooner than
it would otherwise have been able to, and these services are expected to
provide higher revenue and more growth potential than basic paging services.
Finally, MobileMedia's investments to date in two national call centers should
supplement Arch's own call center and complement Arch's strategy of evolving to
"scalable" regional customer service centers. See "The Combined Company".
THE MERGER AND THE REORGANIZATION
THE MERGER
Upon consummation of the Merger pursuant to the Merger Agreement and the
Amended Plan, MMC will be merged with and into the Merger Subsidiary, which
will be the surviving corporation (sometimes referred to herein as the
"Surviving Corporation"). Immediately prior to the Merger, Parent will
contribute all of its assets to MMC, and MMC's subsidiaries will be
consolidated into a single subsidiary which will become an indirect wholly
owned subsidiary of Arch as a result of the Merger. See "The Merger Agreement"
and "The MobileMedia Plan of Reorganization".
THE REORGANIZATION
The Debtors filed the Amended Plan with the Bankruptcy Court on August 20,
1998. The Amended Plan provides for the treatment of all claims against and
equity interests in the Debtors. In addition to providing for the distribution
of $479.0 million in cash to the secured creditors of Parent and MobileMedia
and the issuance
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of shares of Arch Combined Common Stock (in connection with the Merger and the
Amended Plan, upon exercise of Rights or pursuant to the Standby Purchase
Agreements) and warrants to the Unsecured Creditors as outlined on the cover
page of this Proxy Statement under the caption "The MobileMedia Proposal", the
Amended Plan provides that holders of pre-petition claims which are entitled to
priority in accordance with applicable provisions of the Bankruptcy Code will
be paid in full in cash on the date on which the Amended Plan becomes effective
(the "Effective Date") or be unimpaired under the Bankruptcy Code and that all
post-petition claims incurred by the Debtors in the ordinary course of business
or as authorized by the Bankruptcy Court will either be paid in full in cash on
the Effective Date or in accordance with the terms applicable to such post-
petition claims (all such transactions being collectively referred to herein as
the "Reorganization"). The Amended Plan requires Arch to make sufficient funds
available to pay all such priority and administrative claims; provided,
however, that if the total required to be paid on account of priority tax
claims, professional fees (other than those paid monthly pursuant to orders
entered by the Bankruptcy Court in the Cases), cure payments due with respect
to assumed executory contracts, bonus payments and amounts required to pay the
Dial Page 12 1/4% Senior Notes due 2000 (the "Dial Page Notes"), payable by
MMC, together with the costs and expenses of the Standby Purchasers in
accordance with the Standby Purchase Agreements, exceeds $34.0 million, the
number of shares of Arch Combined Common Stock issuable to the Unsecured
Creditors in connection with the Merger will be reduced by a number of shares
equal to the amount by which such claims exceed $34.0 million divided by
$25.315. Arch has also agreed to pay in cash on the Effective Date loans
outstanding under MMC's Revolving Credit and Guarantee Agreement dated as of
January 30, 1997 among MMC, The Chase Manhattan Bank and other lenders who are
a party thereto (as amended, the "DIP Credit Agreement"). The Merger Agreement
provides that at the Effective Time (as defined below) the amount of loans
outstanding under the DIP Credit Agreement shall not exceed specified amounts.
See "The Merger Agreement". The Amended Plan will become effective on a
business day that is between seven (7) and ten (10) business days after the day
that all conditions to closing under the Merger Agreement have been satisfied
or waived, other than the condition that the Amended Plan be confirmed (which
condition cannot be waived). See "The MobileMedia Plan of Reorganization".
RECOMMENDATION OF THE ARCH BOARD
After careful consideration, the Arch Board has unanimously approved the
Merger Agreement and the transactions contemplated thereby and recommends that
holders of Arch Common Stock and Series C Preferred Stock vote in favor of the
MobileMedia Proposal, the Charter Amendment Proposal and the Option Plan
Proposal. The Arch Board considered many factors in reaching its conclusion to
approve the Merger Agreement and to recommend that stockholders vote for the
MobileMedia Proposal, the Charter Amendment Proposal and the Option Plan
Proposal, including the opinion of its financial advisor. See "The MobileMedia
Proposal--Arch Reasons for the Merger", --Recommendation of the Arch Board of
Directors", and "--Opinion of Arch's Financial Advisor".
OPINION OF ARCH'S FINANCIAL ADVISOR
Bear, Stearns and Co. Inc. ("Bear Stearns") has delivered a written opinion
dated August 14, 1998 to the Arch Board to the effect that, as of such date and
based upon and subject to certain matters stated therein, the issuance of Arch
Combined Common Stock and warrants to acquire Arch Combined Common Stock ("Arch
Warrants") by Arch to the claimholders of MobileMedia in connection with the
Merger (and pursuant to the Amended Plan, the Merger Agreement, the Rights and
the Standby Purchase Agreements) and the issuance of Arch Warrants to Arch's
stockholders, taken together as a whole, is fair, from a financial point of
view, to Arch and its stockholders. See "The MobileMedia Proposal--Opinion of
Arch's Financial Advisor".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Arch is unaware of any interests that any directors or officers of Arch have
in connection with the Merger that are in addition to the interests of the
stockholders of Arch generally. See "The MobileMedia Proposal--Interests of
Certain Persons in the Merger".
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EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a duly executed
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, or such later time as may be specified in the
Certificate of Merger (the "Effective Time"). It is anticipated that the Merger
will become effective as promptly as practicable after the requisite Arch
stockholder approval has been obtained and all regulatory approvals and
other conditions to the Merger set forth in the Merger Agreement and the
Amended Plan have been satisfied or, if legally permissible, waived. Assuming
all such conditions are met, the Merger is expected to be consummated in the
first quarter of 1999. See "The Merger Agreement--Conditions"and "The
MobileMedia Plan of Reorganization--Conditions to Effectiveness of the Plan".
BOARD OF DIRECTORS OF ARCH UPON THE MERGER
Edwin M. Banks, a designee of W.R. Huff Asset Management Co., L.L.C.
("W.R. Huff"), and H. Sean Mathis, a designee of Whippoorwill Associates, Inc.
("Whippoorwill"), will become directors of Arch at the Effective Time, and Arch
will be required to nominate for election as directors one designee of W.R.
Huff and one designee of Whippoorwill so long as W.R. Huff or Whippoorwill, as
the case may be, holds securities of Arch representing at least 10% of the
combined voting power of all outstanding securities of Arch (5% in the case of
the initial renomination of such designees). At the Effective Time, therefore,
the directors of Arch are expected to be: Edwin M. Banks, James S. Hughes and
Allan L. Rayfield, whose terms will expire at the annual meeting of
stockholders to be held after the end of the fiscal year ending December 31,
1998, H. Sean Mathis, John B. Saynor and John A. Shane, whose terms will expire
at the annual meeting of stockholders to be held after the end of the fiscal
year ending December 31, 1999; and C. Edward Baker, Jr., R. Schorr Berman and
John Kornreich, whose terms will expire at the annual meeting of stockholders
to be held after the end of the fiscal year ending December 31, 2000. In
addition, a designee of W.R. Huff will be granted observation rights at all
meetings of the Arch Board following the Merger. See "The Merger Agreement--
Related Agreements--Standby Purchase Agreements".
REGULATORY APPROVALS
Paging operations and the construction, modification, ownership and
acquisition of paging systems are subject to extensive regulation by the FCC
under the Communications Act of 1934, as amended (the "Communications Act"),
and, to a much more limited extent, by public utility or public service
commissions in certain states. See "Industry Overview--Regulation". The
consummation of the Merger is subject to certain regulatory approvals,
including FCC approval and the approval of various state regulatory
authorities. The Merger is also subject to the requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the
rules and regulations thereunder, which provide that certain transactions may
not be consummated until certain required information and materials have been
furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the Federal Trade Commission (the "FTC") and certain
waiting periods have expired or been terminated. Arch and MobileMedia expect to
file the required information and material with the Antitrust Division and the
FTC on or before August 28, 1998. See "The MobileMedia Proposal--Regulatory
Approvals".
CONDITIONS TO THE MERGER
The Merger Agreement and the Amended Plan each provide that the respective
obligations of Arch and MobileMedia to effect the Merger are subject to the
satisfaction or, if legally permissible, waiver of a number of conditions on or
prior to the Effective Time. See "The Merger Agreement--Conditions" and "The
MobileMedia Plan of Reorganization--Conditions to Effectiveness of the Plan".
TERMINATION; AMENDMENT AND WAIVER
The Merger Agreement provides that Arch and MMC may terminate the Merger
Agreement prior to the Effective Date as follows: (i) Arch and MMC may
terminate the Merger Agreement by mutual written consent;
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(ii) either Arch or MMC may terminate the Merger Agreement by giving written
notice to the other in the event the other is in material breach of its
representations and warranties or its material covenants or agreements
contained in the Merger Agreement (with certain bankruptcy-related exceptions);
(iii) Arch or MMC may terminate the Merger Agreement by written notice to the
other, if the order of the Bankruptcy Court confirming the Amended Plan (the
"Confirmation Order") has not been entered by the Bankruptcy Court on or prior
to March 31, 1999, or if the Merger has not occurred on or prior to June 30,
1999 or, in the case of termination by Arch, MobileMedia is in material breach
of certain material covenants or agreements therein; (iv) MMC may terminate the
Merger Agreement if it has decided to pursue a Company Superior Proposal (as
defined in the Merger Agreement) by giving written notice to Arch, provided
that on or before such termination MMC will have paid to Arch the applicable
Buyer Breakup Fee (as defined herein); (v) Arch may terminate the Merger
Agreement by giving written notice to MMC if the Initial Merger Order (as
defined herein) approving certain provisions of the Merger Agreement has not
been entered by the Bankruptcy Court on or prior to September 4, 1998; (vi) MMC
may terminate the Merger Agreement by giving written notice to Arch if (A) the
Arch Board does not issue its recommendation prior to the Special Meeting or
withdraws or amends in a manner adverse to MMC such recommendation or otherwise
materially breaches its obligations with respect to soliciting proxies from its
stockholders for approval of the MobileMedia Proposal or the Charter Amendment
Proposal to be considered at a Special Meeting or (B) at the Special Meeting
either the MobileMedia Proposal or the Charter Amendment Proposal is not
approved by the requisite vote of Arch's stockholders and upon such termination
Arch must pay the MobileMedia Breakup Fee to MMC; and (vii) Arch may terminate
the Merger Agreement by giving written notice to MMC if MMC or any other Debtor
files either an amendment to the Amended Plan or any other plan of
reorganization in violation of the Merger Agreement.
If any party terminates the Merger Agreement, all obligations of Arch and MMC
thereunder will generally terminate without any liability of any party to any
other party, except for any liability of any party for willful or intentional
breaches of the Merger Agreement, and except for MMC's obligation to pay the
Buyer Breakup Fee (as defined herein), if applicable, and Arch's obligation to
pay the MobileMedia Breakup Fee (as defined herein), if applicable, which will
survive any such termination.
Arch, Parent and MMC may mutually amend any provision of the Merger Agreement
(in certain cases Parent and MMC may do so only with the consent of the
Official Committee of Unsecured Creditors (the "Unsecured Creditors
Committee")) or pursuant to an order of the Bankruptcy Court. The Merger
Agreement provides that no waiver by any party to the Merger Agreement of any
default, misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
MMC, on behalf of itself, Parent and MobileMedia, has agreed not to make any
material change to the Amended Plan or the Merger Agreement, exercise any
rights they may have to terminate the Merger Agreement or take any action which
could result in the termination of the Merger Agreement by Arch without the
prior written consent of the Unsecured Creditors Committee or the entry of an
order by the Bankruptcy Court. MMC has further agreed not to exercise its
rights to respond to or negotiate acquisition proposals received from third
parties without advising and consulting with the Unsecured Creditors Committee.
MMC also agreed that the Unsecured Creditors Committee could request MMC to
exercise its right to terminate the Merger Agreement, and if MMC does not do
so, the Unsecured Creditors Committee may seek an order of the Bankruptcy Court
to do so.
APPRAISAL RIGHTS
Stockholders of Arch are not entitled to appraisal rights under the Delaware
General Corporation Law (the "DGCL") in connection with the Merger. See "The
MobileMedia Proposal--Appraisal Rights". At the Effective Time, all rights of
the holders of Parent's Common Stock (the "MobileMedia Stockholders") will be
extinguished. See "The MobileMedia Plan of Reorganization".
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Neither Arch, the stockholders of Arch, nor MMC will recognize gain or loss
for federal income tax purposes as a result of the Merger. The distribution of
warrants to acquire Arch Common Stock to holders of Arch Common Stock should be
nontaxable to such holders. The distribution of Arch Warrants to holders of
Series C Preferred Stock should be taxable to such holders. It is anticipated
that (S)382 of the Internal Revenue Code of 1986, as amended (the "Tax Code"),
will limit the amount of income earned by Arch after the Merger that may be
offset by Arch's net operating loss ("NOL") carryforwards and other tax
attributes. It is also anticipated that the NOL carryforwards and possibly
other tax attributes of MMC will be substantially reduced as a result of
consummation of the Amended Plan pursuant to (S)108 and (S)382 of the Tax Code.
See "The MobileMedia Proposal--Certain Federal Income Tax Consequences".
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting;
the purchase price will be allocated based on the fair value of the assets
acquired and the liabilities assumed. In accordance with GAAP, Arch will be
treated as the acquiror in the Merger for accounting and financial reporting
purposes, and Arch will continue to report its historical financial statements
as the historical financial statements of the combined entities. See "The
MobileMedia Proposal--Accounting Treatment".
RESTRICTIONS ON RESALE OF SECURITIES ISSUED IN THE MERGER; REGISTRATION RIGHTS
The shares of Arch Combined Common Stock issued in connection with the Merger
to Unsecured Creditors who, following the Merger, are deemed to be "affiliates"
of Arch under the Securities Act or are deemed to be "underwriters" under
Section 2(11) of the Securities Act or Section 1145(b) of the Bankruptcy Code
will be subject to resale limitations pursuant to Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). See "The MobileMedia Proposal--
Federal Securities Law Consequences". Arch has agreed to provide these
creditors certain registration rights with respect to the shares of Arch Common
Stock issuable to them in connection with the Merger. See "The Merger
Agreement--Related Agreements--Registration Rights Agreements".
THE SPECIAL MEETING
DATE AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on , 1998 at 10:00 a.m., local time,
at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts
02109.
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Arch Common Stock and Series C Preferred Stock
at the close of business on , 1998 (the "Record Date") are entitled to
notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. On the Record Date, there were shares of Arch Common
Stock, no shares of Class B Common Stock and 250,000 shares of Series C
Preferred Stock outstanding.
PURPOSE OF THE SPECIAL MEETING
1. To consider and vote upon the MobileMedia Proposal,
2. To consider and vote upon the Charter Amendment Proposal.
THE APPROVAL OF BOTH THE MOBILEMEDIA PROPOSAL AND THE CHARTER AMENDMENT
PROPOSAL IS CONDITIONED UPON APPROVAL OF BOTH SUCH PROPOSALS. ACCORDINGLY,
A VOTE AGAINST EITHER OF THESE PROPOSALS WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST BOTH SUCH PROPOSALS.
3. To approve the Option Plan Proposal.
4. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
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VOTE REQUIRED
The affirmative vote of a majority of the shares of Arch Common Stock and
Series C Preferred Stock (voting on an as-converted basis together as a single
class) present or represented at the Special Meeting is necessary to approve
each of the matters to be considered at the Special Meeting, provided a quorum
is present, except that the affirmative vote of a majority of the outstanding
shares of Arch Common Stock and Series C Preferred Stock (voting on an as-
converted basis together as a single class) is necessary to approve the Charter
Amendment Proposal. Each share of Arch Common Stock is entitled to one vote,
and each share of Series C Preferred Stock is currently entitled to 18 2/9
votes, on all matters presented at the Special Meeting. See "Description of
Arch Capital Stock--Arch Series C Preferred Stock".
Votes may be cast in person at the Special Meeting or by proxy. Any Arch
stockholder who executes and returns a proxy card may revoke such proxy at any
time before it is voted by (i) notifying in writing the Secretary of Arch at
1800 West Park Drive, Suite 250, Westborough, Massachusetts 01581, (ii)
granting a subsequent proxy or (iii) appearing in person and voting at the
Special Meeting. Attendance at the Special Meeting will not in and of itself
constitute revocation of a proxy.
The MobileMedia Stockholders are not entitled to vote in connection with the
Merger. See "The MobileMedia Plan of Reorganization".
STOCKHOLDINGS BEFORE AND AFTER THE MERGER
The number of shares of Arch Combined Common Stock and Arch Warrants to be
issued in the Merger will be determined by reference to the Arch Common Stock
Price (as defined herein). Based upon the capitalization of Arch at June 30,
1998, if the Merger is approved and becomes effective, Arch stockholders who
collectively own, on an as-converted basis, 100% of the outstanding Arch Common
Stock immediately prior to the Effective Time will own, on an as-converted
basis, approximately 31% to 34% of the outstanding Arch Common Stock at the
Effective Time (approximately 34% to 37% on a Fully Diluted Basis), and the
Unsecured Creditors (including the Standby Purchasers), their successors and
assigns will collectively own, on an as-converted basis, approximately 66% to
69% of the outstanding Arch Common Stock at the Effective Time (approximately
63% to 66% on a Fully Diluted Basis). See Note 11 to the Unaudited Pro Forma
Condensed Consolidated Financial Statements, "Stockholdings Before and After
the Merger" and "The MobileMedia Plan of Reorganization--Calculation of
Shares".
RISK FACTORS
In considering the proposed Merger, Arch stockholders should consider, among
other risks, the risks associated with integrating the businesses of Arch and
MobileMedia, the structure of the Merger and the Reorganization and financing
the future capital needs of the Combined Company following the Merger. Other
risks to be considered include risks of the Combined Company related to
competition, technological change, government regulation, subscriber turnover,
reliance on equipment suppliers, dependence on key personnel and possible
volatility of stock price. Each of Arch and MobileMedia has a history of
operating losses. Arch does not anticipate that it will make any cash
distributions to its stockholders after the Merger and expects to continue to
have a highly leveraged capital structure. See "Risk Factors".
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FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements that are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Any statements contained herein (including, without
limitation, statements to the effect that Arch, MobileMedia, Parent or their
respective managements or boards of directors "believe", "expect",
"anticipate", "plan" and similar expressions) that are not statements of
historical fact should be considered forward-looking statements. A number of
important factors could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, Arch,
MobileMedia, Parent or their respective managements or boards of directors.
Achieving the anticipated benefits of the Merger and the Reorganization will
depend in significant part upon whether the integration of the two companies'
businesses is accomplished in an efficient manner, and there can be no
assurance that this will occur. The combination of the two companies will
require, among other things, coordination of administrative, sales and
marketing, distribution, and accounting and finance functions and expansion of
information and management systems. The integration process could divert the
attention of management, and any difficulties or problems encountered in the
transition process could have a material adverse effect on the Combined Company
following the Merger. In addition, the process of combining the companies could
cause the interruption of, or a loss of momentum in, the activities of the
respective businesses, which could also have a material adverse effect on the
Combined Company. The difficulty of combining the businesses may be increased
by the need to integrate personnel and the geographic distance separating the
organizations. There can be no assurance that Arch will retain key employees or
that Arch will realize any of the other anticipated benefits of the Merger. See
"Risk Factors".
The Combined Company Projections contained herein have been prepared jointly
by Arch and MobileMedia as a projection of possible future results based upon
the assumptions set forth therein, and are dependent on many factors over which
neither Arch nor MobileMedia has any control. No assurance can be given that
any of the assumptions on which the projections are based will prove to be
correct. THE NUMBER OF SHARES OF STOCK TO BE ISSUED IN CONNECTION WITH THE
MERGER AGREEMENT AND THE AMENDED PLAN IS SUBJECT TO ADJUSTMENT BASED UPON THE
MARKET PRICE OF ARCH COMMON STOCK OVER A CERTAIN PERIOD OF TIME AS SET FORTH IN
THE AMENDED PLAN. SEE "THE MOBILEMEDIA PLAN OF REORGANIZATION--CALCULATION OF
SHARES". THE LAST REPORTED SALE PRICE OF ARCH COMMON STOCK WAS $3.875 PER SHARE
ON AUGUST 19, 1998. FOR PURPOSES OF PREPARING THE PROJECTIONS, ARCH HAS ASSUMED
THE MARKET PRICE OF ARCH COMMON STOCK TO BE $8.4375. IN THE EVENT THAT THE
MARKET PRICE OF ARCH COMMON STOCK AT THE RELEVANT TIME FOR DETERMINING SUCH
ADJUSTMENT IS BELOW $8.4375, ADDITIONAL SHARES OF ARCH COMMON STOCK WILL BE
ISSUED. THIS WILL HAVE THE EFFECT OF REDUCING STOCKHOLDERS EQUITY, EARNINGS PER
SHARE AND OTHER IMPORTANT FINANCIAL MEASUREMENTS AS WELL AS INCREASING THE
DILUTION TO ARCH'S STOCKHOLDERS. SEE "RISK FACTORS--UNCERTAINTIES RELATED TO
THE TRANSACTION--USE OF PRO FORMA ASSUMPTIONS", "THE COMBINED COMPANY--
UNAUDITED FINANCIAL PROJECTIONS AND OPERATIONAL COST SYNERGIES". ARCH AND
MOBILEMEDIA DO NOT AS A MATTER OF COURSE MAKE PUBLIC ANY PROJECTIONS AS TO
FUTURE PERFORMANCE OR EARNINGS. THE UNAUDITED COMBINED COMPANY PROJECTIONS
CONTAINED HEREIN (THE "COMBINED COMPANY PROJECTIONS") WERE NOT PREPARED WITH A
VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH (I) PUBLISHED GUIDELINES OF THE
COMMISSION, (II) THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR (III) GAAP. ARTHUR
ANDERSEN LLP, THE INDEPENDENT PUBLIC ACCOUNTANTS FOR ARCH, HAS NEITHER COMPILED
NOR EXAMINED SUCH PROJECTIONS AND, ACCORDINGLY, DOES NOT EXPRESS ANY OPINION OR
ANY OTHER FORM OF ASSURANCE WITH RESPECT TO, ASSUMES NO RESPONSIBILITY FOR AND
DISCLAIMS ANY ASSOCIATION WITH, SUCH PROJECTIONS. ERNST & YOUNG LLP, THE
INDEPENDENT AUDITORS FOR MOBILEMEDIA, HAS NEITHER COMPILED NOR EXAMINED SUCH
PROJECTIONS AND, ACCORDINGLY, DOES NOT EXPRESS ANY OPINION OR ANY OTHER FORM OF
ASSURANCE WITH RESPECT TO, ASSUMES NO RESPONSIBILITY FOR AND DISCLAIMS ANY
ASSOCIATION WITH, SUCH PROJECTIONS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY,
SUCH PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS, WHICH MAY NOT BE
REALIZED, RELATING TO THE FUTURE BUSINESS AND OPERATIONS OF ARCH AND
MOBILEMEDIA AND THE INTEGRATION OF THEIR OPERATIONS AND ARE SUBJECT TO
SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO
PREDICT AND MANY OF WHICH ARE BEYOND THE CONTROL OF ARCH AND MOBILEMEDIA.
NEITHER ARCH, ON THE ONE HAND,
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NOR MOBILEMEDIA OR PARENT, ON THE OTHER HAND, MAKES ANY EXPRESS OR IMPLIED
REPRESENTATION OR WARRANTY AS TO THE ATTAINABILITY OF THE PROJECTED FINANCIAL
INFORMATION SET FORTH IN THE COMBINED COMPANY PROJECTIONS OR AS TO THE ACCURACY
OR COMPLETENESS OF THE ASSUMPTIONS FROM WHICH THAT PROJECTED INFORMATION IS
DERIVED.
FOR A DISCUSSION OF SOME OF THE FACTORS WHICH COULD CAUSE FUTURE RESULTS TO
VARY, SEE "RISK FACTORS".
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RISK FACTORS
In evaluating the proposed Merger, Arch stockholders should carefully
consider the following factors, as well as the other information included in
this Proxy Statement and the Annexes hereto.
UNCERTAINTIES RELATED TO THE TRANSACTION
CHALLENGES OF BUSINESS INTEGRATION
There can be no assurance that the expectations regarding the future
operations of Arch following the Merger described in "The MobileMedia
Proposal--Recommendation of the Arch Board" will be fulfilled. The success of
the Merger will depend in part on the ability of Arch to effectively integrate
the businesses of Arch and MobileMedia. The process of integrating the
businesses of Arch and MobileMedia may involve unforeseen difficulties and may
require a disproportionate amount of time and attention of Arch's management
and financial and other resources of Arch following the Merger. Although it is
anticipated that the Merger will provide the opportunity for synergies and
efficiencies, there can be no assurance as to the timing or amount of
synergies or efficiencies that may ultimately be attained. Certain of the
anticipated benefits of the Merger may not be achieved if Arch's and
MobileMedia's existing operations are not successfully integrated in a timely
manner. The difficulties of such integration may initially be increased by the
necessity of coordinating geographically separate organizations and
integrating personnel with disparate business backgrounds and corporate
cultures. There can be no assurance that Arch will be able to successfully
integrate MobileMedia's operations or, even if successfully integrated, that
Arch's operating performance after the Merger will be successful. If Arch is
not successful in integrating MobileMedia's operations or if the integrated
operations fail to achieve market acceptance, Arch would be materially
adversely affected. In addition, following the Merger, the implementation of
Arch's business strategy will be subject to numerous other contingencies
beyond the control of Arch, including general and regional economic
conditions, interest rates, competition, changes in regulation and the ability
to attract and maintain skilled employees. As a result, no assurance can be
given that the Merger will be successful or that Arch's business strategies
will prove effective or that Arch will achieve its goals after the Merger. See
"Business--Arch--Business Strategy".
CERTAIN RISKS ASSOCIATED WITH THE MERGER
Arch is party to various contractual arrangements, including, without
limitation, credit agreements and indentures, under which the consummation of
the Merger and the other transactions contemplated by the Merger Agreement and
the Amended Plan could (i) result in a breach, violation, default or conflict,
(ii) give other parties thereto rights of termination or cancellation or (iii)
have other adverse consequences for Arch. The magnitude of any such adverse
consequences may depend upon, among other factors, the diligence and vigor
with which other parties to such arrangements may seek to assert any such
rights and pursue any such remedies, and the ability of Arch to resolve such
matters on acceptable terms. Under the indentures governing notes issued by
Arch and its wholly owned subsidiary, Arch Communications, Inc. ("ACI"),
having an aggregate principal balance of approximately $719.5 million as of
July 31, 1998, Arch and ACI would be obligated to offer to repurchase such
notes at the aggregate principal amount of such notes, plus accrued and unpaid
interest and liquidated damages, upon a change of control as defined therein.
Arch believes that consummation of the Merger and the other transactions
contemplated by the Merger Agreement and the Amended Plan will not constitute
such a change in control. Although it is expected that the foregoing matters
will not have a material adverse effect on Arch, there can be no assurance
that the other parties to such agreements and indentures will not allege that
the Merger constitutes either a breach or default or a change in control of
Arch. See "Description of Certain Arch Indebtedness".
TRANSACTION COSTS
Arch estimates that it will incur direct transaction costs of approximately
$25.0 million associated with the Merger. This amount is a preliminary
estimate only and is therefore subject to change. There can be no assurance
that Arch will not incur significant additional costs in connection with the
Merger.
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SUBSTANTIAL AMORTIZATION CHARGES
A significant effect of the purchase accounting for the Merger will be to
record a substantial amount of goodwill and other intangible assets which will
result in substantial amortization charges to the consolidated income of Arch
over the useful lives of such assets. The incremental amount of such charges
is estimated to be approximately $45.6 million per year for ten years;
however, actual charges could vary significantly in the event the underlying
assets are impaired or the related useful lives are less than currently
estimated. See "Unaudited Selected Pro Forma Consolidated Financial Data".
USE OF PRO FORMA ASSUMPTIONS
The number of shares of stock to be issued in connection with the Merger
Agreement and the Amended Plan is subject to adjustment based upon the market
price of Arch Common Stock over a certain period of time as set forth in the
Amended Plan. For purposes of presenting the pro forma condensed consolidated
financial statements included in this Proxy Statement, Arch has assumed the
market price of Arch Common Stock to be $8.4375. On August 19, 1998, the
closing market price of Arch Common Stock was $3.875. In the event that the
market price of Arch Common Stock at the relevant time for determining such
adjustment is below $8.4375, additional shares of Arch Common Stock will be
issued. This will have the effect of reducing stockholders equity, earnings
per share and other important financial measurements as well as increasing the
dilution to Arch's stockholders. See "The MobileMedia Plan of Reorganization--
Calculation of Shares" and "Unaudited Pro Forma Condensed Consolidated
Financial Statements".
RISKS COMMON TO ARCH AND MOBILEMEDIA
GROWTH AND ACQUISITION STRATEGY
Arch believes that the paging industry has experienced, and will continue to
experience, consolidation due to factors that favor larger, multi-market
paging companies, including (i) the ability to obtain additional radio
spectrum, (ii) greater access to capital markets and lower costs of capital,
(iii) broader geographic coverage of paging systems, (iv) economies of scale
in the purchase of capital equipment, (v) operating efficiencies and (vi)
enhanced access to executive personnel.
Arch has pursued, and, if the Merger is consummated, Arch intends for the
Combined Company to continue to pursue, acquisitions of paging businesses as a
key component of its growth strategy. However, the process of integrating
acquired paging businesses may involve unforeseen difficulties and may require
a disproportionate amount of the time and attention of Arch's management. No
assurance can be given that suitable acquisitions can be identified, financed
and completed on acceptable terms, or that any future acquisitions by Arch
will be successful. See "Business--Arch--Paging and Messaging Services,
Products and Operations".
Implementation of Arch's growth strategy will be subject to numerous other
contingencies beyond the control of its management. These contingencies
include national and regional economic conditions, interest rates,
competition, changes in regulation or technology and the ability to attract
and retain skilled employees. Accordingly, no assurance can be given that
Arch's growth strategy will prove effective or that its goals will be
achieved. See "Business--Arch--Business Strategy" and "--Competition".
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Arch's business strategy requires the availability of substantial funds to
finance the continued development and future growth and expansion of its
operations, including possible acquisitions. The amount of capital required by
Arch following the Merger will depend upon a number of factors, including
subscriber growth, the type of paging devices and services demanded by
customers, service revenues, technological developments, marketing and sales
expenses, competitive conditions, the nature and timing of Arch's N-PCS
strategy, acquisition strategies and opportunities. No assurance can be given
that additional equity or debt financing will be available to Arch when needed
on acceptable terms, if at all. The unavailability of sufficient financing
when needed would
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have a material adverse effect on Arch. See "Business--Arch Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Certain Arch
Indebtedness".
COMPETITION AND TECHNOLOGICAL CHANGE
Arch and MobileMedia each face competition from other paging service
providers in all markets in which they operate, as well as from certain
competitors who hold nationwide licenses. Monthly fees for basic paging
services have, in general, declined in recent years, due in part to
competitive conditions, and Arch may face significant price-based competition
in the future which could have a material adverse effect on Arch. Certain
competitors of Arch and MobileMedia possess greater financial, technical and
other resources than will Arch following the Merger. A trend towards
increasing consolidation in the paging industry in particular and the wireless
communications industry in general in recent years has led to competition from
increasingly larger and better capitalized competitors. If any of such
competitors were to devote additional resources to the paging business or
focus on Arch's or MobileMedia's particular markets, there could be a material
adverse effect on Arch following the Merger.
Competitors are currently using and developing a variety of two-way paging
technologies. Neither Arch nor MobileMedia presently provides such two-way
services, other than as a reseller. Although such services generally are
higher priced than traditional one-way paging services, technological
improvements could result in increased capacity and efficiency for such two-
way paging technologies and, accordingly, could result in increased
competition for Arch and/or MobileMedia. Future technological advances in the
telecommunications industry could increase new services or products
competitive with the paging services provided by Arch and MobileMedia or could
require Arch or MobileMedia to reduce the price of their paging services or
incur additional capital expenditures to meet competitive requirements. Recent
and proposed regulatory changes by the FCC are aimed at encouraging such
technological advances and new services. Other forms of wireless two-way
communications technology, including cellular and broadband personal
communications services ("PCS"), and specialized mobile radio services, also
compete with the paging services that Arch and MobileMedia currently provide.
While such services are primarily focused on two-way voice communications,
service providers are, in many cases, electing to provide paging services as
an adjunct to their primary services. Technological change also may affect the
value of the pagers owned by Arch and MobileMedia and leased to their
respective subscribers. If Arch's or MobileMedia's subscribers request more
technologically advanced pagers, including, but not limited to, two-way
pagers, Arch or MobileMedia could incur additional inventory costs and capital
expenditures if required to replace pagers leased to its subscribers within a
short period of time. Such additional investment or capital expenditures could
have a material adverse effect on Arch and MobileMedia. There can be no
assurance that Arch or MobileMedia will be able to compete successfully with
current and future competitors in the paging business or with competitors
offering alternative communication technologies. See "Industry Overview--
Competition".
GOVERNMENT REGULATION, FOREIGN OWNERSHIP AND POSSIBLE REDEMPTION
The paging operations of Arch and MobileMedia are subject to regulation by
the FCC and various state regulatory agencies. The FCC paging licenses granted
to Arch and MobileMedia are for varying terms of up to 10 years, at the end of
which renewal applications must be approved by the FCC. In the past, paging
license renewal applications generally have been granted by the FCC upon a
showing of compliance with FCC regulations and of adequate service to the
public. With the exception of the pending FCC proceeding regarding
MobileMedia's qualifications to remain an FCC licensee, Arch and MobileMedia
are unaware of any circumstances which would prevent the grant of any pending
or future renewal applications; however, no assurance can be given that any of
Arch's or MobileMedia's renewal applications will be free of challenge or will
be granted by the FCC. It is possible that there may be competition for radio
spectrum associated with licenses as they expire, thereby increasing the
chances of third party interventions in the renewal proceedings. Other than
those renewal applications still pending, the FCC has thus far granted each
license renewal application that Arch and MobileMedia have filed. There can be
no assurance that the FCC and various state regulatory
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agencies will not propose or adopt regulations or take actions that would have
a material adverse effect on Arch or MobileMedia or, if the Merger is
consummated, on the Combined Company following the Merger.
The FCC's review and revision of rules affecting paging companies is ongoing
and the regulatory requirements to which Arch and MobileMedia are subject may
change significantly over time. For example, the FCC has decided to adopt a
market area licensing scheme for all paging channels under which carriers
would be licensed to operate on a particular channel throughout a broad
geographic area (for example, a Major Trading Area as defined by Rand McNally)
rather than being licensed on a site-by-site basis. These geographic area
licenses will be awarded pursuant to auction. Incumbent paging licensees that
do not acquire licenses at auction will be entitled to interference protection
from the market area licensee. Arch and MobileMedia are each participating
actively in this proceeding in order to protect their existing operations and
retain flexibility, on an interim and long-term basis, to modify systems as
necessary to meet subscriber demands. The FCC has issued a Further Notice of
Proposed Rulemaking in which the FCC seeks comments on, among other matters,
whether it should impose coverage requirements on licensees with nationwide
exclusivity (such as Arch and MobileMedia), whether these coverage
requirements should be imposed on a nationwide or regional basis, and
whether--if such requirements are imposed--failure to meet the requirements
should result in a revocation of the entire nationwide license or merely a
portion of the license. If the FCC were to impose stringent coverage
requirements on licensees with nationwide exclusivity, Arch and MobileMedia
might have to accelerate the build-out of their systems in certain areas.
Changes in regulation of Arch's and MobileMedia's paging businesses or the
allocation of radio spectrum for services that compete with Arch's and
MobileMedia's business could adversely affect their results of operations. In
addition, some aspects of the Telecommunications Act of 1996 (the
"Telecommunications Act") may place additional burdens upon them or subject
them to increased competition. For example, the FCC has adopted new rules that
govern compensation to be paid to pay phone providers which has resulted in
increased costs for certain paging services including toll-free 800 number
paging. Arch and MobileMedia have generally passed these costs on to their
subscribers, which makes their services more expensive and which could affect
the attraction or retention of customers; however, there can be no assurance
that Arch and MobileMedia will be able to continue to pass on these costs.
These rules are the subject of several judicial appeals. In addition, the FCC
also has adopted new rules regarding payments by telecommunications companies
into a revamped fund that will provide for the widespread availability of
telecommunications services, including to low-income consumers ("Universal
Service"). Prior to the implementation of the Telecommunications Act,
Universal Service obligations largely were met by local telephone companies,
supplemented by long-distance telephone companies. Under the new rules,
certain telecommunications carriers, including Arch and MobileMedia, are
required to contribute to a revised fund created for Universal Service (the
"Universal Service Fund"). In addition, certain state regulatory authorities
have enacted, or have indicated that they intend to enact, similar
contribution requirements based on state revenues. Neither Arch nor
MobileMedia can yet know the impact of these state contribution requirements,
if enacted and applied to Arch and MobileMedia. Moreover, neither Arch nor
MobileMedia is able at this time to estimate the amount of any such payments
that it will be able to bill to their subscribers; however, payments into the
Universal Service Fund will likely increase the cost of doing business.
Moreover, in a rulemaking proceeding pertaining to interconnection between
local exchange carriers ("LECs") and commercial mobile radio services ("CMRS")
providers such as MobileMedia and Arch, the FCC has concluded that LECs are
required to compensate CMRS providers for the reasonable costs incurred by
such providers in terminating traffic that originates on LEC facilities, and
vice versa. Consistent with this ruling, the FCC has determined that LECs may
not charge a CMRS provider or other carrier for terminating LEC-originated
traffic or for dedicated facilities used to deliver LEC-originated traffic to
one-way paging networks. Nor may LECs charge CMRS providers for number
activation and use fees. These interconnection issues are still in dispute,
and it is unclear whether the FCC will maintain its current position.
Depending on further FCC disposition of these issues, Arch and MobileMedia may
or may not be successful in securing refunds, future relief or both, with
respect to charges for termination of LEC-originated local traffic. If these
issues are ultimately resolved by the FCC in Arch's and MobileMedia's favor,
then Arch and MobileMedia will pursue relief through
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settlement negotiations, administrative complaint procedures or both. If these
issues are ultimately decided in favor of the LECs, Arch and MobileMedia
likely would be required to pay all past due contested charges and may also be
assessed interest and late charges for the withheld amounts. Although these
requirements have not to date had a material adverse effect on Arch or
MobileMedia, these or similar requirements could in the future have a material
adverse effect on Arch or MobileMedia. See "Industry Overview--Regulation".
The Communications Act also limits foreign investment in and ownership of
entities that are licensed as radio common carriers by the FCC. Arch and
MobileMedia own or control several radio common carriers and are accordingly
subject to these foreign investment restrictions. Because Arch and MobileMedia
are each individually parents of radio common carriers (but are not radio
common carriers themselves), Arch and MobileMedia are limited to having 25% of
their stock owned or voted by aliens or their representatives, a foreign
government or their representatives or a foreign corporation. The FCC has the
authority to waive this restriction unless the public interest would be served
by denying such waiver. In connection with the World Trade Organization
Agreement (the "WTO Agreement")--agreed to by 69 countries--the FCC adopted
rules effective February 9, 1998 that create a very strong presumption in
favor of such a waiver if the foreign investor's home market country signed
the WTO Agreement. Arch's and MobileMedia's subsidiaries that are radio common
carrier licensees are subject to more stringent requirements and may 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. See "Industry Overview--
Regulation". Arch's Restated Certificate of Incorporation permits the
redemption of shares of Arch's capital stock from foreign stockholders where
necessary to protect FCC licenses held by Arch or its subsidiaries, but such
redemption would be subject to the availability of capital to Arch and any
restrictions contained in applicable debt instruments and under the DGCL
(which currently would not permit any such redemptions). The failure to redeem
such shares promptly could jeopardize the FCC licenses held by Arch or its
subsidiaries (including MobileMedia following the Merger). See "--High Degree
of Leverage After the Merger", "--Competition and Technological Change" and
"Industry Overview--Regulation".
HIGH DEGREE OF LEVERAGE AFTER THE MERGER
Each of Arch and MobileMedia is, and after the consummation of the Merger
Arch expects the Combined Company will continue to be, highly leveraged. At
June 30, 1998, Arch's total debt was $1.0 billion compared with total assets
of $971.5 million and latest six-month annualized EBITDA of $139.5 million.
MobileMedia's total debt was $1.1 billion compared with total assets of $596.4
million and latest six-month annualized EBITDA of $123.8 million at June 30,
1998. After giving effect to the Merger, the sale of MMC's transmission towers
and related real property (the "MobileMedia Tower Site Sale"), the elimination
of indebtedness of MobileMedia as contemplated by the Amended Plan and the
incurrence of additional indebtedness by Arch in connection with the Merger
and the Amended Plan on a pro forma basis (but excluding the impact of
expected operational cost synergies), the Combined Company had long-term debt
of $1.3 billion compared with total assets of $1.8 billion and latest six-
month annualized EBITDA at June 30, 1998 of $250.9 million. See "--Risks
Related to Arch--Arch's Indebtedness and High Degree of Leverage", "Selected
Historical Consolidated Financial and Operating Data--Arch", "--MobileMedia",
and "Unaudited Selected Pro Forma Consolidated Financial Data".
SUBSCRIBER TURNOVER
The results of operations of wireless messaging service providers, such as
Arch and MobileMedia, can be significantly affected by subscriber
cancellations. Since filing for bankruptcy protection, MobileMedia has
experienced a significant decline in subscribers. The sales and marketing
costs associated with attracting new subscribers are substantial relative to
the costs of providing service to existing customers. Because the paging
business is characterized by high fixed costs, disconnections directly and
adversely affect EBITDA. An increase in the subscriber cancellation rate could
have a material adverse effect on Arch or MobileMedia. See "Business--
MobileMedia--Sales and Marketing".
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DEPENDENCE ON THIRD PARTIES
Neither Arch nor MobileMedia manufactures any of the pagers used in their
respective paging operations. Arch and MobileMedia each buy pagers primarily
from Motorola and NEC America Inc. ("NEC") and therefore are dependent on such
manufacturers to obtain sufficient pager inventory for new subscriber and
replacement needs. In addition, Arch and MobileMedia purchase terminals and
transmitters primarily from Glenayre Electronics, Inc. ("Glenayre") and
Motorola and thus are dependent on such manufacturers for sufficient terminals
and transmitters to meet their expansion and replacement requirements. To
date, neither Arch nor MobileMedia (other than, in the case of MobileMedia, in
the period leading up to MobileMedia's bankruptcy filing) has experienced
significant delays in obtaining pagers, terminals or transmitters, but there
can be no assurance that neither Arch nor MobileMedia will not experience such
delays in the future. Arch's purchase agreement with Motorola expires on June
19, 1999, although it contains a provision for automatic renewal for one-year
terms. MobileMedia's agreement with Motorola will expire on February 6, 1999,
although it provides for automatic renewal for one-year terms. In addition, at
the Effective Time, MobileMedia will need to provide Motorola with credit
support in respect of MobileMedia's obligations to Motorola. There can be no
assurance that Arch's or MobileMedia's respective agreements with Motorola
will be renewed or, if renewed, that such agreements will be on terms and
conditions as favorable to Arch or MobileMedia as those under the current
agreements. Although Arch believes that sufficient alternative sources of
pagers, terminals and transmitters exist, there can be no assurance that Arch
would not be materially adversely affected if it were unable to obtain these
items from current supply sources or on terms comparable to existing terms.
See "Business--Arch--Sources of Equipment" and "--MobileMedia--Sources of
Equipment". Finally, Arch and MobileMedia rely on third parties to provide
satellite transmission for some aspects of their paging services. To the
extent there are satellite outages or if satellite coverage is otherwise
impaired, Arch and MobileMedia may experience a loss of service until such
time as satellite coverage is restored, which could have a material adverse
effect on Arch or MobileMedia.
POSSIBLE ACQUISITION TRANSACTIONS
Arch believes that the paging industry will undergo further consolidation,
and Arch expects to participate in such consolidation. Arch has evaluated and
expects to continue to evaluate possible acquisition transactions on an
ongoing basis and at any given time may be engaged in discussions with respect
to possible acquisitions or other business combinations. The process of
integrating acquired paging businesses may involve unforeseen difficulties and
may require a disproportionate amount of the time and attention of Arch's
management and financial and other resources. No assurance can be given that
suitable acquisition transactions can be identified, financed and completed on
acceptable terms, that Arch's future acquisitions will be successful, or that
Arch will participate in any future consolidation of the paging industry. See
"Business--Arch Management's Discussion and Analysis of Financial Condition
and Results of Operations".
DEPENDENCE ON KEY PERSONNEL
The success of Arch 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, or maintain key man life insurance on the
lives of, any of its current executive officers, although certain executive
officers have entered into non-competition agreements and 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. See "Business--Arch Management".
IMPACT OF THE YEAR 2000 ISSUE
Arch is currently upgrading its information systems in a manner which is
also intended to resolve the potential impact of the Year 2000 problem on the
processing of date-sensitive information by Arch's computerized systems and
transmission equipment. The Year 2000 problem is the result of computer
programs being written using two digits (rather than four) to define the
applicable year. Any of Arch's programs that have
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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 customary business activities.
In 1997 Arch designated members of its Information Services and Engineering
departments to assess the impact of the Year 2000 problem on its information
systems and the information systems of its customers, vendors and other
parties that service or otherwise interact with Arch. Data processing for
Arch's major operating systems is conducted in-house using programs developed
primarily by third-party vendors. An assessment of inventory and Year 2000
readiness for all systems and applications has been substantially completed
and most third-party vendors who provide applications to Arch have been
contacted. Arch intends to bring its major operating systems and outsourced
applications into compliance with Year 2000 requirements through the
installation of updated or replacement programs developed by third parties or
by new and enhanced software programs developed internally. Arch currently
believes that it will be able to modify or replace any affected systems by
September 30, 1999 in order to minimize any detrimental effects on Arch's
operations.
Arch expects that it will incur costs to replace existing hardware and
software which will be capitalized and amortized in accordance with Arch's
existing accounting policies, while maintenance or modification costs will be
expensed as incurred. Based on Arch's preliminary estimate of the costs to be
incurred, Arch does not expect that resolution of the Year 2000 problem will
have a material adverse effect on its results of operations and financial
condition. Costs of the Year 2000 project are based on current estimates and
actual results may vary significantly from such estimates. The ability of
third parties with whom Arch transacts business to adequately address their
Year 2000 issues is outside Arch's control. If Arch, its customers or vendors
are unable to resolve Year 2000 issues in a timely manner, there could be a
material adverse effect on Arch.
While MobileMedia is aware that certain of its software and paging systems
require modification, it is in the process of determining the full extent to
which it will be required to modify or replace significant portions of its
software and paging systems so that its systems function properly with respect
to dates in the year 2000 and thereafter. At present MobileMedia does not have
an estimate of the cost that may be incurred to comply with the Year 2000
issue. If such modifications and conversions are not made, or are not
completed on a timely basis, the Year 2000 issue could have a material adverse
effect on the operations of MobileMedia.
NO DIVIDENDS
Neither Arch nor MobileMedia has ever declared or paid cash dividends.
Neither Arch nor MobileMedia intends, and if the Merger is consummated Arch
does not intend, to declare or pay any cash dividends in the foreseeable
future. Certain covenants in the bank credit facility (the "API Credit
Facility") of Arch Paging, Inc. ("API"), an indirect wholly owned subsidiary
of Arch, and in other Arch debt instruments, effectively prohibit the
declaration or payment of cash dividends by Arch for the foreseeable future.
In addition, the terms of the Series C Preferred Stock generally prohibit the
payment of cash dividends on Arch Common Stock unless all accrued and unpaid
dividends on the Series C Preferred Stock are paid in full. See "Market Price
Information and Dividend Policy", "Description of Arch Capital Stock--Arch
Series C Preferred Stock" and "Description of Certain Arch Indebtedness".
HISTORY OF LOSSES
Neither Arch nor MobileMedia has reported any net income since their
respective inceptions. Arch reported net losses of $36.6 million, $114.7
million, $181.9 million and $109.8 million in the fiscal years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1998, respectively.
MobileMedia reported net losses of $41.1 million, $1.1 billion, $124.6 million
and $37.3 million in the years ended December 31, 1995, 1996 and 1997 and the
six months ended June 30, 1998, respectively, and has operated as a debtor-in-
possession under Chapter 11 of the Bankruptcy Code from January 30, 1997 to
the present. For the year ended December 31, 1997 and the six months ended
June 30, 1998, and after giving effect to the Merger, Arch would have
incurred, on a pro forma basis, a loss before extraordinary item of $313.9
million and $154.5 million, respectively.
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For both Arch and MobileMedia, these historical and pro forma net losses
have resulted principally from substantial depreciation and amortization
expense, primarily related to intangible assets and pager depreciation,
interest expense, the impairment of long-lived assets (in the case of
MobileMedia) and other costs of growth. Substantial and increased amounts of
debt are expected to be outstanding for the foreseeable future, which will
result in significant additional interest expense which could have a material
adverse effect on Arch following the Merger. See "--Future Capital Needs;
Uncertainty of Additional Funding" and "--High Degree of Leverage After the
Merger". Arch expects to continue to report net losses for the foreseeable
future, whether or not the Merger is consummated. See "Business--Arch
Management's Discussion and Analysis of Financial Condition and Results of
Operations", "--MobileMedia Management's Discussion and Analysis of Financial
Condition and Results of Operations", Arch's Consolidated Financial Statements
and MobileMedia's Consolidated Financial Statements included elsewhere herein.
VOLATILITY OF TRADING PRICE
The market price of Arch Common Stock is subject to significant fluctuation.
Between July 1, 1997 and June 30, 1998, the reported sale price of Arch Common
Stock on the Nasdaq National Market has ranged from a low of $3.00 per share
to a high of $9.50 per share. The trading price of Arch Common Stock following
the Merger will likely be affected by numerous factors, including the risk
factors set forth herein, as well as prevailing economic and financial trends
and conditions in the public securities markets. During recent periods, share
prices of paging companies such as Arch and Parent have exhibited a high
degree of volatility. Shortfalls in revenues or EBITDA from the levels
anticipated by the public markets could have an immediate and significant
adverse effect on the trading price of Arch Common Stock in any given period.
Such shortfalls may result from events that are beyond Arch's immediate
control and can be unpredictable. The trading price of Arch's shares may also
be affected by developments, including reported financial results and
fluctuations in trading prices of the shares of other publicly held companies
in the paging industry generally, which may not have any direct relationship
with Arch's business or long-term prospects. See "Market Price Information and
Dividend Policy".
RISKS RELATING TO THE COMBINED COMPANY PROJECTIONS
The managements of Arch and MobileMedia have jointly prepared the Combined
Company Projections contained herein in connection with the development of the
Amended Plan to present the projected effects of the Amended Plan and the
transactions contemplated thereby if the Merger is consummated. The Combined
Company Projections assume the Merger, the Amended Plan and the transactions
contemplated thereby will be implemented in accordance with their terms. The
assumptions and estimates underlying such Combined Company Projections are
inherently uncertain and are subject to significant business, economic and
competitive risks and uncertainties that could cause actual results to differ
materially from those projected, including, among others, those enumerated
therein or herein. Accordingly, the Combined Company Projections are not
necessarily indicative of the future financial condition or results of
operations of the Combined Company following the Merger, which may vary
significantly from those set forth in the Combined Company Projections.
Consequently, the projected financial information contained herein should not
be regarded as a representation by Arch, the advisors of Arch, Parent,
MobileMedia, the advisors of Parent and MobileMedia or any other person that
the Combined Company Projections can or will be achieved. See "Forward-Looking
Statements".
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS; POSSIBLE LOSS OF CORPORATE TAX
BENEFITS
It is anticipated that (S)382 of the Tax Code will limit the amount of
income earned by Arch after the Merger that may be offset by Arch's net
operating loss carryforwards and other tax attributes. It is also anticipated
that the net operating loss carryforwards and possibly other tax attributes of
MMC will be substantially reduced as a result of consummation of the Amended
Plan pursuant to (S)382 and (S)108 of the Tax Code. See "The MobileMedia
Proposal--Certain Federal Income Tax Consequences".
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RISKS RELATED TO ARCH
ARCH'S INDEBTEDNESS AND HIGH DEGREE OF LEVERAGE
Arch is highly leveraged. At June 30, 1998, Arch and its subsidiaries had
outstanding $1.0 billion of total debt, including (i) $125.0 million principal
amount of ACI's 9 1/2% Senior Notes due 2004 (the "ACI 9 1/2% Notes"), (ii)
$100.0 million principal amount of ACI's 14% Senior Notes due 2004 (the "ACI
14% Notes"), (iii) $127.5 million principal amount of ACI's 12 3/4% Senior
Notes due 2007 (the "ACI 12 3/4% Notes" and, together with the ACI 9 1/2%
Notes and the ACI 14% Notes, the "ACI Notes"), (iv) $350.5 million (accreted
value) of Arch's 10 7/8% Senior Discount Notes due 2008 (the "Arch Discount
Notes"), (v) $13.4 million principal amount of Arch's 6 3/4% Convertible
Subordinated Debentures due 2003 and (vi) $287.0 million of borrowings under
the API Credit Facility. See "Description of Certain Arch Indebtedness".
Arch's high degree of leverage may have adverse consequences for Arch,
including: (i) if necessary, the ability of Arch to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes, may be impaired or extinguished or such financing may not be
available on acceptable terms, if at all; (ii) a substantial portion of the
EBITDA of Arch will be required to pay interest expense, which will reduce the
funds which would otherwise be available for operations and future business
opportunities; (iii) the API Credit Facility and the indentures (the "Arch
Indentures") under which the ACI Notes are outstanding contain financial and
restrictive covenants, the failure to comply with which may result in an event
of default which, if not cured or waived, could have a material adverse effect
on Arch; (iv) Arch may be more highly leveraged than its competitors which may
place it at a competitive disadvantage; (v) Arch's high degree of leverage
will make it more vulnerable to a downturn in its business or the economy
generally; and (vi) Arch's high degree of leverage may impair its ability to
participate in the future consolidation of the paging industry. In April 1997,
Arch reordered its operating priorities to improve capital efficiency and
strengthen its balance sheet by placing a higher priority on leverage
reduction than subscriber unit growth. As part of its reordered operating
priorities, Arch has implemented various initiatives to reduce capital costs
while sustaining acceptable levels of unit and revenue growth. As a result,
Arch's rate of internal growth in pagers in service has slowed and is expected
to remain below the rates of internal growth previously achieved by Arch, but
Arch has not yet reduced its financial leverage significantly. There can be no
assurance that Arch will be able to reduce its financial leverage
significantly or that Arch will 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 EBITDA, it may be precluded
from incurring additional indebtedness due to cash flow coverage requirements
under existing debt instruments. EBITDA is not a measure defined in GAAP and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. EBITDA, as determined by Arch,
may not necessarily be comparable to similarly titled data of other paging
companies. See "Business--Arch Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Description of Certain Arch
Indebtedness" and Arch's Consolidated Financial Statements and Notes thereto
included elsewhere herein.
LENDER APPROVAL AND MERGER CASH REQUIREMENTS
To fund the estimated cash payments required by the Merger of approximately
$347 million (consisting of $262 million to fund a portion of the cash
payments to MobileMedia's secured creditors and $85 million to fund estimated
administrative expenses, amounts to be outstanding at the Effective Time under
the DIP Credit Agreement and transaction expenses), API and The Bank of New
York (the "Bank"), Toronto Dominion (Texas), Inc., Royal Bank of Canada and
Barclays Bank, PLC have executed a commitment letter for a $200 million
increase to the API Credit Facility (the "API Credit Facility Increase") and
ACI intends to issue $200 million of new senior notes (the "Planned ACI
Notes"). The API Credit Facility Increase is subject to approval by all API
lenders, and there can be no assurance such approval will be granted. In
addition, there can be no assurance that Arch will complete an offering of the
Planned ACI Notes on terms satisfactory to it, if at all. As a result, ACI and
The Bear Stearns Companies, Inc., TD Securities (USA), Inc., the Bank and
Royal Bank of Canada have executed a commitment letter for a $120 million
bridge facility (the "Bridge Facility") which would be available to Arch in
the absence of an offering of the Planned ACI Notes. The Planned ACI Notes,
the Bridge Facility and the Merger each require approval by the Required
Lenders (as defined in the API
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Credit Facility), and there can be no assurance such approval will be granted.
See "Description of Certain Arch Indebtedness--Bridge Facility". If API's
lenders do not grant the foregoing approvals, and Arch is not able to arrange
alternative financing to make the cash payments required by the Merger and
therefore could not consummate the Merger, and Arch's performance was not
otherwise excused, Arch would be liable to pay a fee of $32.5 million to MMC
(the "MobileMedia Breakup Fee"). See "The Merger Agreement--Termination".
API CREDIT FACILITY, BRIDGE FACILITY AND INDENTURE RESTRICTIONS
The API Credit Facility, the Bridge Facility and the Arch Indentures impose
certain operating and financial restrictions on Arch. The API Credit Facility
requires API and, in certain cases, ACI, to maintain specified financial
ratios, among other obligations, including a maximum leverage ratio and a
minimum fixed charge coverage ratio, each as defined in the API Credit
Facility. In addition, the API Credit Facility limits or restricts, among
other things, API's ability to: (i) declare dividends or redeem or repurchase
capital stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and
engage in sale/leaseback transactions; (iv) make loans and investments; (v)
incur indebtedness and contingent obligations; (vi) amend or otherwise alter
debt instruments and other material agreements; (vii) engage in mergers,
consolidations, acquisitions and asset sales; (viii) engage in transactions
with affiliates; and (ix) alter its lines of business or accounting methods.
In addition, the Bridge Facility and the Arch Indentures limit, among other
things: (i) the incurrence of additional indebtedness by Arch and its
Restricted Subsidiaries (as defined therein); (ii) the payment of dividends
and other restricted payments by Arch and its Restricted Subsidiaries; (iii)
asset sales; (iv) transactions with affiliates; (v) the incurrence of liens;
and (vi) mergers and consolidations. 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 API Credit Facility, the Bridge Facility and/or
the Arch Indentures. Upon the occurrence of an event of default under the API
Credit Facility, the Bridge Facility or the Arch Indentures, the creditors
could elect to declare all amounts outstanding, together with accrued and
unpaid interest, to be immediately due and payable. If Arch were unable to
repay any such amounts, the creditors could proceed against the collateral
securing such indebtedness. If the lenders under the API Credit Facility
accelerate 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
the other indebtedness of Arch, including the Arch Notes and any borrowings
under the Bridge Facility. In addition, because the API Credit Facility, the
Bridge Facility and the Arch Indentures limit the ability of Arch to engage in
certain transactions except under certain circumstances, Arch may be
prohibited from entering into transactions that could be beneficial to Arch
including the Merger, which is subject to the approval of the Required Lenders
(as defined under the API Credit Facility). Arch will be incurring additional
indebtedness in connection with the Merger and the Reorganization. See "--
Lender Approval and Merger Cash Requirements" and "Description of Certain Arch
Indebtedness".
POSSIBLE FLUCTUATIONS IN REVENUES AND OPERATING RESULTS
Arch believes that future fluctuations in its revenues and operating results
are possible as the result of many factors, including competition, subscriber
turnover, new service developments and technological change. Arch's current
and planned 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
Arch may be unable to adjust spending in a timely manner to compensate for any
revenue shortfall. Due to the foregoing or other factors, it is possible that
future fluctuations in Arch's revenue or operating results may not meet the
expectations of securities analysts or investors, which may have a material
adverse effect on the price of Arch Common Stock. See "Market Price
Information and Dividend Policy" and "Business--Arch Management's Discussion
and Analysis of Financial Condition and Results of Operations".
DIVISIONAL REORGANIZATION OF ARCH
In June 1998, the Arch Board approved a reorganization of its operations
(the "Divisional Reorganization"). As part of such reorganization, which is
expected to be implemented over a period of 18 to 24 months, Arch plans to
consolidate its seven operating divisions into four operating divisions and
consolidate certain regional administrative support functions, resulting in
various operating efficiencies. Once fully implemented, the Divisional
Reorganization is expected to result in annual cost savings of approximately
$15.0
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million. Arch expects to reinvest a portion of these cost savings to expand
its sales activities. In connection with the Divisional Reorganization, Arch
(i) anticipates a net reduction of approximately 10% of its workforce, (ii)
plans to close certain office locations and redeploy other real estate assets
and (iii) recorded a restructuring charge of $16.1 million in the second
quarter of 1998. The restructuring charge consisted of approximately (i) $9.7
million for employee severance and benefits, (ii) $3.5 million for lease
obligations and terminations and (iii) $2.9 million for the writedown of
related assets. There can be no assurance that the expected cost savings will
be achieved or that the reorganization of Arch's business will be accomplished
smoothly, expeditiously or successfully. The difficulties of such
reorganization may be increased by the need to integrate MobileMedia's
operations in multiple locations and to combine two corporate cultures. The
inability to successfully integrate the operations of MobileMedia would have a
material adverse effect on Arch. See "--Uncertainties Related to the
Transaction--Challenges of Business Integration".
ANTI-TAKEOVER PROVISIONS
The Arch Restated Certificate of Incorporation (the "Arch Certificate") and
By-laws (the "Arch By-laws") include provisions for a classified Board of
Directors, the issuance of "blank check" preferred stock (the terms of which
may be fixed by the Arch Board without further stockholder approval), a
prohibition on stockholder action by written consent in lieu of a meeting and
certain procedural requirements governing stockholder meetings. Arch also has
a stockholders rights plan. In addition, Section 203 of the DGCL will, with
certain exceptions, prohibit Arch from engaging in any business combination
with any "interested stockholder" (as defined therein) for a three-year period
following the date that such stockholder becomes an interested stockholder.
Such provisions may have the effect of delaying, making more difficult or
preventing a change in control or acquisition of Arch. See "Description of
Arch Capital Stock--Anti-Takeover Provisions".
RISKS RELATED TO MOBILEMEDIA
DISRUPTION OF OPERATIONS PRIOR TO AND FOLLOWING BANKRUPTCY FILING
MobileMedia's business operations have been adversely affected by
integration difficulties following its acquisition of MobileComm and Dial
Page, by liquidity problems arising prior to its January 30, 1997 bankruptcy
filing and by the reluctance of some customers and potential customers to do
business with MobileMedia while it operates under Chapter 11. In addition, one
of MobileMedia's primary assets is its experienced employees, who have the
ability to leave MobileMedia and to deprive it of the skill and knowledge
essential for executing its business strategy. Any further deterioration of
MobileMedia's business, or the loss of significant numbers of key employees,
could have a material adverse effect on MobileMedia and, as a result, on Arch
if the Merger is consummated. See "The MobileMedia Plan of Reorganization" and
"Business--MobileMedia".
ASSUMPTIONS REGARDING VALUE OF MOBILEMEDIA ASSETS
For financial reporting purposes, the fair value of the assets of
MobileMedia must be determined as of the Effective Time. Although such
valuation is not presently expected to result in values that are materially
greater or less than the values assumed in the preparation of the unaudited
pro forma condensed consolidated financial statements and the Combined Company
Projections, there can be no assurance with respect thereto. See "Unaudited
Pro Forma Condensed Consolidated Financial Statements" and "The Combined
Company--Unaudited Financial Projections and Operational Cost Synergies".
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA--ARCH
The following table sets forth selected historical consolidated financial
and operating data of Arch Communications Group, Inc. for each of the two
years ended August 31, 1994, the four months ended December 31, 1993 and 1994,
each of the four years ended December 31, 1997 and the six months ended June
30, 1997 and 1998. The selected financial and operating data as of December
31, 1994, 1995, 1996 and 1997 and for each of the three years ended December
31, 1997 have been derived from Arch's audited Consolidated Financial
Statements and Notes thereto. The selected financial and operating data as of
June 30, 1998 and for the six months ended June 30, 1997 and 1998 have been
derived from Arch's unaudited Consolidated Financial Statements and Notes
thereto. The following consolidated financial information should be read in
conjunction with "Business--Arch Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Arch's Consolidated
Financial Statements and Notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, (1) DECEMBER 31, (1) YEAR ENDED DECEMBER 31, JUNE 30,
------------------ ----------------- ----------------------------------------- --------------------
1993 1994 1993 1994 1994 (1) 1995 (1) 1996 1997 1997 1998
-------- -------- ------- -------- -------- --------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Service, rental
and maintenance
revenues........ $ 39,610 $ 55,139 $16,457 $ 22,847 $ 61,529 $ 138,466 $ 291,399 $ 351,944 $ 171,978 $ 184,280
Product sales.... 5,698 12,108 2,912 5,178 14,374 24,132 39,971 44,897 22,290 21,305
-------- -------- ------- -------- -------- --------- --------- --------- --------- ---------
Total revenues... 45,308 67,247 19,369 28,025 75,903 162,598 331,370 396,841 194,268 205,585
Cost of products
sold............ (4,031) (10,124) (2,027) (4,690) (12,787) (20,789) (27,469) (29,158) (14,291) (14,690)
-------- -------- ------- -------- -------- --------- --------- --------- --------- ---------
41,277 57,123 17,342 23,335 63,116 141,809 303,901 367,683 179,977 190,895
Operating
expenses:
Service, rental
and
maintenance.... 9,532 13,123 3,959 5,231 14,395 29,673 64,957 79,836 38,111 40,409
Selling......... 7,307 10,243 3,058 4,338 11,523 24,502 46,962 51,474 26,632 24,244
General and
administrative. 13,123 17,717 5,510 7,022 19,229 40,448 86,181 106,041 51,345 56,516
Depreciation and
amortization... 13,764 16,997 5,549 6,873 18,321 60,205 191,871 232,347 120,167 108,400
Restructuring
charge......... -- -- -- -- -- -- -- -- -- 16,100
-------- -------- ------- -------- -------- --------- --------- --------- --------- ---------
Operating income
(loss).......... (2,449) (957) (734) (129) (352) (13,019) (86,070) (102,015) (56,278) (54,774)
Interest and non-
operating
expenses, net... (2,861) (4,112) (1,132) (1,993) (4,973) (22,522) (75,927) (97,159) (47,715) (51,123)
Equity in loss of
affiliate (2)... -- -- -- -- -- (3,977) (1,968) (3,872) (1,812) (2,219)
-------- -------- ------- -------- -------- --------- --------- --------- --------- ---------
Income (loss)
before income
tax benefit and
extraordinary
item............ (5,310) (5,069) (1,866) (2,122) (5,325) (39,518) (163,965) (203,046) (105,805) (108,116)
Income tax
benefit......... -- -- -- -- -- 4,600 51,207 21,172 10,600 --
-------- -------- ------- -------- -------- --------- --------- --------- --------- ---------
Income (loss)
before
extraordinary
item............ (5,310) (5,069) (1,866) (2,122) (5,325) (34,918) (112,758) (181,874) (95,205) (108,116)
Extraordinary
item (3)........ (415) -- -- (1,137) (1,137) (1,684) (1,904) -- -- (1,720)
-------- -------- ------- -------- -------- --------- --------- --------- --------- ---------
Net income
(loss).......... $ (5,725) $ (5,069) $(1,866) $ (3,259) $ (6,462) $ (36,602) $(114,662) $(181,874) $ (95,205) $(109,836)
======== ======== ======= ======== ======== ========= ========= ========= ========= =========
OTHER OPERATING
DATA:
EBITDA (4)....... $ 11,315 $ 16,040 $ 4,815 $ 6,744 $ 17,969 $ 47,186 $ 105,801 $ 130,332 $ 63,889 $ 69,726
EBITDA margin
(5)............. 27% 28% 28% 29% 28% 33% 35% 35% 35% 37%
Capital
expenditures,
excluding
acquisitions.... $ 20,853 $ 25,657 $ 7,486 $ 15,279 $ 33,450 $ 60,468 $ 165,206 $ 102,769 $ 56,444 $ 59,937
Cash flows
provided by
operating
activities...... $ 8,721 $ 14,781 $ 5,306 $ 4,680 $ 14,155 $ 14,749 $ 37,802 $ 63,590 $ 35,497 $ 43,909
Cash flows used
in investing
activities...... $(30,998) $(28,982) $(7,486) $(34,364) $(55,860) $(192,549) $(490,626) $(102,769) $ (56,444) $ (59,937)
Cash flows
provided by
financing
activities...... $ 11,268 $ 14,636 $11,290 $ 26,108 $ 29,454 $ 179,092 $ 452,678 $ 39,010 $ 22,650 $ 17,613
Pagers in service
at end of
period.......... 254,000 410,000 288,000 538,000 538,000 2,006,000 3,295,000 3,890,000 3,666,000 4,131,000
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF
AUGUST 31, (1) AS OF DECEMBER 31, AS OF
--------------- --------------------------------------- JUNE 30,
1993 1994 1994 1995 1996 1997 1998
------- ------- -------- -------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.......... $ 4,690 $ 6,751 $ 8,483 $ 33,671 $ 43,611 $ 51,025 $ 54,256
Total assets............ 62,209 76,255 117,858 785,376 1,146,756 1,020,720 971,549
Long-term debt, less
current maturities..... 49,748 67,328 93,420 457,044 918,150 968,896 1,003,357
Redeemable preferred
stock.................. -- -- -- 3,376 3,712 -- --
Stockholders' equity
(deficit).............. 1,563 (3,304) 9,368 246,884 147,851 (33,255) 117,429
</TABLE>
- --------
(1) On October 17, 1994, Arch announced that it was changing its fiscal year
end from August 31 to December 31. Arch was required to file a transition
report on Form 10-K with audited financial statements for the period
September 1, 1994 through December 31, 1994 and has elected to include
herein, for comparative purposes, unaudited financial statements for the
periods September 1, 1993 through December 31, 1993 and January 1, 1994
through December 31, 1994.
(2) Represents Arch's share of losses of the Benbow PCS Ventures, Inc. since
Arch's acquisition of Westlink Holdings, Inc. in May 1996. See "Business--
Arch Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".
(3) Reflects extraordinary charge resulting from prepayment of indebtedness.
See "Business--Arch Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations".
(4) EBITDA is a commonly used measure of financial performance in the paging
industry and is also one of the financial measures used to calculate
whether Arch and its subsidiaries are in compliance with covenants under
their respective indebtedness, but should not be construed as an
alternative to operating income or cash flows from operating activities as
determined in accordance with GAAP. EBITDA, as determined by Arch, may not
necessarily be comparable to similarly titled data of other paging
companies. EBITDA does not reflect restructuring charge, equity in loss of
affiliate, income tax benefit, interest and non-operating expenses, net
and extraordinary items.
(5) Calculated by dividing EBITDA by total revenues less cost of products
sold. EBITDA margin is a measure commonly used in the paging industry to
evaluate a company's EBITDA relative to total revenues less cost of
products sold as an indicator of the efficiency of a company's operating
structure.
23
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA--MOBILEMEDIA
The following table sets forth selected historical consolidated financial
data of MobileMedia Communications, Inc. and Subsidiaries ("MobileMedia") and
Metromedia Paging Services ("Predecessor") for each of the five years ended
December 31, 1997 and the six months ended June 30, 1997 and 1998. The
historical financial data presented under consolidated statements of
operations data and consolidated balance sheet data for each of the five years
ended December 31, 1997 have been derived from MobileMedia's and the
Predecessor's audited consolidated financial statements. The selected
financial and operating data as of June 30, 1998 and for the six months ended
June 30, 1997 and 1998 have been derived from MobileMedia's unaudited
consolidated financial statements.
<TABLE>
<CAPTION>
(UNAUDITED)
ELEVEN SIX MONTHS
MONTHS ONE MONTH ENDED
ENDED ENDED YEAR ENDED DECEMBER 31, JUNE 30,(9)
NOVEMBER 30, DECEMBER 1, ----------------------------------------------- -----------------------
1993 1993(1) 1994 1995(2) 1996(3) 1997 1997 1998
------------ ----------- ---------- ---------- ----------- ---------- ---------- -----------
PREDECESSOR MOBILEMEDIA
------------ -------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Total revenues... $ 173,761 $ 15,058 $ 203,149 $ 252,996 $ 640,710 $ 527,392 $ 275,468 $ 228,903
Cost of products
sold............ (20,170) (522) (18,705) (26,885) (72,595) (35,843) (16,948) (10,774)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
153,591 14,536 184,444 226,111 568,115 491,549 258,520 218,129
Services, rents
and maintenance,
selling, and
general and
administrative
expenses(4)..... 123,727 11,125 136,672 164,037 459,474 388,476 212,325 156,240
Impairment of
long lived
assets(5)....... -- -- -- -- 792,478 -- -- --
Restructuring
costs(6)........ -- -- -- -- 4,256 19,811 10,952 9,250
Depreciation and
amortization.... 47,919 4,880 67,651 71,408 348,698 140,238 71,168 60,748
Parent company
cost
allocations..... 7,267 -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Operating loss... (25,322) (1,469) (19,879) (9,334) (1,036,791) (56,976) (35,925) (8,109)
Other income
(expense)
Interest expense. (4,914) (1,461) (18,237) (31,745) (92,663) (67,611) (35,467) (29,113)
(Loss) gain on
sale of assets.. -- -- 1,049 -- 68 3 -- (47)
Other............ (405) -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Total other
income
(expense)...... (5,319) (1,461) (17,188) (31,745) (92,595) (67,608) (35,467) (29,160)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Loss before
income tax
benefit......... (30,641) (2,930) (37,067) (41,079) (1,129,386) (124,584) (71,392) (37,269)
Income tax
benefit......... 7,328 -- -- -- 69,442 -- -- --
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Net loss......... $ (23,313) $ (2,930) $ (37,067) $ (41,079) $(1,059,944) $ (124,584) $ (71,392) $ (37,269)
========== ========== ========== ========== =========== ========== ========== ==========
OTHER DATA
EBITDA(7)........ $ 22,597 $ 3,411 $ 47,772 $ 62,074 $ 108,641 $ 103,073 $ 46,195 $ 61,889
EBITDA margin(8). 14.7% 23.5% 25.9% 27.5% 19.1% 21.0% 17.9% 28.4%
Units in service
(at end of
period)......... 1,196,079 1,205,233 1,447,352 2,369,101 4,424,107 3,440,342 3,973,760 3,241,740
Capital
expenditures.... $ 31,480 $ 3,250 $ 65,574 $ 86,163 $ 161,861 $ 40,556 $ 23,756 $ 15,569
Cash flows
provided by
(used in)
operating
activities...... $ 27,737 $ 8,381 $ 53,781 $ 43,849 $ 57,194 $ 14,920 $ (13,741) $ 26,208
Cash flows used
in investing
activities...... $ (31,773) $ (320,753) $ (50,878) $ (312,698) $(1,028,321) $ (40,556) $ (23,756) $ (15,569)
Cash flows
provided by
(used in)
financing
activities...... $ 4,036 $ 314,700 -- $ 671,794 $ 586,111 $ 13,396 $ 18,396 $ (10,000)
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------ AS OF
JUNE 30,
1993 1994 1995 1996 1997 1998
----------- ---------- ---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
BALANCE SHEET
DATA
Total assets..... $ 356,744 $ 353,703 $1,128,546 $ 790,230 $ 655,134 $ 596,363
Debt............. 181,992 195,677 476,156 1,074,196 1,075,681 1,075,681
Total
stockholders'
equity
(deficit)....... 138,567 101,500 578,753 (468,391) (589,579) (626,848)
</TABLE>
24
<PAGE>
- --------
(1) Parent completed the acquisition of Predecessor on November 30, 1993 for
a purchase price of $308.1 million.
(2) MobileMedia completed its acquisition of the paging and wireless
messaging business of Dial Page on August 31, 1995 for a purchase price
of $187.4 million. The Consolidated Statement of Operations Data includes
Dial Page's results of operations from that date. (See Note 3 to
MobileMedia's Consolidated Financial Statements and "Business--
MobileMedia--Events Leading Up to MobileMedia's Bankruptcy Filings".)
(3) MobileMedia completed the MobileComm Acquisition on January 4, 1996 for a
purchase price of $928.7 million. The Consolidated Statement of
Operations Data includes MobileComm results of operations from that date.
(See Note 3 to MobileMedia's Consolidated Financial Statements and
"Business--MobileMedia--Events Leading Up to MobileMedia's Bankruptcy
Filings".)
(4) Includes non-recurring adjustments to record executive separation
expenses of $2.5 million in 1994 and $0.7 million in 1995.
(5) Includes non-recurring adjustment to record, effective December 31, 1996,
a $792.5 million write-down of intangible assets based upon MobileMedia's
determination that an impairment of long-lived assets existed pursuant to
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (See Note 2 to MobileMedia's Consolidated Financial Statements).
(6) Includes non-recurring adjustments to record restructuring costs related
to MobileMedia's bankruptcy filing on January 30, 1997.
(7) EBITDA represents earnings before other income (expense), taxes,
depreciation, amortization and restructuring costs. Other income
(expense) consists primarily of interest expense. EBITDA for the
Predecessor includes parent company cost allocations. EBITDA is a
financial measure commonly used in MobileMedia's industry and should not
be construed as an alternative to operating income (as determined in
accordance with GAAP), as an alternative to cash flows from operating
activities (as determined in accordance with GAAP) or as a measure of
liquidity. EBITDA is, however, the primary financial measure by which
MobileMedia's covenants are calculated under the agreements governing
MobileMedia's indebtedness. EBITDA in 1996 excludes the impact of the
$792.5 million writedown of intangible assets. EBITDA, as determined by
MobileMedia, may not necessarily be comparable to similarly titled data
of other paging companies.
(8) Calculated by dividing EBITDA by total revenues less cost of products
sold. EBITDA margin is a measure commonly used in the paging industry to
evaluate a company's EBITDA relative to total revenues less cost of
products sold as an indicator of the efficiency of a company's operating
structure. EBITDA margin in 1996 excludes the impact of the $792.5
million writedown of intangible assets.
(9) The interim financial information as of June 30, 1998 and the six months
ended June 30, 1997 and 1998 contained herein is unaudited but, in the
opinion of management, includes all adjustments of a normal recurring
nature that are necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods
presented. Results of operations for the interim periods presented are
not necessarily indicative of results of operations for the entire year
or any future period.
25
<PAGE>
UNAUDITED SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected pro forma financial information is derived from the
unaudited pro forma condensed consolidated financial information appearing
elsewhere herein, which gives effect to the Merger as a purchase along with
the MobileMedia Tower Site Sale and should be read in conjunction with such
pro forma financial statements and the notes thereto. The financial impact of
expected operational cost synergies resulting from the Merger are excluded
from this presentation. See "The Combined Company".
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 Merger had been consummated or of the future
operating results or financial position of Arch following the Merger.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1997 JUNE 30, 1998
------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service, rental and maintenance revenues............ $ 831,285 $ 393,900
Product sales....................................... 81,115 35,099
--------- ---------
Total revenues...................................... 912,400 428,999
Cost of products sold............................... (65,001) (25,464)
--------- ---------
847,399 403,535
Operating expenses:
Service rental and maintenance..................... 219,522 97,097
Selling............................................ 121,018 55,704
General and administrative......................... 285,640 125,268
Depreciation and amortization...................... 417,631 191,668
Restructuring charge............................... -- 16,100
--------- ---------
Operating income (loss)............................. (196,412) (82,302)
Interest and non-operating expenses, net............ (138,618) (72,184)
--------- ---------
Income (loss) before income tax benefit and extraor-
dinary item........................................ (335,030) (154,486)
Income tax benefit.................................. 21,172 --
--------- ---------
Income (loss) before extraordinary item............. $(313,858) $(154,486)
========= =========
OTHER OPERATING DATA:
EBITDA(1)........................................... $ 221,219 $ 125,466
EBITDA margin(2).................................... 26% 31%
Capital expenditures, excluding acquisitions........ 143,325 75,506
Pagers in service at end of period(3)............... 7,130,000 7,172,000
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1998
----------
<S> <C>
BALANCE SHEET DATA:
Current assets...................................................... $ 115,768
Total assets........................................................ 1,838,100
Long-term debt, less current maturities............................. 1,325,357
Stockholders' equity................................................ 322,318
</TABLE>
- --------
(1) EBITDA is a commonly used measure of financial performance in the paging
industry and is also one of the financial measures used to calculate
whether Arch and its subsidiaries are in compliance with covenants under
their respective indebtedness, but should not be construed as an
alternative to operating income or cash flows from operating activities as
determined in accordance with GAAP. EBITDA, as determined by Arch, may not
necessarily be comparable to similarly titled data of other paging
companies. EBITDA does not reflect restructuring charge, equity in loss of
affiliate, income tax benefit, interest and non-operating expenses, net
and extraordinary items.
(2) Calculated by dividing EBITDA by total revenues less cost of products
sold. EBITDA margin is a measure commonly used in the paging industry to
evaluate a company's EBITDA relative to total revenues less cost of
products sold as an indicator of the efficiency of a company's operating
structure.
(3) Consolidated pagers in service is calculated by adding the Arch and
MobileMedia amounts less an elimination for intercompany pagers in
service.
26
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth, as of the dates and for the periods
indicated, selected historical per share data of Arch and MobileMedia and the
corresponding pro forma equivalent per share amounts after giving effect to
the Merger. The pro forma information gives effect to the Merger accounted for
as a purchase, assuming that 52,118,000 shares of Arch Combined Common Stock
were issued with a market price of $8.4375 per share. See "Risk Factors--
Uncertainties Related to the Transaction--Use of Pro Forma Assumptions". The
data presented are based upon the audited and unaudited historical financial
statements and related notes thereto of Arch and MobileMedia which are
included elsewhere herein, and the Unaudited Pro Forma Condensed Consolidated
Financial Statements which are included elsewhere herein. This information
should be read in conjunction with such historical and pro forma financial
statements and related notes thereto. The unaudited pro forma consolidated
financial data are not necessarily indicative of the results that would have
occurred if the Merger had been consummated as of the beginning of the
earliest period presented.
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1997 JUNE 30, 1998
------------ -------------
<S> <C> <C>
Arch Historical:
Income (loss) before extraordinary item........... $(8.77) $(5.17)
Extraordinary item................................ -- (0.08)
Net income (loss)................................. (8.77) (5.25)
Book value (1).................................... (1.59) (5.57)
MobileMedia Historical: (4)
Pro forma Consolidated--Arch and MobileMedia (2):
Income (loss) before extraordinary item........... (4.31) (2.12)
Extraordinary item................................ -- (0.02)
Net income (loss)................................. (4.31) (2.14)
Book value (3).................................... 6.53 4.40
</TABLE>
- --------
(1) Historical book value per share is computed by dividing total
stockholders' equity (deficit) by the number of shares of Arch Common
Stock outstanding at the end of the period.
(2) Pro forma consolidated net income (loss) per share is computed by dividing
pro forma net income (loss) by the weighted average number of shares of
Arch Common Stock after giving effect to the issuance of Arch Common Stock
in the Merger, at an assumed market price of $8.4375 per share, having an
aggregate value of approximately $439.7 million.
(3) Pro forma consolidated book value per share is computed by dividing pro
forma consolidated stockholders' equity (deficit) by the number of shares
of Arch Common Stock outstanding after giving effect to the issuance of
Arch Common Stock in the Merger, at an assumed market price of $8.4375 per
share, having an aggregate value of approximately $439.7 million.
(4) The historical per share data for MobileMedia is not presented since MMC
is a wholly-owned subsidiary of Parent with a de minimis number of shares
of common stock issued and outstanding and therefore this information is
not considered meaningful.
27
<PAGE>
MARKET PRICE INFORMATION AND DIVIDEND POLICY
Arch Common Stock is traded on the Nasdaq National Market under the symbol
"APGR". Parent's common stock is not listed on the Nasdaq National Market or
any other stock exchange. Arch Common Stock began trading on the Nasdaq
National Market in 1993. The following table sets forth for the periods
indicated the high and low reported sale prices per share of Arch Common Stock
on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1996
First Quarter.......................................... $27.125 $19.125
Second Quarter......................................... $27.125 $17.875
Third Quarter.......................................... $19.75 $11.50
Fourth Quarter......................................... $13.875 $ 8.25
FISCAL 1997
First Quarter.......................................... $10.00 $ 3.75
Second Quarter......................................... $ 8.375 $ 3.75
Third Quarter.......................................... $ 9.50 $ 5.875
Fourth Quarter......................................... $ 9.125 $ 4.125
FISCAL 1998
First Quarter.......................................... $ 6.125 $ 3.00
Second Quarter......................................... $ 6.938 $ 3.50
Third Quarter (through , 1998)................. $ $
</TABLE>
On August 19, 1998, Arch publicly announced it was engaged in negotiations
to acquire Parent and, on August 20, 1998, Arch announced it had entered into
the Merger Agreement. The high and low reported sale prices per share of Arch
Common Stock on the Nasdaq National Market were $4.00 and $3.375,
respectively, on August 18, 1998 and were $3.8125 and $4.75, respectively, on
August 19, 1998. The last reported sale price per share of the Arch Common
Stock on August 19, 1998 was $3.85. Based upon the last reported sale price of
Arch Common Stock on August 19, 1998, and assuming an equivalence in value
between Arch Common Stock and Class B Common Stock, the shares of Arch
Combined Common Stock to be issued in connection with the Merger would have a
market value of $202.0 million. Based upon the estimated market price per
share of $8.4375 used to prepare the pro forma condensed consolidated
financial statements, the shares of Arch Common Stock to be issued in
connection with the Merger would have a market value of $439.7 million.
Because the market price of Arch Common Stock is subject to fluctuation, the
market value of the shares of Arch Combined Common Stock that the Unsecured
Creditors will receive in connection with the Merger may increase or decrease
significantly prior to the Merger. See "MobileMedia Plan of Reorganization--
Calculation of Shares".
On the Record Date, Arch had stockholders of record. The number of record
holders may not be representative of the number of beneficial holders because
many shares are held by depositaries, brokers or other nominees.
Neither Arch nor Parent has ever declared or paid any cash dividends on its
capital stock. Arch anticipates that 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 on Arch Common
Stock. Arch's future dividend policy will depend on its earnings, capital
requirements and financial condition, requirements of the financing agreements
to which it is then a party and other factors considered relevant by the Arch
Board. The API Credit Facility prohibits declaration or payment of cash
dividends to Arch stockholders without the written consent of a majority of
the lenders during the term of the credit agreement and until all obligations
under the credit agreement have been met. The Arch Indentures only permit the
declaration or payment of cash dividends subject to certain leverage and cash
flow requirements (which Arch does not currently meet). In addition, the terms
of the Series C Preferred Stock of Arch generally prohibit the payment of cash
dividends on Arch Common Stock unless all accrued dividends due with respect
to the Series C Preferred Stock have been paid in full. See "Description of
Arch Capital Stock" and "Description of Certain Arch Indebtedness".
28
<PAGE>
STOCKHOLDINGS BEFORE AND AFTER THE MERGER
The number of shares of Arch Combined Common Stock and Arch Warrants to be
issued in the Merger will be determined by reference to the Arch Common Stock
Price (as defined herein). Based upon the capitalization of Arch as of June
30, 1998, if the Merger is approved and becomes effective, Arch stockholders
who collectively own, on an as-converted basis, 100% of the outstanding Arch
Common Stock immediately prior to the Effective Time will own, on an as-
converted basis, approximately 31% to 34% of the outstanding Arch Common Stock
at the Effective Time (approximately 34% to 37% on a Fully Diluted Basis), and
the Unsecured Creditors (including the Standby Purchasers), their successors
and/or their assigns will collectively own, on an as-converted basis,
approximately 66% to 69% of the outstanding Arch Common Stock at the Effective
Time (approximately 63% to 66% on a Fully Diluted Basis). See Footnote 11 to
the Unaudited Pro Forma Condensed Consolidated Financial Statements and "The
MobileMedia Plan of Reorganization--Calculation of Shares" for additional
information about the range of shares that may be issued in connection with
the Merger and the Reorganization.
29
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of Arch Common Stock and
Series C Preferred Stock in connection with the solicitation of proxies by the
Arch Board for use at the Special Meeting and any adjournments or
postponements thereof. Each copy of this Proxy Statement mailed to holders of
Arch Common Stock or Series C Preferred Stock is accompanied by a form of
proxy for use at the Special Meeting.
This Proxy Statement and the accompanying form of proxy are first being
mailed to stockholders of Arch on or about , 1998.
ARCH STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY CARD AND RETURN IT PROMPTLY TO ARCH IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the holders of Arch Common Stock and Series C
Preferred Stock eligible to vote will be asked the following:
1. To consider and vote upon the MobileMedia Proposal.
2. To consider and vote upon the Charter Amendment Proposal.
THE APPROVAL OF BOTH THE MOBILEMEDIA PROPOSAL AND THE CHARTER AMENDMENT
PROPOSAL IS CONDITIONED UPON APPROVAL OF BOTH SUCH PROPOSALS. ACCORDINGLY,
A VOTE AGAINST EITHER OF THESE PROPOSALS WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST BOTH SUCH PROPOSALS.
3. To approve the Option Plan Proposal.
4. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
ARCH BOARD OF DIRECTORS RECOMMENDATION
The Arch Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby and recommends a vote FOR the MobileMedia
Proposal, the Charter Amendment Proposal and the Option Plan Proposal.
DATE, TIME AND PLACE
The Special Meeting is scheduled to be held on , , 1998 at 10:00 a.m.,
local time, at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109.
RECORD DATE; SHARES OUTSTANDING
The Arch Board has fixed the close of business on , 1998 as the Record
Date for the determination of Arch stockholders entitled to notice of and to
vote at the Special Meeting and at any adjournments or postponements thereof.
On the Record Date, there were shares of Arch Common Stock outstanding, no
shares of Class B Common Stock outstanding and 250,000 shares of Series C
Preferred Stock outstanding, held by stockholders of record in the
aggregate.
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VOTING AT THE SPECIAL MEETING
The presence, either in person or by proxy, of the holders of a majority of
the shares of Arch Common Stock and Series C Preferred Stock (calculated on an
as-converted basis together as a single class) issued and outstanding and
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting.
The affirmative vote of a majority of the shares of Arch Common Stock and
Series C Preferred Stock (voting on an as-converted basis together as a single
class) present or represented at the Special Meeting is required to approve
each of the matters to be considered at the Special Meeting, except that the
affirmative vote of a majority of the outstanding shares of Arch Common Stock
and Series C Preferred Stock (voting on an as-converted basis together as a
single class) is necessary to approve the Charter Amendment Proposal. Each
share of Arch Common Stock is entitled to one vote on all matters presented at
the Special Meeting, and each share of Series C Preferred Stock is currently
entitled to 18 2/9 votes per share on all matters presented at the Special
Meeting. See "Description of Arch Capital Stock--Arch Series C Preferred
Stock". The approval of the MobileMedia Proposal is required by the rules of
the NASD governing corporations with securities approved for quotation on the
Nasdaq National Market.
If a stockholder attends the Special Meeting, such stockholder may vote by
ballot. However, many of Arch's stockholders may be unable to attend the
Special Meeting. Therefore, the Arch Board is soliciting proxies so that each
holder of Arch Common Stock and Series C Preferred Stock on the Record Date
has the opportunity to vote on the proposals to be considered at the Special
Meeting. When a proxy is returned properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If an Arch stockholder does not return a signed proxy card, such
stockholder's shares will not be voted. Stockholders are urged to mark the
boxes on the proxy card to indicate how their shares are to be voted. If a
holder of Arch Common Stock or Series C Preferred Stock returns a signed proxy
card, but does not indicate how such stockholder's shares are to be voted, the
shares represented by the proxy will be voted FOR approval of the MobileMedia
Proposal, the Charter Amendment Proposal and the Option Plan Proposal. The
proxy also confers discretionary authority on the persons appointed by the
Arch Board and named on the proxy to vote the shares represented thereby on
any other matter that may properly arise at the Special Meeting in accordance
with the judgment of such persons.
The Special Meeting may be adjourned, and additional proxies solicited, if
the vote necessary to approve a proposal has not been obtained. Any
adjournment of the Special Meeting will require the affirmative vote of the
holders of at least a majority of the voting power of the shares represented,
whether in person or by proxy, of the Special Meeting (regardless of whether
these shares constitute a quorum).
Any Arch stockholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Secretary
of Arch at 1800 West Park Drive, Suite 250, Westborough, Massachusetts 01581,
(ii) executing a subsequent proxy or (iii) appearing in person and voting at
the Special Meeting. Attendance at the Special Meeting will not in and of
itself constitute revocation of a proxy.
As of the date of this Proxy Statement, the Arch Board does not know of any
other matters to be presented for action by Arch stockholders at the Special
Meeting. If, however, any other matters not now known are properly brought
before the Special Meeting, the persons appointed as the named proxies will
have discretion to vote or act thereon according to their best judgment.
SOLICITATION OF PROXIES
All expenses of Arch's solicitation of proxies, including the cost of
preparing and mailing this Proxy Statement, will be borne by Arch. In addition
to solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of Arch in person or by telephone, telecopy, telegram
or other means of communication. Such directors, officers and employees
soliciting proxies will not be additionally compensated, but may be reimbursed
for reasonable out-of-pocket expenses incurred in connection with such
solicitation. Arch intends to retain MacKenzie Partners, Inc., a proxy
solicitation firm, for assistance in connection with the Special
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Meeting at an estimated expense of approximately $10,000, plus reasonable out-
of-pocket expenses. Arrangements will also be made with custodians, nominees
and fiduciaries for forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians, nominees and fiduciaries,
and Arch will reimburse such persons for reasonable expenses incurred in
connection therewith.
EFFECT OF ABSTENTIONS AND "BROKER NON-VOTES"
At the Special Meeting, abstentions and "broker non-votes" will be counted
for purposes of determining the presence or absence of a quorum. In
determining whether the MobileMedia Proposal and the Option Plan Proposal have
received the requisite number of affirmative votes, abstentions and broker
non-votes will not be counted as votes in favor of such matters, and also will
not be counted as shares voting on such matters. Accordingly, abstentions and
broker non-votes will have no effect on the outcome of such votes. In
determining whether the Charter Amendment Proposal has received the requisite
number of affirmative votes, abstentions and broker non-votes will not be
counted as votes in favor of such matter. Accordingly, abstentions and broker
non-votes will have the effect of a vote against the Charter Amendment
Proposal.
APPRAISAL RIGHTS
Holders of Arch Common Stock and Series C Preferred Stock will not be
entitled to any appraisal rights in connection with the matters to be voted
upon at the Special Meeting. See "The MobileMedia Proposal--Appraisal Rights".
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ITEM 1 -- THE MOBILEMEDIA PROPOSAL
BACKGROUND OF THE MERGER
In furtherance of its strategic objective to strengthen its position as a
leading nationwide paging company, Arch has completed 33 acquisitions of other
paging companies since its inception in 1986. Senior management of Arch
regularly engages in discussions of potential acquisitions with third parties.
Prior to its bankruptcy proceeding, MobileMedia had also engaged in several
acquisitions of paging companies.
At various times during 1995 and 1996, the then Chief Executive Officer of
MobileMedia and C. Edward Baker, Jr., Arch's Chairman and Chief Executive
Officer, informally discussed opportunities for a possible business
combination involving the two companies. In December 1996, Arch executed a
non-disclosure agreement with MobileMedia, received confidential information
about MobileMedia's operations and began to explore on a more formal basis a
potential business combination with MobileMedia. In January 1997, Arch engaged
Bear Stearns as its financial advisor to explore a variety of strategic
consolidation opportunities, including the possibility of a business
combination involving MobileMedia. These discussions terminated prior to
MobileMedia filing for bankruptcy protection in January 1997 without Arch
making any formal proposal.
During the summer of 1997, MobileMedia, through The Blackstone Group, L.P.,
its financial advisor ("Blackstone"), solicited acquisition proposals from a
number of third parties, including Arch. During this process, Arch reviewed
various operational and financial information provided by MobileMedia, and
conducted a due diligence investigation with respect to MobileMedia's
business, including a meeting with MobileMedia's executives held at
Blackstone's offices on June 9, 1997. By letter dated September 24, 1997, Arch
made a preliminary proposal to acquire MobileMedia for $300 million of senior
notes, $200 million of preferred stock, and Arch Common Stock which would have
represented approximately 32% of the outstanding shares of Arch Common Stock
(on an as-converted basis) following such issuance. Bear Stearns, on behalf of
Arch, and Blackstone, on behalf of MobileMedia, continued to negotiate
possible changes or enhancements to Arch's preliminary proposal through
December 1997. In October 1997, the Chairman--Restructuring of MobileMedia met
with the Chief Executive Officer of Arch to discuss a possible business
combination. In December 1997, Arch was informed that MobileMedia had
determined to pursue a different strategy and formal discussions between Arch
and MobileMedia concerning a potential business combination were terminated.
Thereafter, certain unsecured creditors of MobileMedia engaged in informal
discussions with Bear Stearns about a potential business combination between
MobileMedia and Arch. These discussions focused upon the amount of
indebtedness Arch would be willing to incur, as well as the type and amount of
equity securities that Arch would be willing to issue, in connection with such
a transaction.
Following the filing of the original plan of reorganization by MobileMedia
on January 27, 1998 providing for the continued operation of MobileMedia as a
stand-alone entity (the "Original Plan"), Bear Stearns contacted Blackstone
and Houlihan, Lokey, Howard & Zukin ("HLH&Z"), the financial advisor to the
Unsecured Creditors Committee. As a result of such discussions, Arch agreed to
make an acquisition proposal, subject to the support of the Unsecured
Creditors Committee.
At a March 4, 1998 meeting of the Arch Board, Arch management and Bear
Stearns made presentations concerning the status of negotiations with
MobileMedia, and the directors authorized submission of an acquisition
proposal.
On March 17, 1998, Arch, the Unsecured Creditors Committee, W.R. Huff and
the Northwestern Mutual Life Insurance Company ("Northwestern Mutual")
executed a term sheet relating to an acquisition of MobileMedia by Arch for
consideration consisting of $300 million in cash and/or senior notes (at
Arch's election), the assumption of up to $30 million in administrative claims
and liabilities under the DIP Credit Agreement, shares of Arch Common Stock
equivalent to 70% of the pro forma Combined Company, and warrants to purchase
Arch Common Stock equivalent to 3.5% of the pro forma Combined Company
(concurrent with the issuance of identical warrants to existing Arch
stockholders for the purchase of 8.5% of the pro forma
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Combined Company). This proposal was subject to a number of conditions,
including the satisfactory completion of due diligence, the negotiation of
definitive agreements and the consent of Arch's lenders. Pursuant to the term
sheet, for a period of 30 days Arch and the Unsecured Creditors Committee each
agreed to use its best efforts to accomplish the proposed transaction, and
each of Arch, W.R. Huff, Northwestern Mutual and the Unsecured Creditors
Committee (subject to its fiduciary duties) agreed not to pursue any
alternative proposal.
By letter dated March 17, 1998 to Parent and Blackstone, Arch proposed an
acquisition of MobileMedia on the terms set forth in the term sheet executed
by Arch, the Unsecured Creditors Committee, W.R. Huff and Northwestern Mutual.
On March 30, 1998, Mr. Baker and John B. Saynor, Executive Vice President of
Arch, together with Arch's financial and legal advisors, met with certain
members of the executive management of MobileMedia, members of the Unsecured
Creditors Committee, and certain secured creditors of MobileMedia, and their
respective financial and legal advisors, to discuss the March 17, 1998 Arch
proposal. Following this meeting, it was agreed that each of Arch and
MobileMedia would conduct due diligence on the other's operations, primarily
to identify and quantify potential operational cost synergies that Arch
indicated in its proposal would likely result from a business combination.
Over the next several weeks, executives of each of Arch and MobileMedia
exchanged information and met on a number of occasions to review business
synergies and operational and technical integration issues. In addition,
Arch's financial advisor continued negotiations with the financial advisors to
MobileMedia, the secured creditors and the Unsecured Creditors Committee, and
their respective legal advisors commenced due diligence reviews.
On April 17, 1998, the financial advisors for the secured creditors and the
Unsecured Creditors Committee met with the senior management of Arch and
MobileMedia, together with their respective financial advisors, to review
Arch's and MobileMedia's estimated operational cost synergies believed likely
to result from a combination of the businesses by each respective senior
management team. By letter dated April 24, 1998, Arch informed MobileMedia
that it had substantially completed its business due diligence, confirmed the
terms of its proposal and indicated it was prepared to negotiate expeditiously
the requisite legal documentation to proceed with the acquisition. On April
24, 1998, Arch's counsel forwarded to MobileMedia's counsel a proposed merger
agreement.
From April 17, 1998 through June 12, 1998, Arch and Bear Stearns held
ongoing discussions with MobileMedia, Blackstone, various secured creditors,
the Unsecured Creditors Committee and their financial advisors concerning
Arch's acquisition proposal. Major issues included the form of the proposed
consideration, since the secured creditors were seeking a cash payment for
their claims, and the appropriate valuation of the Arch securities proposed to
be issued. The Arch Board again reviewed the status of negotiations among
Arch, MobileMedia and the Unsecured Creditors Committee at a meeting held on
May 19, 1998. On May 20, 1998, Arch management and its financial advisor made
a presentation to a group of MobileMedia's unsecured creditors, including
Credit Suisse First Boston Corporation, The Northwestern Mutual Life Insurance
Company, Whippoorwill, W.R. Huff and HLH&Z, about Arch's due diligence and the
merits of the business combination. Further discussions followed and, on June
12, 1998, the Unsecured Creditors Committee sent Arch and MobileMedia a draft
term sheet providing for a cash payment of the secured creditors' pre-petition
claims of $649.0 million. The term sheet contemplated that the cash payment to
the secured creditors would be funded by $170.0 million in proceeds from the
MobileMedia Tower Site sale, $217.0 million in proceeds from the sale of Arch
equity securities to certain Unsecured Creditors, and borrowings incurred by
Arch estimated to be $262.0 million. The term sheet also contemplated that the
Unsecured Creditors would receive in consideration for their MobileMedia
claims and their $217 million equity investment, shares of Arch Common Stock
equivalent to 67.05% of the pro forma Combined Company, and warrants to
purchase Arch Common Stock equivalent to 5.0% of the pro forma Combined
Company (concurrent with the issuance of identical warrants to existing Arch
stockholders for the purchase of 7.0% of the pro forma Combined Company).
Following further discussions, on July 2, 1998 the Unsecured Creditors
Committee circulated a revised term sheet providing for the Rights Offering to
the Unsecured Creditors, with certain Unsecured Creditors agreeing to
subscribe for and exercise their pro rata portion of the Rights as well as any
Rights not exercised by the other unsecured creditors.
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On July 7, 1998 counsel to MobileMedia circulated a revised form of merger
agreement reflecting the July 2, 1998 term sheet. On July 14, 1998, senior
managements of Arch and MobileMedia, their respective financial advisors and
counsel and the financial advisor and counsel to the Unsecured Creditors
Committee met to discuss the proposed merger agreement. The major issues
discussed included the circumstances under which breakup fees would be payable
by each party and the size of such fees, the conditions to closing, the
liabilities and administrative expenses to be assumed by Arch following the
merger and the number of directors to be added to the Arch Board. At an Arch
Board meeting held on July 28, 1998, Arch's financial advisor and legal
counsel again reviewed the proposed transaction.
The Arch Board met again on August 14, 1998 to further consider the
transactions contemplated by the Merger Agreement and, following the delivery
of an opinion by Bear Stearns as to the fairness of the proposed transactions,
from a financial point of view, to Arch and its stockholders, the Arch Board
conditionally approved the Merger Agreement, the Merger and the transactions
contemplated thereby, including the issuance of the Arch Combined Common Stock
and Arch Warrants. Legal and financial advisors for Arch, MobileMedia and the
Unsecured Creditors Committee continued to negotiate various terms and
documentation, and conducted due diligence through August 17, 1998. The Arch
Board met again on August 17, 1998 received an update from Arch's legal
counsel on the status of negotiations and approved certain additional terms
and authorized management to create definitive documents. On August 19, 1998
the parties reached final agreement on the terms of the Merger Agreement, the
Amended Plan and the related documents.
ARCH REASONS FOR THE MERGER
The Arch Board has unanimously approved the Merger Agreement, the Merger and
the other transactions contemplated thereby, including the MobileMedia
Proposal. THE ARCH BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF ARCH
VOTE FOR APPROVAL OF THE MOBILEMEDIA PROPOSAL.
The Arch Board believes that the Merger represents a strategic opportunity
to significantly expand the size and scope of Arch's operations, while
significantly decreasing Arch's overall financial leverage. The Arch Board
believes that, following the Merger, Arch will have greater financial
strength, operational efficiencies and growth potential than either Arch or
MobileMedia would have on its own. The Arch Board has identified a number of
potential benefits of the proposed Merger that it believes will contribute to
the success of the combined entities, including the following:
. The combination of Arch and MobileMedia would create the second largest
paging company in the United States. Given high fixed infrastructure
costs in the paging industry, greater scale should permit increased
efficiencies and improved margins for the Combined Company.
. Arch's overall leverage should be reduced significantly as a result of
the Merger. Arch's ratio of consolidated total debt to EBITDA (based on
annualized EBITDA for the six months ended June 30, 1998) was 7.2x as of
June 30, 1998; on a pro forma basis, taking into account the Merger,
such leverage ratio would have been 5.3x as of June 30, 1998.
. Arch would have access to MobileMedia's two nationwide narrowband PCS
licenses, and the cost of developing a nationwide narrowband PCS network
could be shared over the combined operations.
. Significant operational efficiencies could be realized through the
integration and combination of operations and the sharing of investment
in future infrastructure investments.
. Greater scale should yield enhanced purchasing power and improved sales
distribution.
. Following the Merger, Arch would have a significantly stronger capital
structure and financial resources providing greater operating
flexibility, as well as enhancing Arch's capabilities to further
effectuate its strategic objective to participate in the continuing
paging industry consolidation.
. Arch's larger market capitalization and size should result in broader
research coverage and increased interest by institutional investors.
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In reaching its decision to approve the Merger Agreement, the Merger and the
transactions contemplated thereby, the Arch Board also considered, in addition
to the factors described above: (i) information concerning the financial
performance and condition, business operations, capital and prospects of each
of Arch and MobileMedia on a stand-alone basis as well as a combined basis;
(ii) current industry, economic and market trends, including the likelihood of
continuing consolidation and competition in the paging industry and the
communications industry as a whole; (iii) the structure of the Merger and the
terms of the Merger Agreement and the Amended Plan; (iv) the opinion of Bear
Stearns that the issuance by Arch of Arch Combined Common Stock and Arch
Warrants to the claimholders of MobileMedia in connection with the Merger and
pursuant to the Amended Plan and the Standby Purchase Agreements and the
issuance to Arch stockholders of the Arch Warrants, taken together as a whole,
is fair, from a financial point of view, to Arch and its stockholders; (v) the
importance of market position, significant scale and scope and financial
resources to Arch's ability to compete effectively in the future; (vi) the
current and historic prices for the Arch Common Stock and for shares of
comparable publicly traded paging companies; (vii) the valuation range
ascribed to Arch Common Stock in the Merger Agreement and the Amended Plan and
the valuation implied for the combined entity based on existing market
multiples; and (viii) the relative contributions of Arch and MobileMedia to
the net revenues and EBITDA of the Combined Company.
The Arch Board also considered potential risks relating to the Merger,
including: (i) the risk that the benefits and synergies sought from the Merger
would not be fully achieved; (ii) the management distraction inherent in
integrating two business operations; (iii) the risk that the Merger would not
be consummated as the result of the uncertainties of the bankruptcy process;
(iv) the requirement that Arch's stockholders approve the transaction and the
lack of a financing condition for Arch which could result in Arch being liable
to pay the MobileMedia Breakup Fee if its stockholders did not approve the
MobileMedia Proposal or the Charter Amendment Proposal or if Arch was not able
to secure sufficient financing to consummate the Merger; (v) the limitation on
the conduct of Arch's business under the Merger Agreement prior to the
Effective Time, as well as the length of time projected for satisfying all
closing conditions; and (vi) the possibility that holders of outstanding Arch
debt securities might assert a claim that the Merger would result in a "change
in control" of Arch which would require Arch to offer to redeem such
securities at a premium to par or accreted value. The Arch Board believed that
these risks were outweighed by the potential benefits to be realized by the
Merger.
The foregoing discussion of the information and factors considered by the
Arch Board is not intended to be exhaustive but includes all material factors
considered by the Arch Board. In view of the wide variety of information and
factors considered, the Arch Board did not find it practical to, and did not,
assign any relative or special weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
RECOMMENDATION OF THE ARCH BOARD OF DIRECTORS
After careful consideration, the Arch Board has unanimously approved the
Merger Agreement and the transactions contemplated thereby and recommends that
holders of Arch Common Stock and Series C Preferred Stock vote FOR the
MobileMedia Proposal.
OPINION OF ARCH'S FINANCIAL ADVISOR
Bear Stearns served as financial advisor to Arch in connection with the
Merger and delivered its written opinion to the Arch Board on August 14, 1998,
to the effect that, as of such date and based on and subject to the
assumptions, limitations and qualifications set forth therein, (i) the
issuance of Arch Combined Common Stock and Arch Warrants by Arch to the
claimholders of MobileMedia in connection with the Merger (and pursuant to the
Amended Plan) and the Standby Purchase Agreements and (ii) the issuance of the
Arch Warrants to holders of Arch Common Stock and Series C Preferred Stock,
taken together as a whole, is fair, from a financial point of view, to Arch
and its stockholders.
THE FULL TEXT OF BEAR STEARNS' OPINION IS ATTACHED AS ANNEX B TO THIS PROXY
STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. ARCH STOCKHOLDERS SHOULD
READ THE BEAR STEARNS OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE, PROCEDURES
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FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY BEAR
STEARNS. THE SUMMARY OF THE BEAR STEARNS' OPINION SET FORTH HEREIN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
No limitations were imposed by Arch on the scope of Bear Stearns'
investigation or the procedures to be followed by Bear Stearns in rendering
its opinion. Bear Stearns was not requested to and did not make any
recommendation to the Arch Board as to the form or amount of the consideration
to be paid by Arch to MobileMedia claimholders in the Merger, which was
determined through arm's-length negotiations between the principal parties. In
arriving at its opinion, Bear Stearns did not ascribe a specific range of
values to Arch or MobileMedia, but rather made its determination as to the
fairness to Arch and its stockholders, from a financial point of view, of (i)
the consideration to be paid by Arch to MobileMedia claimholders in connection
with the Merger (and pursuant to the Amended Plan) and the Standby Purchase
Agreements and (ii) the issuance of Arch Warrants to holders of Arch Common
Stock and Series C Preferred Stock, on the basis of the financial and
comparative analyses described below. Bear Stearns' opinion is for the use and
benefit of the Arch Board and was rendered to the Arch Board in connection
with its consideration of the Merger. Bear Stearns' opinion is not intended to
be and does not constitute a recommendation to any holder of Arch Common Stock
or Series C Preferred Stock as to how such stockholder should vote with
respect to the MobileMedia Proposal,or a recommendation as to any related
financing transaction. Bear Stearns was not requested to opine as to, and its
opinion does not address, Arch's underlying business decision to proceed with
or effect the Merger. It should be understood that, although subsequent
developments may affect the conclusions reached in Bear Stearns' opinion, Bear
Stearns does not have any obligation to, and does not intend to, update,
revise or reaffirm its opinion.
In arriving at its opinion, Bear Stearns reviewed and analyzed: (a) the
Merger Agreement, together with the exhibits and schedules thereto, in
substantially final form; (b) the Amended Plan in substantially final form;
(c) this Proxy Statement in draft form; (d) certain historical financial
information regarding both Arch and MobileMedia; (e) certain operating and
financial information provided by the senior managements of Arch and
MobileMedia relating to Arch's and MobileMedia's respective businesses and
prospects, including the Combined Company Projections and certain other
forward-looking information; (f) publicly available financial data and market
data of public companies that Bear Stearns deemed generally comparable to Arch
and MobileMedia or otherwise relevant to its inquiry; (g) the financial terms,
to the extent publicly available, of certain mergers and acquisitions in the
paging industry; (h) certain estimates of anticipated cost savings, capital
expenditure avoidance and other benefits (collectively, the "Merger Benefits")
expected to result from the Merger, jointly prepared and provided to Bear
Stearns by the senior managements of Arch and MobileMedia; (i) certain
estimates provided to Bear Stearns by Arch's senior management of anticipated
MobileMedia non-ordinary course administrative claims and other pre-petition
claims, and certain liabilities to be assumed pursuant to the Amended Plan;
(j) the historical stock prices, trading volumes and valuation multiples for
Arch Common Stock; and (k) the pro forma financial impacts of the Merger on
Arch. In addition, Bear Stearns met separately and/or jointly with certain
members of the senior managements of Arch and MobileMedia to discuss (i) the
current paging industry landscape and competitive dynamics related thereto,
(ii) each company's operations, historical financial statements, future
prospects and financial condition, (iii) their views of the business,
operational and financial rationale for, and expected strategic benefits and
other implications of, the Merger and (iv) the Combined Company Projections
and the Merger Benefits. Bear Stearns also conducted such other studies,
analyses, inquiries and investigations as it deemed appropriate.
In arriving at its opinion, Bear Stearns assumed and relied upon the
accuracy and completeness of the financial and other information made
available to, discussed with or reviewed by Bear Stearns, or publicly
available, without assuming any responsibility for independent verification of
such information, the Combined Company Projections or the Merger Benefits and
further relied upon the assurances of Arch senior management that they were
not aware of any facts that would make such information, the Combined Company
Projections or the Merger Benefits incomplete or misleading in any material
respect. With respect to the Combined Company Projections and the Merger
Benefits, upon the advice of Arch, Bear Stearns assumed that such projections
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the senior
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management of Arch as to the anticipated future performance of Arch and
MobileMedia and as to the anticipated Merger Benefits achievable within the
time frames forecast therein. Bear Stearns did not undertake an independent
evaluation or appraisal of any of the assets or liabilities of Arch or
MobileMedia nor was Bear Stearns furnished with any such evaluation or
appraisal. Bear Stearns did not assume any obligation to conduct, nor did it
conduct, any physical inspection of the properties or facilities of Arch or
MobileMedia. Bear Stearns assumed that the transactions will be consummated in
accordance with the terms described in the Merger Agreement and the Amended
Plan, without any waiver of any material condition and with all necessary
material consents and approvals having been obtained without any limitations,
restrictions, conditions, amendments or modifications that collectively would
have a material effect on Arch, MobileMedia or the Merger Benefits. Bear
Stearns' opinion necessarily is based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the date of its
opinion.
The following is a summary of certain financial and comparative analyses
performed by Bear Stearns and presented to the Arch Board.
PRO FORMA COMPANY TRADING ANALYSIS
Using publicly available information, Bear Stearns analyzed the stock market
valuation data for publicly traded companies in the paging industry. Such
companies, which were selected based on general business, operating and
financial characteristics representative of paging companies, included Paging
Network, Inc. ("PageNet"), Metrocall, Inc. ("Metrocall"), PageMart, Inc.,
SkyTel Communications, Inc. ("SkyTel") and Teletouch Communications, Inc. (the
"Comparable Public Companies"). For each of the Comparable Public Companies,
based, in part, on projections of EBITDA contained in third party research
reports, Bear Stearns calculated the multiples of enterprise value to latest
quarter annualized ("LQA"), 1998 estimated and 1999 estimated EBITDA. The
harmonic means of such multiples were 9.4x, 8.8x and 7.3x, respectively. The
range of multiples was 15.1x-7.5x, 17.8x-7.0x and 15.6x-6.2x, respectively.
Bear Stearns noted that Arch Common Stock trades at a medium-to-low EBITDA
multiple compared to its peer group. Based on the various multiples of
enterprise value to EBITDA calculated for the Comparable Public Companies, as
described above (but which excluded outliers), and on the LQA, 1998 estimated
and 1999 estimated EBITDA for the Combined Company (both with and without
Merger Benefits, in each case as set forth in the Combined Company
Projections), Bear Stearns calculated a theoretical reference price range of
$5.00 to $10.00 per share. Based on this theoretical reference price range
thus calculated, Bear Stearns calculated implied enterprise values for
MobileMedia (after divestiture of its communications tower assets) ranging
from $590.6 million to $820.8 million. The resultant range of implied
enterprise values was then divided by the LQA, 1998 estimated and 1999
estimated EBITDA (both with and without Merger Benefits, in each case as set
forth in the Combined Company Projections) of MobileMedia. The multiples thus
calculated implied a range of multiples from 4.2x to 7.8x (with Merger
Benefits) and from 5.1x to 8.8x (without Merger Benefits). This range of
multiples was then compared to the corresponding range (excluding outliers) of
multiples of LQA, 1998 estimated and 1999 estimated EBITDA for the Comparable
Public Companies. Such corresponding range (excluding outliers) was 6.2x to
9.0x.
Because of the inherent differences between the businesses, operations and
prospects of Arch, MobileMedia and the Comparable Public Companies, Bear
Stearns believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the analysis, and accordingly also made
qualitative judgments concerning differences between the characteristics of
the Combined Company and the Comparable Public Companies that would affect the
public trading values of the Combined Company and the Comparable Public
Companies.
The theoretical reference price range calculated by Bear Stearns was
calculated solely for analytical purposes and did not, and does not,
constitute or reflect an opinion or prediction as to what the value of Arch
Common Stock actually will be at the time of the Merger or the actual trading
price or range of trading prices of Arch Common Stock after announcement or
consummation of the Merger. Such actual trading prices may be impacted by,
among other things, prevailing interest rates, conditions in the financial
markets, the anticipated initial holdings of Arch Common Stock by Unsecured
Creditors, some of whom may prefer to liquidate their investment rather than
hold it on a long-term basis, the potential concentration of shares of Arch
Common Stock
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that may be held by the Standby Purchasers, as defined in "The Merger
Agreement--Related Agreements--Standby Purchase Agreements", arbitrage
activity and other factors that generally influence the prices of securities.
CONTRIBUTION ANALYSIS
Bear Stearns analyzed the relative contribution to combined estimated net
revenues and EBITDA for Arch and MobileMedia for the years 1998 through 2002.
This analysis indicated that in 1998, 1999, 2000, 2001 and 2002 Arch is
projected to contribute 48%, 51%, 52%, 52% and 52%, respectively, and
MobileMedia is projected to contribute 52%, 49%, 48%, 48% and 48%,
respectively, of estimated net revenues. This analysis also indicated that in
1998, 1999, 2000, 2001 and 2002 Arch is projected to contribute 57%, 61%, 56%,
55% and 55%, respectively, and MobileMedia is projected to contribute 43%,
39%, 44%, 45% and 45%, respectively, of estimated EBITDA. Bear Stearns
compared such relative contributions to the percentage of combined enterprise
value represented by a theoretical reference price range of $5.00 to $10.00
per share of Arch Common Stock. Based on such reference range, Arch
stockholders' ownership interests, combined with Arch's existing debt, would
represent 65% to 61% of the enterprise value of the Combined Company.
Bear Stearns also analyzed the relative contribution to EBITDA less interest
expense (EBTDA) for Arch and MobileMedia for the years 1998 through 2002. This
analysis indicated that in 1998, 1999, 2000, 2001 and 2002 Arch is projected
to contribute 42%, 41%, 40%, 41% and 43%, respectively, and MobileMedia is
projected to contribute 58%, 59%, 60%, 59% and 57%, respectively, of estimated
EBTDA. Bear Stearns compared such relative contributions to the percentage of
combined equity ownership represented by the same theoretical reference price
range for Arch Common Stock (ranging from $5.00 to $10.00 per share). Based on
such theoretical reference price range, Arch stockholders' fully-diluted
ownership interests (including the issuance of the Warrants) would represent
34% to 37% of the Combined Company.
The summary set forth above does not purport to be a complete description of
the analyses performed by Bear Stearns or its presentation to the Arch Board,
but describes in summary form the principal elements of the analyses performed
in connection with the delivery of its opinion to the Arch Board. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial and comparative analysis
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its opinion, Bear Stearns did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Bear Stearns believes that its analyses must be
considered as a whole and that considering any portion of such analyses and
factors, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its opinion. In its
analyses, Bear Stearns made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of Arch and MobileMedia. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or
less favorable than as set forth therein. In addition, analyses relating to
the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Bear Stearns is an internationally recognized investment banking firm and,
as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Arch Board selected Bear
Stearns because of its expertise, reputation and familiarity with Arch in
particular and the telecommunications industry in general and because its
investment banking professionals have substantial experience in transactions
similar to the Merger.
As compensation for its services in connection with the Merger, Arch has
agreed to pay Bear Stearns a fee for acting as financial advisor in connection
with the Merger, including rendering its opinion. This fee includes
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(i) approximately $250,000 in retainer fees which have been paid to date, (ii)
a fee of $500,000 paid upon delivery of the opinion and execution of the
Merger Agreement and (iii) an additional fee (against which are credited the
fees described in clauses (i) and (ii)) based on the "Total Transaction
Value", and payable upon consummation of the Merger, equal to approximately
$8.0 million. In the event the Merger is not consummated, but Arch receives a
"break-up" or other payment as a result of the termination or cancellation of
Arch's efforts to effect the Merger, Arch will pay Bear Stearns a cash fee
equal to the lesser of $3.0 million or 20% of such fee or payment. In
addition, Arch has agreed to reimburse Bear Stearns for reasonable out-of-
pocket expenses incurred in connection with the Merger and to indemnify Bear
Stearns and certain related persons for certain liabilities that may arise out
of its engagement by Arch and the rendering of its opinion.
An affiliate of Bear Stearns has committed to participate in the Bridge
Facility to Arch in connection with the Merger. In the event that Arch does
not complete the Planned ACI Notes, the Bridge Facility will be used to
finance a portion of the cash consideration to be paid to MobileMedia
creditors in the Merger. Arch has agreed to pay such affiliate of Bear Stearns
certain fees in connection with the Bridge Facility. See "Description of
Certain Arch Indebtedness--Bridge Facility". In addition, Bear Stearns has
previously received fees from Arch in connection with prior financial advisory
and investment banking services provided by Bear Stearns to Arch.
In the ordinary course of its business, Bear Stearns may actively trade in
Arch and/or MobileMedia debt and equity securities for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
MOBILEMEDIA REASONS FOR THE MERGER
The Board of Directors of Parent and the Board of Directors of MMC
(collectively, the "MobileMedia Boards") have unanimously determined that the
Merger Agreement, the Merger and the other transactions contemplated thereby
(collectively the "Merger Transactions") are advisable and in the best
interests of Parent, MobileMedia and their estates. Accordingly, the
MobileMedia Boards have unanimously approved the Merger Transactions as
described in more detail in the Amended Plan and in the Merger Agreement and
are seeking approval of the Merger Transactions by the Bankruptcy Court.
The approvals by the MobileMedia Boards are the result of a lengthy process
of evaluating the alternatives available to MobileMedia in its reorganization
and the effects of such alternatives on various claimants, including
MobileMedia's secured and unsecured creditors and stockholders. During the
pendency of their cases, Parent and MobileMedia, assisted by Blackstone, their
financial advisor, conducted an extensive search for a third party purchaser
of its business. To this end, Parent and MMC met with representatives of
prospective purchasers, and a number of prospective purchasers conducted due
diligence reviews of MobileMedia. By letter dated August 26, 1997, Parent
formally solicited preliminary bids from prospective purchasers. In response,
it received preliminary conditional proposals from certain prospective
purchasers, including a proposal from Arch by letter dated September 24, 1997.
Upon receipt of the proposals, Parent and MobileMedia provided the financial
advisors to the Unsecured Creditors Committee and the Pre-Petition Agent with
copies of such proposals, and engaged in discussions with the Unsecured
Creditors Committee and the Pre-Petition Agent (and their respective advisors)
regarding the proposals. During the same period, Parent and MobileMedia and
their advisors had conversations with the parties making the proposals in
order to clarify the terms of the proposals and to provide such parties with
its reactions to the proposals.
Subsequent to these discussions, Parent and MobileMedia engaged in further
negotiations and discussions with various parties that had expressed an
interest in a business combination and assisted these parties in conducting
further due diligence. On January 27, 1998, having determined that none of the
conditional bids received from third parties was an acceptable alternative to
the stand-alone plan of reorganization that Parent and MobileMedia had
formulated, Parent and MobileMedia filed a stand-alone plan of reorganization
(the "Original Plan") with the Bankruptcy Court having jurisdiction over their
reorganization. The Original Plan had the support of the Pre-Petition Agent
but was opposed by the Unsecured Creditors Committee.
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Subsequent to the filing of the Original Plan, various third parties
contacted Parent or MobileMedia regarding possible transactions and Parent and
MobileMedia continued to engage in discussions and negotiations with certain
of such parties and received certain conditional proposals regarding possible
business combinations. By letter dated March 17, 1998, Arch submitted a
revised proposal to Parent for a business combination with MobileMedia.
Subsequent to that date, Arch and MobileMedia each conducted due diligence
with respect to the other, and Arch, Parent, MobileMedia, the Pre-Petition
Agent and the Unsecured Creditors Committee engaged in lengthy negotiations in
connection with the form of the proposed transaction, the form and amount of
the consideration to be provided by Arch and the other provisions of the
Merger Agreement, including the amounts of "breakup" fees required to be paid
by MobileMedia to Arch (or vice versa) in certain circumstances and the
details of such circumstances.
After an extended period of negotiation and analysis, and after consultation
with Blackstone, the Unsecured Creditors Committee and the Pre-Petition Agent
and their respective financial advisors, Parent and MobileMedia determined
that the agreement ultimately reached with Arch (as reflected in the Merger
Agreement) represented the highest and best offer received and was superior to
a stand-alone plan.
The Merger and Amended Plan, will, if consummated, result in MobileMedia's
emergence from bankruptcy and in the satisfaction and discharge or release of
virtually all the claims against Parent and MobileMedia that were in existence
on the Filing Date. A description of the consideration to be provided to
MobileMedia's creditors is set forth under "The MobileMedia Plan of
Reorganization--The Amended Plan".
In making its decision to approve the Merger Transactions, the MobileMedia
Board considered: (i) information concerning the financial performance and
condition, business operations, capital and prospects of each of MobileMedia
and Arch on a stand-alone basis as well as on a combined basis; (ii) current
industry, economic and market trends, including the likelihood of continuing
consolidation and competition in the paging industry and the communications
industry as a whole; (iii) the structure and terms of the Merger Transactions
and the Amended Plan; (iv) the importance of size and market position to the
ability to compete effectively in the future; (v) the current and historic
stock prices of Arch (on a stand-alone basis) and of comparable publicly
traded paging companies; (vi) hypothetical ranges of stock prices for
MobileMedia on a stand-alone basis, and Arch and MobileMedia on a combined
basis, based on comparable publicly traded companies; (vii) the relative
contributions of MobileMedia and Arch to the EBITDA of the Combined Company;
(viii) the advice received from Blackstone; and (ix) the stated views of the
Pre-Petition Agent and of the Unsecured Creditors Committee with respect to
the Merger Transaction.
The MobileMedia Board also considered potential risks relating to the Merger
Transactions including, but not limited to: (i) the risk that the benefits and
synergies sought from the Merger Transactions will not be achieved; (ii) the
management distraction inherent in integrating the business operations of the
combined companies; (iii) the limitation on the conduct of MobileMedia's
business under the Merger Agreement prior to the Effective Time, as well as
the length of time projected for satisfying all closing conditions; (iv) the
possibility that holders of outstanding Arch debt securities might assert a
claim that the Merger and related transactions would result in a "change of
control" of Arch which would require Arch to offer to redeem such securities
at a premium to par or accreted value; (v) the risk that the Merger
Transactions will not be consummated as a result of various factors, such as
(a) the failure to obtain final FCC approval or final approval of the
Bankruptcy Court, (b) Arch's failure to meet certain conditions to the API
Credit Facility Increase which are required to effect the Merger Transaction
or approval from its stockholders, and (c) the failure of Arch to meet certain
conditions to the API Credit Facility Increase or any other applicable loan
agreement of Arch or API and (d) the failure of conditions to the Merger or
any such financing to be satisfied, and (vi) the obligation of MobileMedia,
shortly after execution of the Merger Agreement, to pay Arch $500,000 in
reimbursement of certain expenses theretofore incurred by Arch in connection
with such execution and the possibility that MobileMedia might have to pay to
Arch a substantial break-up fee in certain circumstances. The MobileMedia
Board believed that these risks were outweighed by the potential gains to be
realized from the Merger Transactions.
The foregoing discussion of the information and factors considered by the
MobileMedia Boards is not intended to be exhaustive but includes material
factors considered by the MobileMedia Boards. In view of the
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wide variety of information and factors considered, the MobileMedia Boards did
not find it appropriate to, and did not quantify or otherwise assign any
relative or special weights to the foregoing factors, and individual directors
may have given differing weights to differing factors. In making its decision
to approve the Merger Transactions, the MobileMedia Board reviewed the
totality of the factors outlined above or otherwise considered and determined
that the positive effects of such factors outweighed negative effects.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Arch is unaware of any interests that any directors or officers of Arch have
in connection with the Merger that are in addition to the interests of the
stockholders of Arch generally.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting in
accordance with GAAP, whereby the purchase price will be allocated based on
the relative fair value of the assets acquired and liabilities assumed. Such
allocations will be made based upon valuations that have not been finalized.
The excess of such purchase price over the amounts so allocated will be
allocated to goodwill. It is anticipated that the most significant effect on
the purchase accounting will be to record a significant amount of goodwill and
other intangible assets which will result in substantial amortization charges
to the income of the combined company over the useful lives of such assets.
In accordance with GAAP, Arch will be treated as the acquiror in the Merger
for accounting and financial reporting purposes, and Arch will report its
historical financial statements as the historical financial statements of the
combined entities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger will result in the ownership by Arch of all of the outstanding
stock of the Merger Subsidiary, which will own substantially all of the assets
held by MMC immediately prior to consummation of the Merger. For federal
income tax purposes, neither the Arch stockholders, Arch, nor MMC will
recognize gain or loss as a result of the Merger.
The distribution of Arch Warrants to holders of Arch Common Stock should be
nontaxable to such holders under Section 305(a) of the Tax Code. For purposes
of determining gain or loss if these warrants are sold, provided that the fair
market value of the warrants is less than 15% of the fair market value of the
Arch Common Stock with respect to which the warrants are distributed at the
time of the distribution, the basis of these warrants to a holder will be zero
unless the holder elects to allocate a portion of the basis of the shares with
respect to which the distribution of the warrants is made proportionate to the
relative fair market values of such shares and the warrants on the date of
distribution. The election must be made in the form of a statement attached to
the holder's timely filed tax return for the year in which the warrants are
received. The election must be made with respect to all warrants received in
respect of shares of the same class of stock owned by the holder at the time
of the distribution and, once made, the election is irrevocable with respect
to the warrants for which made. If the warrants are exercised, the basis of
the new shares acquired will be the exercise price paid therefor plus the
basis of the warrants as determined above.
The distribution of Arch Warrants to holders of Series C Preferred Stock
should be taxable to such holders under Section 305(b)(4) of the Tax Code. The
amount of this distribution for tax purposes should equal the fair market
value of the warrants, which should also equal their basis. This distribution
should be taxable as ordinary income to the extent of Arch's current and
accumulated earnings and profits, as determined under the Tax Code, and any
amount in excess of current and accumulated earnings and profits will first
reduce the holder's tax basis in his Series C Preferred Stock and then, after
such basis is exhausted, generally be treated as capital gain.
Arch expects to file federal income tax returns reflecting NOL carryforwards
of approximately $280.0 million for its taxable year ended December 31, 1997,
a portion of which will begin to expire in the taxable year
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ending December 31, 2002. Section 382 of the Tax Code generally restricts a
corporation's utilization of its NOL carryforwards and other tax attributes by
limiting the amount of income earned by the corporation after an "ownership
change" that may be offset by tax attributes that arose prior to the ownership
change (the "Section 382 Limitation"). The issuance of Arch shares pursuant to
the Merger Agreement and the Amended Plan will cause Arch to experience an
ownership change as defined under Section 382(g) of the Tax Code on the
Effective Date (the "Change Date"). Consummation of the Amended Plan will also
cause MMC to experience such an ownership change.
In general, when the Section 382 Limitation applies, a corporation's
utilization of its pre-Change Date tax attributes (including NOL carryforwards
and certain amounts that otherwise would be allowable as deductions during the
five-year period beginning on the Change Date that are attributable to pre-
Change Date periods) for taxable years following the Change Date is limited to
an annual amount of tax attributes equal to (A) the product of (i) the value
of the corporation immediately before the ownership change multiplied by
(ii) the long-term tax exempt rate (as announced each month by the Treasury
Department and which was 5.15% for August 1998) on the date of ownership
change, plus (B) any unused portion of the Section 382 Limitation from prior
years.
A taxpayer generally must include in gross income the amount of any
cancellation of indebtedness income realized during the taxable year. Section
108 of the Tax Code provides, however, that when the cancellation of
indebtedness occurs in a case under the Bankruptcy Code, gross income does not
include any amount that otherwise would be included in gross income by reason
of the cancellation of indebtedness. Instead, cancellation of indebtedness
income will generally be applied to reduce certain tax attributes of the
taxpayer, including NOL carryforwards. Accordingly, it is anticipated that the
NOL carryforwards and possibly other tax attributes of MMC will be
substantially reduced as a result of consummation of the Amended Plan pursuant
to (S)382 and (S)108 of the Tax Code.
REGULATORY APPROVALS
FCC APPROVAL
The Communications Act requires prior FCC approval for the transfer of
actual or legal control of companies holding FCC authorizations. The
Communications Act requires that the FCC, as a prerequisite to granting its
approval, find that the proposed acquisition or transfer would serve the
public interest, convenience and necessity. The FCC also requires that the
purchaser or transferee demonstrate that it possesses the requisite legal,
technical and financial qualifications to operate the licensed facilities.
The prior approval of the FCC is a condition to the consummation of the
Merger. See "The Merger Agreement--Conditions". Arch and MobileMedia jointly
will file applications with the FCC seeking FCC approval of the Merger,
including the transfer and/or assignment of FCC licenses held by Arch and
MobileMedia. There can be no assurance that the FCC will grant the approvals
sought or that, if granted, that such FCC approvals will be on a timely basis
or on terms and conditions acceptable to Arch and MobileMedia. In the event of
a challenge by an adverse party, the termination date established in the
Merger Agreement may not allow sufficient time for FCC approvals to be
received or, if received, for FCC approvals to become final. See "Industry
Overview--Regulation".
In its press releases issued on September 27 and October 21, 1996,
MobileMedia disclosed that misrepresentations had been made to the FCC and
that other violations had occurred during the licensing process for as many as
400 to 500 authorizations, or approximately 6% to 7% of its approximately
8,000 local transmission one-way paging transmitter stations. MobileMedia
caused an investigation to be conducted by its outside counsel, and a
comprehensive report regarding these matters was provided to the FCC on
October 15, 1996. In cooperation with the FCC, outside counsel's investigation
was expanded to examine all of MobileMedia's nationwide paging licenses, and
the results of that investigation were submitted to the FCC on November 8,
1996. Since November 8, 1996, MobileMedia has continued to provide additional
information to the FCC.
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On January 13, 1997, the FCC issued a public notice (the "Public Notice")
relating to the status of certain FCC authorizations held by MobileMedia. In
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 approximately 93 applications for fill-in sites
around existing paging stations (which had been filed under the "40-mile
rule") as defective 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. With respect to the constructed stations, the Public
Notice permitted MobileMedia to continue to operate those stations on an
interim basis until further action by the FCC.
On April 8, 1997, the FCC issued an order (the "FCC Order") commencing an
administrative hearing to inquire into the qualification of MobileMedia to
remain an FCC licensee. The FCC Order directed an administrative law judge
("ALJ") to take evidence and develop a full factual record on issues
concerning MobileMedia's filing of false forms and applications in connection
with its applications for paging licenses. While the FCC Order initiated a
fact-finding and evaluative hearing process to gather information with which
to make a decision, the FCC directed the ALJ to make a recommended decision
only as to factual matters. Decisions as to the conclusions of law, the
disposition of the case and any appropriate sanctions were reserved to the
FCC. During the proceeding, MobileMedia would continue to operate in the
ordinary course and provide uninterrupted service to customers.
On April 23, 1997, MobileMedia filed a motion with the ALJ seeking a stay of
the hearing proceedings instituted by the FCC Order. MobileMedia sought the
stay on the ground that, absent a stay, the uncertainty created by the hearing
process would likely inflict material irreparable damage on MobileMedia's
business. In the motion, MobileMedia also sought confirmation that
MobileMedia's operations could be preserved through an assignment or transfer
of control of MobileMedia's licenses consistent with an FCC doctrine known as
Second Thursday. On May 5, 1997, the ALJ denied MobileMedia's motion for a
stay. On May 13, 1997, MobileMedia requested review of the ALJ's order and
sought a stay of the hearing proceeding and a determination that MobileMedia
should have an opportunity to comply with the FCC's Second Thursday doctrine.
The FCC granted MobileMedia's request on June 6, 1997 and issued a ten-month
stay of the hearing proceeding determining that the Second Thursday doctrine
may apply to publicly traded corporations, such as Parent.
The Second Thursday doctrine balances the FCC's interests with the
Bankruptcy Code's policies of preserving value for creditors by permitting a
company to transfer its licenses as long as the individuals charged with
misconduct (i) would have no part in the proposed operations and (ii) would
receive either no benefit from the transfer or only a minor benefit that would
be outweighed by equitable considerations in favor of innocent creditors. As
part of the applications seeking FCC approval of the Merger, MobileMedia also
will request termination of the hearing proceeding under the Second Thursday
doctrine. MobileMedia believes it will satisfy the requirements of Second
Thursday pursuant to the Merger and the Amended Plan. FCC approval of the
transfer of MobileMedia's licenses pursuant to the Amended Plan is a condition
to effectiveness of the Amended Plan. Such approval, if granted, will
terminate the pending proceedings into MobileMedia's qualification to remain
an FCC licensee. On March 27, 1998, MobileMedia filed a request with the FCC
to extend the ten-month stay for an additional six months, in order to provide
MobileMedia with sufficient time to complete its reorganization process and to
continue discussions among the various parties in interest. This extension
request was granted by the FCC on June 4, 1998.
STATE APPROVALS
The prior approval of certain state regulatory authorities ("State
Authorities") is a condition to the consummation of the Merger. See "The
Merger Agreement--Conditions". Arch and MobileMedia jointly will file
applications with certain states seeking approval of the consummation of the
Merger. It is possible that one or more other states may assert a right to
review and approve the Merger. In such event, Arch and MobileMedia may choose
to challenge such assertion, seek to obtain such approval or take such other
or further actions as they deem necessary or advisable at the time. If any
state were to claim a right to approve the Merger, there is no assurance that
any challenge to override or overturn that claim would be successful or that
any approval, if
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sought, would be granted or, if granted, would be on a timely basis or on
terms and conditions acceptable to Arch and MobileMedia. In the event of a
challenge by an adverse party, the termination date established in the Merger
Agreement may not allow sufficient time for state regulatory approvals to be
received or, if received, for such approvals to become final. See "Industry
Overview--Regulation".
ANTITRUST
The Merger is subject to the requirements of the HSR Act, and the rules and
regulations thereunder, which provide that certain transactions may not be
consummated until certain required information and materials have been
furnished to the Antitrust Division and the FTC and certain waiting periods
have expired or been terminated. Arch and MobileMedia expect to file the
required information and material with the Antitrust Division and the FTC on
or before August 28, 1998.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. The termination of the
HSR Act waiting periods does not preclude the Antitrust Division or the FTC
from challenging the Merger on antitrust grounds. Accordingly, at any time
before or after the Effective Time, either the Antitrust Division or the FTC
could take such action, including seeking to enjoin the Merger, under the
antitrust laws as it deems necessary or desirable in the public interest.
Certain other persons, including the attorney general of one or more states or
private parties, could take action under the antitrust laws.
In addition, as part of the FCC's consideration of whether granting consent
to the transfer of control of Arch's and MobileMedia's FCC licenses would
serve the public interest, the FCC takes into account the potential effect
that the Merger may have on competition in affected markets. The FCC's
antitrust analysis may differ from that of the Antitrust Division and the FTC,
and could serve as a basis for the FCC denying consent to the transfer or
imposing conditions on its consent, which could materially adversely affect
the combined operations of Arch and MobileMedia.
FEDERAL SECURITIES LAW CONSEQUENCES
The shares of Arch Common Stock, Arch Class B Common Stock and Arch Warrants
issuable in connection with the Merger will generally be freely tradeable
under the Securities Act following the Merger; provided the holder thereof is
not deemed to be an "affiliate" of Arch following the Merger pursuant to Rule
144 or an "underwriter" within the meaning of Section 2(11) of the Securities
Act or Section 1145(b) of the Bankruptcy Code.
The shares of Arch Common Stock to be distributed from the Creditor Stock
Pool are exempt from registration under the Securities Act pursuant to Section
1145 of the Bankruptcy Code, and will be therefore freely tradeable by any
Unsecured Creditor who is not deemed to be an "affiliate" of Arch under Rule
144 or an underwriter. Arch has agreed to register the Rights to be issued in
connection with the Rights Offering, together with the shares of Arch Common
Stock, and the Arch Warrants which may be issued thereunder. Unsecured
Creditors who receive these securities may also freely sell such securities
provided they are not deemed to be "affiliates" of Arch pursuant to Rule 144
or an underwriter. Any securities of Arch held by a person deemed to be an
"affiliate" of Arch will be subject to certain restrictions on resale pursuant
to Rule 144. Arch has agreed to register these securities for resale by
persons who may be deemed to be underwriters, such as the Standby Purchasers
as defined in "The Merger Agreement--Related Agreements--Standby Purchase
Agreements".
NASDAQ NATIONAL MARKET LISTING
Arch intends to file an application to have the shares of Arch Common Stock
and Arch Warrants to be issued in connection with the Merger approved for
quotation on the Nasdaq National Market.
APPRAISAL RIGHTS
Holders of Arch Common Stock or Series C Preferred Stock are not entitled to
dissenters' appraisal rights under the DGCL in connection with the Merger
because Arch is not a constituent corporation of the Merger.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached as Annex A to this Proxy Statement and incorporated
herein by reference in its entirety. Although this section summarizes the
material terms of the Merger Agreement, such summary is qualified in its
entirety by reference to the Merger Agreement. Stockholders of Arch are urged
to read the Merger Agreement in its entirety for a more complete description
of the Merger. Defined terms used herein not otherwise defined shall have the
meaning ascribed to them in the Merger Agreement.
THE MERGER
The Merger Agreement and the Amended Plan provide that, following the
approval by the stockholders of Arch and the satisfaction or, if legally
permissible, waiver of the conditions to the Merger, MMC will be merged with
and into the Merger Subsidiary. Immediately prior to the Merger, Parent will
contribute all of its assets to MMC, and MMC's subsidiaries will be
consolidated into a single subsidiary which will become an indirect wholly
owned subsidiary of Arch as a result of the Merger.
EFFECT OF THE MERGER
At the Effective Time, all of the estate, property, rights, privileges,
immunities, powers and franchises of MMC will be transferred to and vested in
the Surviving Corporation.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, each of Parent and MMC on the one hand, and Arch on
the other, has made certain representations and warranties regarding, among
other things: (i) their respective organization, qualification, corporate
power and authority to enter into and perform their respective obligations
under the Merger Agreement; (ii) capitalization; (iii) the compliance of the
transactions contemplated by the Merger Agreement with their respective
certificates of incorporation and by-laws, certain contracts and applicable
laws; (iv) subsidiaries; (v) the accuracy of their respective financial
statements; (vi) the absence of certain specified types of changes in the
business, assets (including licenses, franchises and other intangible assets),
financial condition, operating income and prospects of each party and their
respective subsidiaries, taken as a whole; (vii) the absence of undisclosed
liabilities; (viii) taxes; (ix) tangible assets; (x) owned real property; (xi)
intellectual property; (xii) real property leases; (xiii) certain contracts
which are material to the respective parties; (xiv) the possession of licenses
and authorizations; (xv) the absence of certain litigation; (xvi) certain
employment contracts and related matters; (xvii) employee benefit plans;
(xviii) certain environmental matters; (xix) compliance with applicable laws;
(xx) certain information with respect to the parties' respective subscribers
and suppliers; (xxi) capital expenditures; (xxii) brokers' fees; (xxiii) the
accuracy of certain information provided by each of the parties in connection
with the various documents to be filed with the applicable regulatory
authorities in connection with the Merger Agreement and the transactions
contemplated thereby and (xxiv) the accuracy of the information provided by
each of the parties to the other. In addition, Arch has made representations
concerning (i) the Merger Subsidiary, (ii) the opinion of Bear Stearns
regarding the fairness of the Merger, from a financial point of view, to Arch
and its stockholders, (iii) certain amendments to Arch's shareholders rights
plan relating to Section 203 of the DGCL and (iv) the vote of Arch
stockholders required to approve the Transactions.
CERTAIN COVENANTS AND AGREEMENTS
Except as otherwise contemplated by the Merger Agreement or the Amended Plan
and, in the case of Parent and MMC, by the Bankruptcy Code, the Federal Rules
of Bankruptcy Procedure, the operation and information requirements of the
Office of United States Trustee, and any orders entered or approvals or
authorizations granted by the Bankruptcy Court in the Cases during the period
prior to the Effective Time (collectively, "Bankruptcy-Related Requirements"),
each of MobileMedia, MMC and Arch shall, and shall cause each of their
respective subsidiaries, as applicable, to conduct its operations in the
ordinary course of business and in compliance with all other applicable laws
and regulations, and, to the extent consistent therewith, use all reasonable
efforts to preserve intact its current business organization, keep its
physical assets in good working condition, pay all taxes (all post-petition
taxes in the case of the Parent and MMC) as they become due and payable,
maintain insurance
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on its business and assets (in amounts and types consistent with past
practice), keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and ongoing business
shall not be impaired in any material respect.
BEST EFFORTS
Except as otherwise contemplated by the Merger Agreement, or in the case of
the Parent and MMC except to the extent required by Bankruptcy-Related
Requirements, Arch, the Parent and MMC are obligated to use their respective
best efforts to cause the transactions contemplated by the Merger Agreement
and the Amended Plan to be consummated in accordance with the terms thereof.
APPROVALS; CONSENTS
The Merger Agreement generally obligates Arch, the Parent and MMC to obtain
and maintain in full force and effect all approvals, consents, permits,
licenses and other authorizations from all Governmental Entities (as defined
therein) reasonably necessary or required for the operation of their
respective businesses as presently conducted, as and when such approvals,
consents, permits, licenses or other authorizations are necessary or required.
The Merger Agreement provides that none of Arch, the Parent or MMC shall make
any material commitments to any Governmental Entity relating to any material
approval, consent, permit or license without the prior written consent of the
other, and that Arch, the Parent and MMC shall, and shall cause each of their
respective subsidiaries, as applicable, to, use their reasonable best efforts
to resolve any competitive issues relating to or arising under the HSR Act or
any other federal or state antitrust or fair trade law raised by any
Governmental Entity. In the event of a challenge to the transactions
contemplated by the Merger Agreement pursuant to the HSR Act, Arch, the Parent
and MMC shall, and shall cause each of their respective subsidiaries to use
their reasonable best efforts to defeat such challenge, including by
institution and defense of litigation, or to settle such challenge on terms
that permit the consummation of the transactions contemplated by the Merger
Agreement; provided, however, that in no event shall Arch be required to
divest or hold separate any portion of its business or otherwise take any
action, which divestiture or holding separate or taking such action would be
materially adverse to the continued conduct of either party's businesses. Arch
is obligated to pay all filing fees payable by either Arch, the Parent or MMC
in connection with the HSR Act.
ARCH NOT TO CONTROL
The Merger Agreement provides that, pending the consummation of the
transactions contemplated thereby, Arch shall not obtain actual (de facto) or
legal (de jure) control over the Parent and MobileMedia. Specifically, and
without limitation, the responsibility for the operation of the Parent and
MobileMedia shall, pending the consummation of the transactions contemplated
thereby, reside with the Board of Directors of the Parent and MobileMedia
(subject to the jurisdiction of the Bankruptcy Court). Notwithstanding the
foregoing, Arch and the Parent and MobileMedia have agreed to consult and
cooperate with one another and consider in good faith the views of one another
with respect to the assumption or rejection by the Parent and MobileMedia
prior to the Effective Time of any unexpired lease, license or other executory
contract.
BANKRUPTCY COVENANTS
The Amended Plan requires MobileMedia and the Parent to file certain motions
with the Bankruptcy Court and take certain other actions in furtherance of the
transactions contemplated by the Merger Agreement. See "The MobileMedia Plan
of Reorganization". The Merger Agreement requires MobileMedia and Parent to
file, promptly after execution of the Merger Agreement, a motion seeking
Bankruptcy Court approval of the exclusivity provisions, breakup fees and
expense reimbursement provisions of the Merger Agreement. Arch will be
entitled to terminate the Merger Agreement if an order (the "Initial Merger
Order") approving such motion is not entered by the Bankruptcy Court on or
prior to September 4, 1998. See "--Exclusivity Provisions", "--Bankruptcy Fee
Provisions", "--Reimbursement of Arch's Expenses" and "--Termination".
CONDUCT OF MOBILEMEDIA'S BUSINESS PENDING THE MERGER
The Merger Agreement provides that prior to the Effective Time, except to
the extent required by any Bankruptcy-Related Requirements, MMC and Parent
shall not and shall not permit any of its subsidiaries to,
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without the prior written consent of Arch and except as otherwise contemplated
by the Merger Agreement or the Amended Plan: (i) except for assets not in
excess of $2,500,000 of fair market value, sell, lease, mortgage, pledge,
encumber or dispose of any of its assets or acquire or dispose of any assets,
other than in the ordinary course of business; (ii) except for borrowings
under the existing DIP Credit Agreement in an aggregate amount outstanding at
any one time equal to the sum of (x) amounts representing costs incurred or
committed as of the date hereof in connection with MMC's N-PCS network
construction ("N-PCS Construction") plus any additional costs for N-PCS
Construction approved by Arch (which approval shall be given or withheld in
writing within ten (10) business days after the written request for such
approval) and (y)(1) at any time on or before December 31, 1998 up to a
maximum of $20 million, and (2) at any time between January 1, 1999 and June
30, 1999 up to a maximum of $30 million, previously committed or create, incur
or assume any indebtedness for borrowed money not currently outstanding
(including obligations in respect of capital leases); assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; or make
any loans, advances or capital contributions to, or investments in, any other
person; (iii) except for changes to MobileMedia's payroll program as
previously disclosed to Arch, enter into, adopt or amend any MobileMedia
employee benefit plan, or (except for normal adjustments in the ordinary
course of business) increase in any material respect the compensation or
fringe benefits of, or modify the employment terms of its directors, officers
or employees generally or pay any benefit not required by the terms in effect
on the date hereof of any existing MobileMedia employee benefit plan; (iv)
change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable change
in GAAP; (v) pay any pre-petition liability other than liabilities in
connection with the assumption of pre-petition contracts and with respect to
wages, taxes, customer refunds and other related expenses that MobileMedia is
authorized to pay by the Bankruptcy Court and adequate protection payments and
the payment to the Pre-Petition Lenders of the cash proceeds from the
MobileMedia Tower Site Sale, in each case as authorized by the Bankruptcy
Court; (vi) amend its certificate of incorporation, by-laws or other
comparable organizational documents; (vii) sell, assign, transfer or license
any material licenses, authorizations or intellectual property other than in
the ordinary course of business; (viii) enter into, amend, terminate, take or
omit to take any action that would constitute a material violation of or
default under, or waive any material rights under, certain licenses,
authorizations, contracts or agreements other than in the ordinary course of
business; (ix) make or commit to make any capital expenditure not set forth in
the capital expense budget provided to Arch; (x) (A) declare, set aside or pay
any dividends on, or make any other distributions (whether in cash, securities
or other property) in respect of, any of its outstanding capital stock (other
than, with respect to a subsidiary of MobileMedia, to its corporate parent),
(B) split, combine or reclassify any of its outstanding capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its outstanding capital stock, or (C) purchase,
redeem or otherwise acquire any shares of outstanding capital stock or any
rights, warrants or options to acquire any such shares; (xi) issue, sell,
grant or pledge any shares of its capital stock, any other voting securities
or any securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible or exchangeable securities, other than upon the exercise of
options, or upon the conversion or exchange of securities, outstanding on the
date of the Merger Agreement; (xii) make any material tax election or settle
or compromise any material tax liability or any pending or threatened suit or
action other than consistent with MobileMedia's practice since the Petition
Date or pursuant to the terms of the Amended Plan; (xiii) establish, or
transfer any assets to, a trust for purposes of funding any employee benefit
plan, including, without limitation, a so-called "rabbi trust," except as
required by applicable law; or (xiv) agree in writing or otherwise to take any
of the foregoing actions.
CONDUCT OF ARCH'S BUSINESS PENDING THE MERGER
The Merger Agreement provides that, prior to the Effective Time, Arch shall
not, and shall not permit any of its subsidiaries to, without the prior
written consent of MobileMedia, and except as otherwise contemplated by the
Merger Agreement or the Amended Plan: (i) dispose of any of its assets or
acquire or dispose of any assets or shares or other equity interests in or
securities of any subsidiary, other than in the ordinary course of business,
except for (A) the mortgage, pledge or encumbering of such assets, shares,
equity interests or securities pursuant to agreements existing as of the date
of the Merger Agreement or agreements entered into to provide funding, in
whole or in part, for the amounts payable by Arch under the Merger Agreement
or the Amended
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Plan or (B) the acquisition of such assets, shares, equity interests or
securities of any other Person (as defined therein) with an aggregate purchase
price not exceeding $25.0 million; (ii) except for borrowings under the API
Credit Facility or borrowings to provide funding for the amounts payable by
Arch under the Merger Agreement or the Amended Plan, create, incur or assume
any indebtedness for borrowed money not currently outstanding (including
obligations in respect of capital leases); assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person; or make any loans,
advances or capital contributions to, or investments in, any other person;
(iii) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable change
in GAAP; (iv) amend its certificate of incorporation, by-laws or other
comparable organizational documents; (v) sell, assign, transfer or license any
material license, authorization or intellectual property, other than in the
ordinary course of business; (vi) enter into, amend, terminate, take or omit
to take any action that would constitute a material violation of or default
under, or waive any material rights under, certain licenses, contracts or
agreements, other than in the ordinary course of business; (vii) make or
commit to make any capital expenditure not set forth in the capital expense
budget provided to Parent; (viii) except as required under agreements existing
as of the date of the Merger Agreement, (A) declare, set aside or pay any
dividends on, or make any other distributions (whether in cash, securities or
other property) in respect of, any of its outstanding capital stock (other
than, with respect to any subsidiary of Arch, to its corporate parent), (B)
split, combine or reclassify any of its outstanding capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock, or (C) purchase,
redeem or otherwise acquire any shares of outstanding capital stock or any
rights, warrants or options to acquire any such shares, except, in the case of
this clause (C), for the acquisition of shares from holders of options in full
or partial payment of the exercise price payable by such holder upon exercise
of options; (ix) issue, sell, grant, pledge any shares of its capital stock,
any other voting securities or any securities convertible into or exchangeable
for, or, if outstanding as of the date of the Merger Agreement, change the
material terms of any of the foregoing, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or exchangeable
securities, other than pursuant to the terms of any benefit plan as in effect
on the date of the Merger Agreement in accordance with past practice or upon
the exercise of options, or upon the conversion or exchange of securities,
outstanding on the date of the Merger Agreement; (x) make any material tax
election or settle or compromise any material tax liability or any pending or
threatened suit or action; (xi) establish, or transfer any assets to, a trust
for purposes of funding any of Arch's employee benefit plans, including,
without limitation, a so-called "rabbi trust," except as required by
applicable law; or (xiii) agree in writing or otherwise to take any of the
foregoing actions.
NOTICE OF BREACHES
The Merger Agreement provides that each of Arch, Parent and MobileMedia
shall each promptly deliver to the other parties written notice of any event
or development that would (a) render any statement, representation or warranty
of such party in the Merger Agreement inaccurate or incomplete in any respect,
or (b) constitute or result in a breach by such party of, or a failure by such
party to comply with, any agreement or covenant in the Merger Agreement
applicable to such party. No such disclosure shall be deemed to avoid or cure
any such misrepresentation or breach.
EXCLUSIVITY PROVISIONS
The Merger Agreement provides that, except for the MobileMedia Tower Site
Sale, MobileMedia shall not, and shall cause each of its subsidiaries, as
applicable, and each of their respective directors, officers, employees,
financial advisors, representatives or agents, not to, directly or indirectly,
(i) solicit, initiate, engage or participate in or encourage discussions or
negotiations with any person or entity (other than Arch) concerning any
merger, consolidation, sale of material assets, tender offer for,
recapitalization of or accumulation or acquisition of securities issued by
MobileMedia or any of its subsidiaries, as applicable, proxy solicitation or
other business combination involving MobileMedia or any of its subsidiaries,
as applicable, (each, a "MobileMedia Acquisition Proposal") or (ii) provide
any non-public information concerning the business, properties or assets of
MobileMedia or any of its subsidiaries, as applicable, to any person or entity
(other than to Arch and other parties in accordance with existing
confidentiality arrangements). The Merger Agreement provides that MobileMedia
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shall, and shall cause each of its subsidiaries, as applicable, to, cease
immediately any and all existing activities, discussions or negotiations with
any person other than Arch with respect to any MobileMedia Acquisition
Proposal. MobileMedia is obligated under the Merger Agreement to immediately
notify Arch of, and to disclose to Arch all details of, any such inquiries,
discussions or negotiations.
The Merger Agreement provides, however, that prior to the entry of the
Confirmation Order (as defined below), MobileMedia may, to the extent required
by the Bankruptcy-Related Requirements, or to the extent that MobileMedia's
Board of Directors determines, in good faith after consultation with outside
legal counsel, that its fiduciary duties under applicable law require it to do
so, participate in discussions or negotiations with, and, subject to the
requirements set forth below, furnish information to any person, entity or
group after such person, entity or group has delivered to MobileMedia, in
writing, an unsolicited bona fide offer to effect a MobileMedia Acquisition
Proposal that the MobileMedia Board in its good faith judgment determines,
after consultation with its independent financial advisors, would result in a
transaction more favorable to the stakeholders of MobileMedia from a financial
point of view than the Merger and for which financing, to the extent required,
is then committed (or which, in the good faith judgment of the MobileMedia
Board, is reasonably capable of being obtained) and which (in the good faith
judgment of such Board) is likely to be consummated (a "MobileMedia Superior
Proposal"). In the event MobileMedia receives a MobileMedia Superior Proposal,
nothing contained in the Merger Agreement (but subject to the terms thereof)
will prevent the MobileMedia Board from approving such MobileMedia Superior
Proposal or requesting authorization of such MobileMedia Superior Proposal
from the Bankruptcy Court, if the MobileMedia Board determines, in good faith,
after consultation with outside legal counsel, that such action is required by
its fiduciary duties under applicable law; in such case, the MobileMedia Board
may terminate the Merger Agreement; provided, however, that MobileMedia may
not terminate the Merger Agreement until at least 48 hours after Arch's
receipt of a copy of such MobileMedia Superior Proposal. The Merger Agreement
further provides that MobileMedia and each of its subsidiaries, as applicable,
shall not provide any non-public information to a third party unless: (i)
MobileMedia provides such non-public information pursuant to a non-disclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the confidentiality agreements between
MobileMedia and Arch (the "Confidentiality Agreements"); and (ii) such non-
public information has previously been delivered or made available to Arch.
MMC, on behalf of itself, Parent and MobileMedia, has agreed not to make any
material change to the Amended Plan or the Merger Agreement, exercise any
rights they may have to terminate the Merger Agreement or take any action
which could result in the termination of the Merger Agreement by Arch without
the prior written consent of the Unsecured Creditors Committee or the entry of
an order by the Bankruptcy Court. MMC has further agreed not to exercise its
rights to respond to or negotiate acquisition proposals received from third
parties without advising and consulting with the Unsecured Creditors
Committee. MMC also agreed that the Unsecured Creditors Committee could
request MMC to exercise its right to terminate the Merger Agreement, and if
MMC does not do so, the Unsecured Creditors Committee may seek an order of the
Bankruptcy Court to do so.
The Merger Agreement provides that except for the contemplated sale of
certain tower sites owned by Arch (the "Arch Tower Sale Agreement") Arch shall
not, and shall cause each of its subsidiaries and each of their respective
directors, officers, employees, financial advisors, representatives or agents
not to, directly or indirectly, (i) solicit, initiate, engage or participate
in or encourage discussions or negotiations with any person or entity (other
than MobileMedia and, in connection with the transactions contemplated by the
Merger Agreement, the Unsecured Creditors Committee concerning any merger
(other than mergers of Arch subsidiaries in connection with acquisitions of
other businesses by Arch (x) with a fair market value not in excess of $25.0
million and (y) that would not upon the closing thereof be in breach of Arch's
obligations under the Merger Agreement), consolidation, sale of material
assets, tender offer for, recapitalization of or accumulation or acquisition
of securities issued by Arch or any of Arch's subsidiaries, proxy solicitation
or other business combination (other than business combinations of
subsidiaries of Arch in connection with acquisitions of other businesses by
Arch (x) with a fair market value not in excess of $25.0 million and (y) that
would not upon the closing thereof be in breach of Arch's obligations under
the Merger Agreement), involving Arch or any of its subsidiaries (each, an
"Arch Acquisition Proposal") or (ii) except as permitted by the foregoing
clause (i), provide any non-public information concerning the business,
properties or assets of Arch or any its subsidiaries to any person or entity
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(other than MobileMedia or any of Arch's financing sources). The Merger
Agreement provides that Arch and its subsidiaries shall immediately cease any
and all existing activities, discussions or negotiations with any person other
than MobileMedia with respect to any Arch Acquisition Proposal. Arch is
obligated under the Merger Agreement to immediately notify MobileMedia of, and
to disclose to MobileMedia all details of, any such inquiries, discussions or
negotiations.
The Merger Agreement provides, however, that prior to the Special Meeting,
Arch may, to the extent that the Arch Board determines, in good faith, after
consultation with outside legal counsel, that its fiduciary duties under
applicable law require it to do so, participate in discussions or negotiations
with, and, subject to the requirements set forth below, furnish information to
any person, entity or group after such person, entity or group has delivered
to Arch, in writing, an unsolicited bona fide offer to effect an Arch
Acquisition Proposal that the Arch Board in its good faith judgment
determines, after consultation with its independent financial advisors, would
result in a transaction more favorable to the stockholders of Arch from a
financial point of view than the transactions contemplated thereby and for
which financing, to the extent required, is then committed (or which, in the
good faith judgment of the Arch Board, is reasonably capable of being
obtained) and which (in the good faith judgment of the Arch Board) is likely
to be consummated (an "Arch Superior Proposal"). In the event Arch receives an
Arch Superior Proposal, nothing contained in the Merger Agreement (but subject
to the terms thereof) will prevent the Arch Board from recommending to its
stockholders such Arch Superior Proposal if the Arch Board determines, in good
faith, after consultation with outside legal counsel, that such action is
required by its fiduciary duties under applicable law. The Merger Agreement
further provides that Arch shall not provide any non-public information to a
third party unless: (i) Arch provides such non-public information pursuant to
a non-disclosure agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in the Confidentiality
Agreement; and (ii) such non-public information has previously been delivered
or made available to MobileMedia.
The exclusivity provisions become effective only from and after the date the
Initial Merger Order is entered by the Bankruptcy Court.
BREAKUP FEE PROVISIONS
The Merger Agreement provides that in the event that (i) Arch terminates the
Merger Agreement as a result of a material breach of a representation,
warranty or covenant by MobileMedia or as a result of the failure of the
Confirmation Order to be entered on a timely basis due to the failure of the
creditors of MobileMedia entitled to vote on the Amended Plan (other than
Classes 7, 8 or 9) to vote in favor of the Amended Plan, or due to the
withdrawal or amendment of the Amended Plan in a manner adverse to Arch, the
filing of any other plan of reorganization by MobileMedia, or the modification
or amendment of any material provision of the Amended Plan, in each case
without Arch's consent, or the confirmation of any other plan of
reorganization filed by any other person, (ii) MobileMedia sells or otherwise
transfers other than to Arch all or any substantial portion of its assets as
part of a sale approved pursuant to Section 363 of the Bankruptcy Code (other
than the MobileMedia Tower Site Sale), (iii) MobileMedia has terminated the
Merger Agreement in connection with a MobileMedia Superior Proposal (each of
the foregoing being a "Major Breakup Event"), or (iv) Arch terminates the
Merger Agreement (as a result of the failure of the MobileMedia Tower Site
Sale to close when all other conditions to MobileMedia's obligation to close
have been satisfied) (a "Minor Breakup Event"; and, together with the Major
Breakup Events, the "Breakup Events"), and at the time of any such Breakup
Event Arch is not in material breach of any material covenant or obligation
required to be performed by Arch thereunder at or before such time, and is not
in breach of its representations and warranties contained in the Merger
Agreement (except where the matters in respect of which such representations
and warranties are in breach would not in the aggregate have a material
adverse effect on Arch), then MobileMedia shall pay to Arch as promptly as
practicable after demand therefor (but in no event later than the third
business day thereafter) (x) in the case of a Major Breakup Event, the amount
of $25.0 million, and (y) in the case of a Minor Breakup Event, an amount
equal to one-half of any amount actually received by MobileMedia pursuant to
the Tower Agreement (or pursuant to a settlement with Pinnacle in lieu
thereof) (in either case, the "Buyer Breakup Fee").
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In the event that MobileMedia terminates the Merger Agreement as the result
of Arch being in material breach of its representations, warranties and
covenants, the failure of the Arch Board to recommend the MobileMedia Proposal
and the Charter Amendment Proposal as required by the Merger Agreement or the
failure of the MobileMedia Proposal and the Charter Amendment Proposal to be
approved at the Special Meeting, or Arch or MobileMedia terminates the Merger
Agreement as a result of Arch's failure to obtain the financing necessary to
effect the transactions contemplated by the Merger Agreement and the Amended
Plan (when all other conditions to Arch's obligations to close have been
satisfied), and at the time of such termination MobileMedia is not in material
breach of any material covenant or obligation required to be performed by
MobileMedia thereunder at or before such time and is not in breach of its
representations and warranties contained in the Merger Agreement (except where
the matters in respect of which such representations and warranties are in
breach would not in the aggregate have a material adverse effect on
MobileMedia), then Arch shall pay to MobileMedia as promptly as practicable
after demand therefor (but in no event later than the third business day
thereafter) the amount of $32.5 million (the "MobileMedia Breakup Fee").
The Breakup Fee provisions become effective only from and after the date the
Initial Merger Order is entered by the Bankruptcy Court.
NASDAQ NATIONAL MARKET QUOTATION
The Merger Agreement provides that Arch shall use its best efforts to have
the shares of Arch Common Stock (and such Common Stock issuable upon
conversion of Arch's Class B Common Stock and exercise of the Arch Warrants)
and Arch Warrants to be issued as contemplated in the Merger Agreement and the
Amended Plan approved for quotation on the Nasdaq National Market prior to the
Effective Time.
DELIVERY OF FINANCIAL STATEMENTS
The Merger Agreement provides that as promptly as possible following the
last day of each month prior to the Effective Time, and in any event within 35
days after the end of each such month, each of Arch and MobileMedia shall
deliver to the other its unaudited consolidated balance sheet and the related
consolidated statements of operations and cash flows for the one-month period
then ended, all certified by its chief financial officer to the effect that
such interim financial statements are prepared in accordance with GAAP (except
as otherwise described therein) on a consistent basis as with each party's
audited financial statements and fairly present the consolidated financial
condition of each party as of the date thereof and for the period covered
thereby. As promptly as possible following the last day of each fiscal
quarter, and in any event within 45 days after the end of each such quarter,
each of Arch and MobileMedia shall deliver to the other its unaudited
consolidated balance sheet and the related unaudited consolidated statements
of operations and cash flows for the year-to-date period then ended, prepared
in accordance with GAAP (except as otherwise described therein) applied on a
consistent basis, which comply as to form with the applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto. MobileMedia shall also provide Arch with all information
(including financial statements and accountants' consents) as Arch may
reasonably request in connection with any offering of securities by Arch to
fund amounts payable under the Amended Plan or working capital needs of the
Combined Company.
FULL ACCESS
The Merger Agreement provides that Arch and MobileMedia shall each permit
representatives of the other to have full access (at all reasonable times, and
in a manner so as not to interfere with normal business operations) to all
premises, properties, financial and accounting records, contracts, other
records and documents, and personnel, of or pertaining to such party.
MobileMedia, upon Arch's request, is introducing Arch to MobileMedia's
principal suppliers and employees to facilitate discussions between such
persons and Arch with regard to the conduct of the Surviving Corporation's
business.
STOCKHOLDER APPROVAL; SPECIAL MEETING
The Merger Agreement provides that Arch shall take all action reasonably
necessary in accordance with applicable law, the rules of the Nasdaq National
Market, the Merger Agreement and the Arch Certificate and
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Arch By-laws, duly to convene the Special Meeting as promptly as practicable.
Arch has agreed, subject to the Arch Board's fiduciary obligations, to
recommend that its stockholders vote in favor of the MobileMedia Proposal and
the Charter Amendment Proposal and to use its best efforts to cause to be
solicited proxies from stockholders of Arch to be voted at the Special Meeting
in favor of the MobileMedia Proposal and the Charter Amendment Proposal and to
take all other actions necessary or advisable to secure the vote or consent of
stockholders required to approve the MobileMedia Proposal and the Charter
Amendment Proposal.
PREPARATION OF PROXY STATEMENT AND DISCLOSURE STATEMENT
The Merger Agreement requires Arch to prepare, file and distribute this
Proxy Statement for the Special Meeting and obligates MobileMedia to provide
all information (including financial information) as Arch may reasonably
request in connection with this Proxy Statement. The Merger Agreement requires
Arch to provide MobileMedia with all information (including financial
information) as MobileMedia may reasonably request for the disclosure
statement MobileMedia is required to send to its creditors in connection with
the approval of the Amended Plan.
APPLICATION OF MOBILEMEDIA TOWER SALE PROCEEDS
The Merger Agreement provides that MobileMedia shall promptly pay the net
proceeds from the sale of the MobileMedia Tower Sites to the Pre-Petition
Agent for the benefit of the Pre-Petition Lenders.
FCC FILING
The Merger Agreement provides that as soon as practicable following the date
of the Merger Agreement, and in no event later than the later to occur of the
date 15 days following the execution of the Merger Agreement or the date 10
days following the filing with the Bankruptcy Court of the Amended Plan, Arch
and MobileMedia shall jointly prepare and file applications (the "FCC
Applications") on the appropriate FCC forms in accordance with all applicable
FCC rules and regulations requesting (i) the FCC's consent to the transfer of
the control of the Debtor Authorizations (as defined therein) to Arch, (ii) to
the extent that such consent is required, the FCC's consent to the transfer of
control of Buyer Authorizations (as defined therein) from Arch's current
stockholders to Arch's stockholders immediately following the consummation of
the transactions contemplated hereby in accordance with the Amended Plan,
(iii) the termination of the hearing in WT Docket No. 97-115, In the Matter of
MobileMedia Corporation, et al. (the "Hearing") without any further findings
adverse to MobileMedia, or to the Debtor Authorizations or otherwise
materially restricting Arch's or MobileMedia's ability to own or operate the
properties, assets and businesses of MobileMedia following the Effective Time,
and (iv) the grant to Arch of permanent license authority to operate those
stations listed on Attachment C of Public Notice DA 97-78 (January 13, 1997),
as to which MobileMedia is currently operating under a grant of interim
operating authority, or in the alternative, a determination by the FCC that as
to such stations, Arch will enjoy protection from, and rights of incumbency as
to, any future Market Area Licensee authorized to operate on the frequencies
licensed under interim operating authority. Arch and MobileMedia are obligated
to cooperate in providing all information and taking all steps necessary to
expedite the preparation, filing and prosecution of the FCC Applications with
the FCC. In the event any person or entity petitions the FCC to deny any FCC
Application, or petitions for any further proceedings in the Hearing, or
otherwise challenges the grant of any FCC Application before the FCC, or in
the event the FCC approves the transfer of control of the Debtor
Authorizations (and, if necessary, Arch Authorizations), and any person
requests reconsideration or judicial review of such order, then Arch and
MobileMedia shall take such reasonable actions as are necessary to oppose such
petition or challenge before the FCC or defend such action and the order of
the FCC before the judiciary diligently and in good faith; provided, however,
that nothing contained herein shall be deemed to require Arch to intervene in
the Hearing or otherwise to defend MobileMedia as to any allegations or
proceedings relating to the allegations before the FCC in the Hearing, except
as reasonably required to support the transfer of control of the Debtor
Authorizations to Arch. MobileMedia is obligated to provide Arch (whether or
not Arch intervenes or otherwise participates in the Hearing) with reasonable
advance notice of, and a right to participate in, any meetings or hearings
relating to the FCC Applications or the Hearing, and a right to review in
advance any correspondence, agreements, or pleadings
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which may be submitted by MobileMedia to the FCC or any other party to the
Hearing with regard to the FCC Applications or any proceedings relating to the
Hearing. In each such case, each party shall bear its own costs and expenses
of prosecuting such application to a favorable conclusion, to the end that the
transactions contemplated by the Merger Agreement and the Amended Plan may be
consummated.
The Merger Agreement provides that MobileMedia shall use its reasonable best
efforts to complete its voluntary program to inspect and audit its transmitter
site facilities and license data, and provide periodic updates on the progress
of such program to Arch.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
The Merger Agreement provides that, to the extent set forth in the Amended
Plan and only to such extent, all rights to indemnification and exculpation
from liabilities for acts or omissions occurring prior to the Effective Time
existing at the Effective Time in favor of the current or former directors or
officers of MobileMedia as provided in their respective charters or by-laws
(or comparable organization documents) and any indemnification agreements of
MobileMedia (including with Alvarez & Marsal, Inc.) shall survive the Merger
and shall continue in full force and effect in accordance with their terms for
a period of not less than three years from the Effective Time and the
obligations of MobileMedia in connection therewith shall be assumed by Arch.
To the extent set forth in the Amended Plan and only to such extent, Arch is
obligated to provide, or to cause the Surviving Corporation to provide,
MobileMedia's current directors and officers an insurance and indemnification
policy (including any fiduciary liability policy) that provides coverage with
respect to any claims made during the three-year period following the
Effective Time for events occurring prior to the Effective Time in an amount
of $40,000,000 or such lesser amount as can be purchased for $750,000.
STATE TAKEOVER LAWS
The Merger Agreement provides that if any "fair price", "business
combination" or "control share acquisition statute" or other similar statute
or regulation shall become applicable to the transactions contemplated hereby,
Arch and MobileMedia and their respective Boards of Directors shall use all
reasonable efforts to grant such approvals and take such actions as are
necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated hereby and shall otherwise act to
minimize the effects of any state statute or regulation affecting the
transactions contemplated hereby.
EMPLOYEES
The Merger Agreement provides that after the Effective Time Arch shall
transfer MobileMedia employees to Arch's employee benefit plans as soon as
practicable, and prior to such transfer shall maintain benefits for such
employees comparable to the benefits currently in effect for employees of
MobileMedia. Arch has agreed to honor accrued vacation, holiday, sick and
personal days, maintain MobileMedia's 1998 Employee Incentive Plan and give
MobileMedia's employees credit under Arch's benefit plans for service with
MobileMedia, to the extent permitted by law.
EFFECTS OF ARCH'S RIGHTS AGREEMENT
The Merger Agreement provides that, except as contemplated by the Merger
Agreement, Arch is obligated not to (i) amend the Rights Agreement or (ii)
take any action with respect to, or make any determination under, the Rights
Agreement (including a redemption of the Preferred Rights) with the purpose of
facilitating an Arch Acquisition Proposal. Arch has amended its Rights Plan to
increase the ownership threshold for W.R. Huff, CS First Boston Corporation
and Whippoormill Associates, Inc. to 28%, 22% and 23%, respectively. See
"Description of Arch Capital Stock--Anti-Takeover Provisions--Rights Plan".
RIGHTS OFFERING; REGISTRATION STATEMENT
As specified in the Amended Plan, Arch will issue on a pro rata basis to the
holders of Allowed Class 6 Claims (with certain exceptions as specified in the
Amended Plan) Rights to purchase, for an aggregate consideration of $217.0
million Units ("Units"), each consisting of one share of Arch Common Stock or
Arch Class B Common Stock and of one Arch Warrant.
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MobileMedia and Arch have entered into a Standby Purchase Agreement with
each Standby Purchaser, as defined in "--Related Agreements--Standby Purchase
Agreements", and, prior to or at the Closing, Arch will execute and deliver to
each of the Standby Purchasers a Registration Rights Agreement.
Arch will file with the Commission a registration statement under the
Securities Act to effect the Rights Offering as contemplated hereby (the
"Registration Statement") within fifteen (15) days of the signing of the
Merger Agreement and is obligated to use its best efforts to have the
Registration Statement declared effective by the Commission as promptly as
practicable thereafter. Arch is also obligated to take any action required to
be taken under state blue sky laws or other securities laws in connection with
the Rights Offering. MobileMedia has agreed to furnish Arch with all
information (including, without limitation, financial statements, pro forma
financial statements and projections) and shall take such other action
including obtaining any necessary consents from its accountants as Arch may
reasonably request in connection with the Registration Statement. Arch has
agreed to consult with MobileMedia and its counsel in connection with, and
shall permit MobileMedia and its counsel to participate in, the preparation of
the Registration Statement. Arch has agreed to cause the Rights to be issued
as specified in the Amended Plan as soon as practicable after the date the
Registration Statement becomes effective but not before approval of the
Disclosure Statement by the Bankruptcy Court.
Arch has agreed to promptly notify MobileMedia of the receipt of the
comments of the Commission and of any requests by the Commission for amendment
or supplements to the Registration Statement or for additional information,
and shall promptly supply MobileMedia with copies of all correspondence
between it (or its representatives) and the Commission (or its staff) with
respect thereto, and shall permit counsel for MobileMedia to participate in
any telephone conferences or meetings with the staff of the Commission.
REIMBURSEMENT OF ARCH'S EXPENSES
As soon as practicable after entry of the Initial Merger Order, MMC is
required to pay $500,000 to Arch in partial reimbursement of Arch's expenses
in connection with the negotiation and execution of the Merger Agreement.
CONDITIONS
The Merger Agreement provides that the respective obligations of Arch and
MobileMedia to effect the Merger are subject to the satisfaction or waiver on
or prior to the Effective Time of each of the following conditions: (i) each
of the MobileMedia Proposal and the Charter Amendment Proposal shall have been
approved by the requisite vote of the stockholders of Arch in accordance with
the DGCL, the Arch Certificate and Arch By-laws; (ii) no statute, rule, order,
decree or regulation shall have been enacted or promulgated by any foreign or
domestic Governmental Entity which prohibits the consummation of the
transactions contemplated thereby and all consents, orders and approvals from
all Governmental Entities and other persons or entities identified by
MobileMedia and Arch shall have been obtained and shall be in effect; (iii)
there shall be no order or injunction of a foreign or United States federal or
state court or other governmental authority of competent jurisdiction in
effect precluding, restraining, enjoining or prohibiting consummation of the
transactions contemplated thereby; (iv) the expiration or early termination of
any waiting period under the HSR Act shall have occurred; (v) (1) the FCC
shall have issued an order (the "FCC Grant") both (i) consenting to the
transfer of the Debtor Authorizations and, to the extent requested by the
Parties, to the transfer of the Buyer Authorizations without any conditions
which would have a Buyer FCC Material Adverse Effect (as defined below in this
clause (v)) or a Debtor FCC Material Adverse Effect (as defined below in this
clause (v)) and (ii) terminating the Hearing without any findings or
conclusions (x) which are materially adverse to the Reorganized Debtors or the
Debtor Authorizations or which would have a material adverse effect on the use
of the Debtor Authorizations by the Reorganized Debtors following the Closing,
or (y) which impose any material monetary forfeiture on the Debtors or the
Reorganized Debtors or retain jurisdiction to impose any material monetary
forfeitures in the future on the Buyer or the Reorganized Debtors based on the
activities of the Debtors prior to the Closing, or (z) which would have a
Buyer FCC Material Adverse Effect or a Debtor FCC Material Adverse Effect; and
(2) either (i) the FCC Grant has become a Final Order (as defined below in
this Section 5.1(e)) or (ii)(a) any condition or conditions under the Bank
Lending Documents to the effect that the FCC Grant shall have become a Final
Order (or any
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condition or conditions therein having a substantially similar effect) shall
have been satisfied or, if not satisfied, the Bank Lenders shall have waived
any such condition or conditions (or any such condition or conditions having a
substantially similar effect) and (b) any condition or conditions under the
Other Lending Documents to the effect that the FCC Grant shall have become a
Final Order (or any condition or conditions therein having a substantially
similar effect) shall have been satisfied or, if not satisfied, the Other
Lenders shall have waived any such condition or conditions (or any such
condition or conditions having a substantially similar effect); in this clause
(v), (A) "Bank Lenders" shall mean, collectively, the Existing Lenders (as
defined in the Bank Commitment Letter) and the Credit Parties (as so defined),
as the same in each case shall exist at the Closing, (B) "Bank Lending
Documents" shall mean the Existing Credit Agreements (as defined in the Bank
Commitment Letter) as amended and modified by the Amendments (as so defined),
(C) "Bank Commitment Letter" shall mean the Commitment Letter of even date
herewith between Arch Paging, Inc. and the Credit Parties, including the Term
Sheet (as defined in such Bank Commitment Letter), copies of which has been
delivered to the Company by the Buyer, as the same may be amended or modified,
(D) "Other Lenders" shall mean the Lenders (as defined in the Bridge
Commitment Letter), as the same shall exist at the Closing, or, if applicable,
any other lenders which lend funds to Arch Communications, Inc. (or the Buyer
or any other Buyer Subsidiary) pursuant to a Substitute Loan Agreement (as
defined below), (E) "Other Lending Documents" shall mean the Bridge Commitment
Letter, Bridge Loan Agreement (as defined in the Bridge Commitment Letter) or
any other loan agreement, indenture or similar agreement (the "Substitute Loan
Agreement") entered into by the Buyer or any Buyer Subsidiary in lieu thereof
for purposes of funding a material portion of the consideration required by
the Buyer for the transactions contemplated by this Agreement, (F) "Bridge
Commitment Letter" shall mean the Bridge Commitment Letter, the Bridge Fee
Letter and the Bridge Engagement Letter, each of even date herewith, between
the Buyer and Arch Communications, Inc., on the one hand, and the Other
Lenders, on the other hand, a copy of which has been delivered by the Buyer to
the Company, as the same may be amended or modified, (G) "Buyer FCC Material
Adverse Effect" shall mean a material adverse effect on the financial
condition and operating income of the Buyer and its subsidiaries, taken as a
whole, excluding any effect generally applicable to the economy or the
industry in which Buyer conducts its business, and (H) "Debtor FCC Material
Adverse Effect" shall mean a material adverse effect on the financial
condition and operating income of the Debtors, taken as a whole, excluding any
effect generally applicable to the economy or the industry in which the
Company conducts its business; for purposes of this clause (v), the FCC Grant
shall become a "Final Order" when no request for a stay is pending, no stay is
in effect and any deadline for filing such a request that may be designated by
statute or regulation is past; no petition for rehearing or reconsideration or
application for review is pending and the time for filing any such petition or
application is passed; the FCC does not have the action or decision under
reconsideration on its own motion and the time for initiating any such
reconsideration that may be designated by statute or rule has passed; and no
appeal is pending or in effect and any deadline for filing any such appeal
that may be designated by statute or rule has passed; deadline for filing any
such appeal that may be designated by statute or rule has passed; (vi) the
Registration Statement shall have been declared effective and no stop order
with respect thereto shall be in effect; (vii) the shares of Arch Common Stock
to be issued as contemplated by the Amended Plan and the Merger Agreement
shall have been approved for quotation on the Nasdaq National Market; (viii)
(1) the Confirmation Order (which shall authorize and approve the assumption
by the Debtors of the Assumed Contracts), in a form reasonably satisfactory to
each of the Parties, shall have been entered by the Bankruptcy Court; and (2)
either (i) the Confirmation Order has become a Final Order (as defined below
in this clause (v)) or (ii) (a) any condition or conditions under the Bank
Lending Documents to the effect that the Confirmation Order shall have become
a Final Order (or any condition or conditions therein having a substantially
similar effect) shall have been satisfied or, if not satisfied, the Bank
Lenders shall have waived any such condition or conditions (or any such
condition or conditions having a substantially similar effect), and (b) any
condition or conditions under the Other Lending Documents to the effect that
the Confirmation Order shall have become a Final Order (or any condition or
conditions therein having a substantially similar effect) shall have been
satisfied or, if not satisfied, the Other Lenders shall have waived any such
condition or conditions (or any such condition or conditions having a
substantially similar effect); the Confirmation Order shall become a "Final
Order" when it shall have been in full force and effect for eleven days
without any stay or material modification or amendment thereof, and when the
time to appeal or petition for certiorari designated by statute or regulation
has expired and no appeal or petition for certiorari is pending
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or, if an appeal or petition for certiorari has been timely filed or taken,
the order or judgment of the tribunal has been affirmed (or such appeal or
petition has been dismissed as moot) by the highest court (or other tribunal
having appellate jurisdiction over the order or judgment) to which the order
was appealed or the petition for certiorari has been denied, and the time to
take any further appeal or to seek further certiorari designated by statute or
regulation has expired; (ix) no action, suit or proceeding shall be pending or
threatened by any Governmental Entity challenging the validity of the actions
taken by Arch, MobileMedia or any of their respective subsidiaries in
connection with the confirmation of the Amended Plan; (x) the Effective Date
(as defined in the Amended Plan) shall have occurred; and (xi) the Plan Shares
to be issued as contemplated by the Merger Agreement shall be so issued and
distributed pursuant to the exemption from registration under the Securities
Act provided by Section 1145 of the Bankruptcy Code, shall be freely tradeable
by holders thereof who are not then affiliates of Arch or "underwriters" under
the Securities Act or 1145(b)(1) of the Bankruptcy Code and, except for
certificates issuable to such affiliates or underwriters, shall be represented
by certificates bearing no restrictive legend.
The obligation of Arch to consummate the transactions to be performed by
Arch in connection with the Closing is subject to the satisfaction, or waiver
by Arch, of the following conditions: (i) the representations and warranties
of MobileMedia contained in the Merger Agreement, which representations and
warranties shall be deemed not to include any qualification or limitation with
respect to materiality, shall be true and correct as of the Effective Time,
with the same effect as though such representations and warranties were made
as of the Effective Time, except where the matters in respect of which such
representations and warranties are not true and correct, result from actions
permitted by the Merger Agreement or would not in the aggregate have a
material adverse effect on the businesses, assets (including licenses,
franchises and other intangible assets), financial condition, operating income
and prospects of MobileMedia and its subsidiaries, taken as a whole; (ii)
MobileMedia shall have performed or complied with its material agreements and
covenants required to be performed or complied with under the Merger Agreement
as of or prior to the Effective Time in all material respects; (iii) there
shall not have occurred between the date of the Merger Agreement and the
Effective Time an event which has had a material adverse effect on the
businesses, assets (including licenses, franchises and other intangible
assets), financial condition, operating income and prospects of MobileMedia
and its subsidiaries, taken as a whole; (iv) MobileMedia shall have delivered
to Arch a certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that the preceding conditions are satisfied in all
respects; (v) after the Registration Statement has been declared effective,
the Rights Offering shall have expired and Arch shall have received aggregate
proceeds therefrom (and/or from the closings contemplated by the Standby
Purchase Agreements) of $217.0 million; and (vi) the closing of the
MobileMedia Tower Site Sale shall have occurred and MobileMedia shall have
applied at least $165.0 million towards payment of the Secured Creditors in
connection with the Amended Plan.
The obligation of MobileMedia to consummate the transactions to be performed
by it in connection with the Merger is subject to the satisfaction, or waiver
by MobileMedia, of the following conditions: (i) the representations and
warranties of Arch contained in the Merger Agreement, which representations
and warranties shall be deemed not to include any qualification or limitation
with respect to materiality, shall be true and correct as of the Effective
Time, with the same effect as though such representations and warranties were
made as of the Effective Time, except where the matters in respect of which
such representations and warranties are not true and correct, result from
actions permitted by the Merger Agreement or would not in the aggregate have a
material adverse effect on the businesses, assets (including licenses,
franchises and other intangible assets), financial condition, operating income
and prospects of Arch and its subsidiaries, taken as a whole; (ii) Arch shall
have performed or complied with its material agreements and covenants required
to be performed or complied with under the Merger Agreement as of or prior to
the Closing in all material respects; (iii) there shall not have occurred
between the Agreement Date and the Effective Time an event which has had
material adverse effect on the businesses, assets (including licenses,
franchises and other intangible assets), financial condition, operating income
and prospects of Arch and its subsidiaries, taken as a whole; (iv) the
Preferred Rights shall not have become nonredeemable, exercisable, distributed
or triggered pursuant to the terms of the Rights Agreement; and
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(v) Arch shall have delivered to MobileMedia a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect that
such conditions are satisfied in all respects.
TERMINATION
The Merger Agreement provides that Arch and MobileMedia may terminate the
Merger Agreement prior to the Effective Time only as follows: (i) Arch and
MobileMedia may terminate the Merger Agreement by mutual written consent; (ii)
either Arch or MobileMedia may terminate the Merger Agreement by giving
written notice to the other in the event the other is in breach (A) of its
representations and warranties contained in the Merger Agreement, which
representations and warranties shall be deemed not to include any
qualification or limitation with respect to materiality, except where the
matters in respect of which such representations and warranties are in breach
would not in the aggregate have a material adverse effect on the business,
assets (including licenses, franchises and other intangible assets), financial
condition, operating income and prospects of such party and its respective
subsidiaries, taken as a whole, or (B) in respect of its material covenants or
agreements contained in the Merger Agreement, and in either case such breach
is not remedied within 20 business days of delivery of such written notice
thereof (which notice shall specify in reasonable detail the nature of such
breach); (iii) (A) Arch may terminate the Merger Agreement by written notice
to MobileMedia if the Confirmation Order has not been entered by the
Bankruptcy Court on or prior to March 31, 1999 (unless such failure results
primarily from a breach by Arch of any representation, warranty or covenant
contained in the Merger Agreement) or (B) Arch may terminate the Merger
Agreement by giving written notice to MobileMedia if the Merger shall not have
occurred on or before June 30, 1999 (unless the failure results primarily from
a breach by Arch of any representation, warranty or covenant contained in the
Merger Agreement); (iv)(A) MobileMedia may terminate the Merger Agreement by
written notice to Arch if the Confirmation Order has not been entered by the
Bankruptcy Court on or prior to March 31, 1999 (unless the failure results
primarily from a breach by MobileMedia of any representation, warranty or
covenant contained in the Merger Agreement) or (B) MobileMedia may terminate
the Merger Agreement by giving written notice to Arch if the Merger shall not
have occurred on or before June 30, 1999 (unless the failure results primarily
from a breach by MobileMedia of any representation, warranty or covenant
contained in the Merger Agreement); (v) MobileMedia may terminate the Merger
Agreement in connection with a MobileMedia Superior Proposal by giving written
notice to Arch, provided that on or before such termination MobileMedia shall
have paid to Arch the applicable Arch Breakup Fee; (vi) Arch may terminate the
Merger Agreement by giving written notice to MobileMedia if the Initial Merger
Order has not been entered by the Bankruptcy Court on or prior to September 4,
1998; (vii) MobileMedia may terminate the Merger Agreement by giving written
notice to Arch if (A) the Arch Board does not issue the Arch Recommendation
prior to the Special Meeting or withdraws or amends in a manner adverse to
MobileMedia the Arch Recommendation or otherwise materially breaches its
obligations with respect to soliciting proxies from its stockholders for
approval of the MobileMedia Proposal and the Charter Amendment Proposal at the
Special Meeting or (B) at the Special Meeting the MobileMedia Proposal or the
Charter Amendment Proposal is not approved by the requisite vote of Arch
Stockholders; and (viii) Arch may terminate the Merger Agreement by giving
written notice to MobileMedia if MobileMedia or any of its subsidiaries files
either an amendment to the Amended Plan or any other plan of reorganization in
a manner that is in violation of the Merger Agreement and (ix) Arch may
terminate the Merger Agreement by giving notice to MobileMedia if (A)
MobileMedia takes (or omits to take) any action that would constitute a
material breach of any of its covenants or agreements but for exceptions to
its obligations pursuant to Bankruptcy-Related Requirements, and (B) such
action is not remedied within 20 business days of delivery of written notice
thereof (which notice shall specify in reasonable detail the nature of such
action). Parent has agreed for itself and MMC not to exercise any right to
terminate the Merger Agreement without the prior written consent of the
Unsecured Creditors Committee.
If any party terminates the Merger Agreement, all obligations of Arch and
MobileMedia thereunder shall generally terminate without any liability of any
party to any other party, except for any liability of any party for willful or
intentional breaches of the Merger Agreement, and except for MobileMedia's
obligation to pay the Buyer Breakup Fee, if applicable, and Arch's obligation
to pay the MobileMedia Breakup Fee, if applicable, which shall survive any
such termination.
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AMENDMENT AND WAIVER
Arch, Parent and MMC may mutually amend any provision of the Merger
Agreement (in certain cases Parent and MMC may do so only with the consent of
the Unsecured Creditors Committee or pursuant to an order of the Bankruptcy
Court). The Merger Agreement provides that no waiver by any party to the
Merger Agreement of any default, misrepresentation or breach of warranty or
covenant thereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation or breach of warranty or
covenant thereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
MMC, on behalf of itself, Parent and MobileMedia, has agreed not to make any
material changes, exercise any rights they may have to terminate the Merger
Agreement or take any action which might result in the termination of the
Merger Agreement without the prior written consent of the Unsecured Creditors
Committee or pursuant to an order of the Bankruptcy Court. MMC has further
agreed not to exercise its rights to respond to or negotiate acquisition
proposals received from third parties without advising and consulting with the
Unsecured Creditors Committee. MMC also agreed that the Unsecured Creditors
Committee could request MMC to exercise its right to terminate the Merger
Agreement, and if MMC does not do so, the Unsecured Creditors Committee may
seek an order of the Bankruptcy Court to do so.
RELATED AGREEMENTS
The agreements summarized below are related to the Merger Agreement and the
transactions contemplated thereby. See also "The MobileMedia Plan of
Reorganization".
STANDBY PURCHASE AGREEMENTS
Certain unsecured creditors of MobileMedia, comprised of W.R. Huff, as agent
for various discretionary accounts and affiliates, The Northwestern Mutual
Life Insurance Company, acting for itself and its Group Annuity Separate
Account, the Northwestern Mutual Series Fund, Inc., Credit Suisse First Boston
Corporation and Whippoorwill as agent for various discretionary accounts (the
"Standby Purchasers"), have each entered into separate binding written
commitments (the "Standby Purchase Agreements") to become Standby Purchasers
and, in such capacity, to exercise, in the aggregate and at the Subscription
Price per share (as defined below) any and all Rights not exercised by other
Unsecured Creditors for an aggregate purchase price of up to approximately
$217.0 million. Each Standby Purchaser is obligated to exercise a portion of
the Rights and obligations of the Standby Purchasers under the Standby
Purchase Agreements are several and not joint.
The Standby Purchase Agreements permit the Standby Purchasers to acquire or
dispose of Rights, as well as the underlying claims in respect of which the
Rights are distributed. However, any such acquisition or disposition will not
relieve the Standby Purchaser's commitment to exercise Rights to the extent
they are not exercised by third parties.
The Standby Purchasers will be entitled to deliver the subscription price of
the Rights on the Effective Date, following notification as the number of
Rights exercised by third parties. Other holders of Rights will be required to
exercise them, if at all, on a date prior to the Effective Date determined by
Arch and MobileMedia, with such date not being earlier than 15 days after the
date on which all conditions to closing (other than relating to "finality" of
an FCC Order) have been satisfied.
The commitment of each Standby Purchaser is subject to a number of
conditions, including: (i) that the Confirmation Order, in a form reasonably
satisfactory to the Standby Purchaser shall have been entered and shall have
become a Final Order (as defined in the Merger Agreement), provided that one
Standby Purchaser may not assert this condition if all other Standby
Purchasers, acting in good faith, shall have waived the requirement of
finality; (ii) the satisfaction or, with the written consent of the Standby
Purchaser, the waiver of all conditions precedent to the obligations of each
of the parties to the Merger Agreement and all conditions precedent to the
effectiveness of the Plan, provided, that the conditions contained in Sections
5.1(e) and (h), Sections 5.2(a), (b), (c), (d) and (e) and Sections 5.3(a),
(b), (c) and (e) may be waived without the written consent of the Standby
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Purchaser; (iii) the Shelf Registration Statement covering the resale of Arch
Common Stock, Arch Class B Common Stock and Arch Warrants by the Standby
Purchaser shall be effective; (iv) Arch shall have executed the Standby
Purchaser Registration Rights Agreement; (v) any and all amendments or
modifications to the Merger Agreement or any consents or waivers delivered by
Arch or MobileMedia to the other under the Merger Agreement (other than
consents under Section 4.5 of the Merger Agreement or waiver of the conditions
specified in clause (ii) above), shall have been satisfactory to the Standby
Purchaser; (vi) the representations and warranties made in the Merger
Agreement by Arch and MobileMedia shall have been accurate; (vii) Arch shall
have obtained the necessary financing to consummate the Merger (other than as
a result of the Standby Purchaser not fulfilling its commitment) on certain
minimum terms; (viii) each other Standby Purchaser shall have fulfilled its
commitment; (ix) the Rights, shares of Arch Common Stock, shares of Arch Class
B Common Stock and the Arch Warrants shall be issued and distributed pursuant
to an exemption from registration under the Securities Act pursuant to Section
1145 of the Bankruptcy Code or shall have been registered under the Securities
Act, such Registration Statement shall have been declared effective and no
stop order shall be in effect; (x) the FCC grant shall have been issued by the
FCC and it shall have become a Final Order (as defined in the Merger
Agreement), provided that a Standby Purchaser may not assert this condition if
each other Standby Purchaser, acting in good faith, shall have waived this
provision or if the reason that the FCC Grant shall not have become a Final
Order is a result of action taken by any present or former officer of
MobileMedia considered or determined by the FCC to be an alleged or an actual
wrongdoer for purposes of the FCC proceeding; and (xi) any applicable waiting
periods under the Heart-Scott Rodino Antitrust action shall have expired or
been terminated early. The obligation of the Standby Purchaser shall also be
subject to the condition that there shall not have occurred between June 30,
1998 and the Confirmation Date (and between June 30, 1998 and the Effective
Date if the Effective Date is more than 90 days after the Confirmation Date),
(i) any event or events (other than those that affecting generally the economy
or the industry in which Arch and MobileMedia conduct their respective
businesses) which has had or would have a material adverse effect on the
business, assets (including licenses, franchises and other intangible assets),
financial condition, operating income or prospects of the Combined Company,
(ii) any event or events involving a regulatory or statutory change and
effecting generally the industry in which Arch and MobileMedia conduct their
respective businesses which would materially and adversely affect the ability
of the Combined Company to operate its business, or (iii) an event or events
affecting generally the industry in which Arch and MobileMedia conduct their
respective businesses but would not materially and adversely affect the
ability of Combined Company to operate its business (except that the Standby
Purchaser may not assert such condition if each of the other Standby
Purchasers shall have waived this condition).
In addition, Arch and MobileMedia each make certain representations and
warranties about itself to the Standby Purchaser, including (i) due
organization, valid existence and good standing, with all requisite corporate
power and authority to perform its obligations under the Standby Commitment
Letter, (ii) subject to stockholder approval (in the case of Arch) and
Bankruptcy Court approval (in the case of MobileMedia) the execution, delivery
and performance of the Standby Purchase Agreement being duly and validly
authorized by all necessary corporate action, (iii) the validity and
enforceability of the Standby Purchase Agreement as against Arch and
MobileMedia, respectively, (iv) the compliance of the transactions
contemplated by the Standby Purchase Agreement with their respective
certificates of incorporation and by laws, certain contracts and applicable
laws, (v) the accuracy of the representations and warranties made by Arch and
MobileMedia, respectively, in the Merger Agreement, (vi) the accuracy of
copies of certain agreements given to the Standby Purchaser, (vii) the
accuracy of the information provided by each of Arch and MobileMedia, (ix) the
absence of any Buyer Material Adverse Change or Company Material Adverse
Change, and (x) the due authorization, valid issuance, nonassessability and
absence of preemptive rights with respect to shares of Arch issued in the
transaction. The Standby Purchaser represents (i) as to its organization,
qualification, corporate power and authority to enter into and perform its
obligations under the Standby Purchase Letter; (ii) the taking of all required
corporate action on the part of the Standby Purchaser, (iii) the validity and
enforceability of the Standby Purchase Letter, (iv) the compliance of the
transactions contemplated by the Standby Purchase Commitment with its
organizational documents, certain contracts and applicable laws, (v) the
accuracy of certain information provided by the Standby Purchaser to Arch and
MobileMedia, and (vi) the aggregate holdings of each Standby Purchaser of debt
securities of MobileMedia.
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Each of Arch and MobileMedia also covenant to provide the Committee notices
of all information to be made available to Arch by the Committee. The Standby
Purchaser and/or its counsel the ability to review and comment on the
registration statement to be filed on behalf of the Standby Purchaser. Arch
has undertaken, should the transaction close, to reimburse reasonable fees
incurred by the Standby Purchaser in negotiating and documenting this
transaction, up to a maximum of $100,000. In addition, the Standby Purchaser
covenants not to engage in any transactions that would have an adverse effect
on the market share price of Arch's sock and commit to vote for acceptance of
the Amended Plan secured claims held by it.
In consideration of their purchase commitments contained in the Standby
Purchase Agreements, the Standby Purchasers will be granted Standby
Purchasers' Warrants to purchase shares of Arch Common Stock which will
constitute approximately 2.5% of Arch Common Stock on a Fully Diluted Basis.
The Standby Purchase Agreements require Arch to nominate one designee of W.R.
Huff and one designee of Whippoorwill to be elected as directors of Arch for
so long as W.R. Huff or Whippoorwill, as the case may be, holds securities of
Arch having at least 10% of the combined voting power of all outstanding
securities of Arch (5% in the case of the initial renomination of such
nominees).
Arch has entered into a Registration Rights Agreement with the Standby
Purchasers dated as of August 18, 1998. See "--Registration Rights
Agreements".
In the event that the purchase of Units by the Standby Purchasers would
cause the Standby Purchasers together with any other person or entity that may
be an associate or affiliate thereof, in the aggregate, to hold more than
49.0% of the securities of Arch entitled to vote in the election of directors
and outstanding at the Effective Time, the Standby Purchasers will receive
instead, proportionate to their obligations to purchase Units and in lieu of
shares of Arch's Common Stock, shares of Class B Common Stock such that the
Standby Purchasers, in the aggregate, will hold no more than 49.0% of the
securities of Arch entitled to vote in the election of directors and
outstanding at the Effective Time. The Class B Common Stock will be identical
in all respects to Arch Common Stock, except that holders of Class B Common
Stock will not be entitled to vote in the election of directors and will be
entitled to 1/100th of a vote per share with respect to all other matters. See
"Description of Arch Capital Stock--Arch Class B Common Stock".
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The several commitments of the Standby Purchasers to purchase Units, and
their entitlement to receive Standby Purchasers Warrants, are as follows:
<TABLE>
<CAPTION>
COMMITMENT
RIGHTS AMOUNT PERCENTAGE
EXERCISE RELATING TO OF STANDBY
NAME AND ADDRESS OF STANDBY COMMITMENT UNEXERCISED TOTAL PURCHASERS
PURCHASER AMOUNT RIGHTS COMMITMENT WARRANTS
- --------------------------- ---------- ----------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
W.R. Huff Asset Management Co.,
L.L.C., as agent for various
discretionary accounts and
affiliates....................... $ 39.27 $ 35.80 $75.07 34.60%
67 Park Place, 9th Floor
Morristown, New Jersey 07960
Claim Amount: $
The Northwestern Mutual Life
Insurance Company................ $ 10.95 $ 9.97 $20.92 9.64%
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Claim Amount: $
The Northwestern Mutual Life
Insurance Company,
for its General Annuity Separate
Account.......................... $ 2.65 $ 2.42 $ 5.07 2.34%
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Claim Amount: $
Northwestern Mutual Series Fund,
Inc.--
High Yield Bond Portfolio........ $ .75 $ .69 $ 1.44 0.66%
Yield Bond Portfolio
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Claim Amount: $
Credit Suisse First Boston
Corporation...................... $ 29.48 $ 26.88 $56.36 25.97%
11 Madison Avenue, 4th Floor
New York, New York 10010
Claim Amount: $
Whippoorwill Associates, Inc., as
general partner of and/or agent
for various discretionary
accounts......................... $ 30.42 $ 27.72 $58.14 26.79%
11 Martine Avenue
White Plains, New York 10606
Claim Amount: $
Total............................. $113.52 $103.48 $217.0 100.00%
</TABLE>
None of the Standby Purchasers is required to purchase more than the number
of Units set forth opposite its name above.
REGISTRATION RIGHTS AGREEMENTS
At the Effective Time, Arch will enter into a registration rights agreement
with the Standby Purchasers (the "Standby Purchaser Registration Rights
Agreement") and, upon the request of any stockholder who as a result of the
Merger becomes the beneficial owner of at least 10% of the outstanding Arch
Common Stock (a "10% Stockholder"), will enter into a separate registration
rights agreement with such 10% Stockholder (the "10% Stockholder Registration
Rights Agreement").
Pursuant to the Standby Purchaser Registration Rights Agreement, Arch will
be required to file and have declared effective, by the Effective Time, a
shelf registration statement relating to resales of Arch Common Stock and Arch
Warrants and the issuance and resale of the Arch Common Stock issuable upon
exercise of the Arch Warrants, the Class B Common Stock and the Arch Common
Stock issuable upon conversion of the Class B Common Stock owned by such
Standby Purchasers or acquired after the Effective Time and securities, if
any, received from Arch in respect of the foregoing by reason of stock
dividends or similar matters (the "Registrable Securities"). Arch will be
required to use its reasonable best efforts to keep such shelf registration
statement continuously effective until the earliest of (a) March 1, 2003, (b)
the date on which all Registrable Securities
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covered by the shelf registration statement have been sold thereunder and (c)
the date on which all Registrable Securities covered by the shelf registration
statement may be sold publicly without registration under the Securities Act.
Each Standby Purchaser will also have demand registration rights which may
be exercised no more than twice. In addition, Arch will provide Standby
Purchasers "piggyback" registration rights with respect to other offerings
filed by Arch.
The 10% Stockholder Registration Rights Agreement provides for similar
registration rights and indemnification provisions, except that Arch need not
file a shelf registration except upon the written request of a 10%
Stockholder.
Fees and expenses incurred in connection with the filing of any registration
statements (other than selling commissions) will be borne by Arch. These
registration rights agreements will also provide for customary indemnification
obligations on the part of Arch.
WARRANT AGREEMENT
Arch will enter into a warrant agreement (the "Warrant Agreement") at the
Effective Time with The Bank of New York, as warrant agent, with respect to
the Arch Warrants. The Warrant Agreement will govern the terms relating to the
issuance, form, registration, exercise, transfer and exchange of the Arch
Warrants, as well as certain adjustment provisions. Each Arch Warrant will
initially represent the right to purchase one share of Arch Common Stock. The
Arch Warrants will have an initial exercise price of $8.19 per share.
Warrants may be exercised in whole or in part, at any time after the
Effective Time and prior to September 1, 2001. The warrant price and the
number and kind of shares purchasable upon exercise of the warrants will be
subject to adjustment upon the occurrence of certain events including payment
of dividends, subdivision of shares, combination of outstanding shares into a
small number of shares of Arch Common Stock, reclassification of outstanding
shares of Arch Common Stock, distribution of capital stock of a subsidiary,
and issuance of rights, options, or warrants to Arch stockholders at a below
market price.
Arch will be required to maintain an effective registration statement
registering the issuance of Arch Common Stock upon exercise of Arch Warrants.
RELATED MATTERS AFTER THE MERGER
At the Effective Time, the Certificate of Incorporation and By-Laws of the
Merger Subsidiary, as in effect immediately prior to the Effective Time, will
be the Certificate of Incorporation and By-Laws of the Surviving Corporation
and will continue to be the Surviving Corporation's Certificate of
Incorporation and By-Laws until amended as provided therein or by applicable
law.
The directors and officers of the Merger Subsidiary immediately prior to the
Effective Time will be the directors and officers of the Surviving
Corporation, and will hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation.
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THE MOBILEMEDIA PLAN OF REORGANIZATION
The following is a brief summary of certain provisions of the Amended Plan,
a copy of which is attached as Annex C to this Proxy Statement and
incorporated herein by reference in its entirety. Although this section
summarizes the material terms of the Amended Plan, such summary is qualified
in its entirety by reference to the Amended Plan. Stockholders of Arch are
urged to read the Amended Plan in its entirety for a more complete description
of the Amended Plan. Defined terms used herein but not otherwise defined shall
have the meaning ascribed to them in the Amended Plan.
THE AMENDED PLAN
The Debtors filed the Amended Plan with the Bankruptcy Court on August 20,
1998. The Amended Plan provides for the merger of MMC with and into the Merger
Subsidiary. In connection with the Amended Plan, Arch has agreed to (i) pay to
certain secured creditors of MobileMedia $479.0 million in cash and to issue
to the Unsecured Creditors shares of Arch Common Stock representing 17.2% to
31.3% (with the exact amount to be determined based on the share price of Arch
Common Stock during a specified period) of Arch's outstanding shares on a
Diluted Basis (as defined in the Amended Plan) as of a date that is up to five
(5) business days after the Confirmation Order becomes final and each of the
conditions to the consummation of the Merger is satisfied or waived, if
legally permissible, other than the condition relating to the confirmation of
the Amended Plan, (ii) to assume and pay all priority and administrative
claims of MobileMedia and (iii) repay the DIP Financing. In connection with
the Amended Plan, Arch will conduct the Rights Offering.
The Amended Plan provides for the treatment of all claims against and equity
interests in MobileMedia. The Amended Plan provides that holders of pre-
petition claims which are entitled to priority in accordance with applicable
provisions of the Bankruptcy Code will be paid in full in cash on the
Effective Date or be unimpaired under the Bankruptcy Code and that all post-
petition claims against MobileMedia in the ordinary course of business or as
authorized by the Bankruptcy Court will either be paid in full in cash on the
Effective Date or in accordance with the terms applicable to such post-
petition claims. The Amended Plan requires Arch to make sufficient funds
available to pay all such priority and administrative claims, provided,
however, that if the total required to be paid on account of priority tax
claims, accrued and unpaid professional fees, cure payments due with respect
to assumed executory contracts, bonus payments for employees and
professionals, claims of indenture trustees, amounts required to pay certain
fees and expenses of the secured creditors of MobileMedia and amounts required
to pay the Dial Page Notes (as hereafter defined), together with the costs and
expenses of the Standby Purchasers in accordance with the Standby Purchase
Agreements, exceeds $34.0 million, the number of shares of Arch Common Stock
constituting the Creditor Stock Pool will be reduced by a number of shares
equal to the amount by which such claims exceed $34.0 million divided by
$25.315. Arch has also agreed to pay in cash on the Effective Date loans
outstanding under the DIP Credit Agreement. The Merger Agreement provides that
as of the Effective Date the amount of loans outstanding under the DIP Credit
Agreement shall not exceed $20.0 million prior to December 31, 1998, or $30.0
million prior to June 30, 1999, in each case plus amounts borrowed under the
DIP Credit Agreement for N-PCS construction incurred or committed by
MobileMedia as of the date of the Merger Agreement or otherwise approved by
Arch.
The Amended Plan classifies all holders of pre-petition claims against, and
equity interests in, MobileMedia into nine classes.
1. Class 1 claims consist of claims entitled to priority under Section
507(a)(3) of the Bankruptcy Code (unpaid claims for wages, salaries or
commissions up to an amount not in excess of $4,000 earned within ninety
(90) days of the commencement of the Cases), 507(a)(4) of the Bankruptcy
Code (claims for contributions to employee benefits plans subject to a
formula limitation) and 507(a)(6) of the Code (claims for consumer deposits
in an amount not in excess of $1,800). These claims have been estimated by
MobileMedia to total $ . The Amended Plan provides that all such claims
will be paid in cash on the Effective Date. Arch is obligated to provide
MobileMedia with the cash needed to pay these claims.
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2. Class 2 claims consist of miscellaneous secured claims. MobileMedia
estimates that the total of such claims is $ . The Amended Plan provides
that all such secured claims will be paid in accordance with their terms or
will be unimpaired under the Amended Plan.
3. Class 3 claims consist of customer refund claims not in Class 1 or
Class 2. MobileMedia estimates that these claims total $ . The Amended
Plan provides that all such customer refund claims will be paid in
accordance with their terms.
4. Class 4 claims consist of claims arising under the MobileMedia 1995
Credit Agreement. As of the Petition Date, MobileMedia was indebted
thereunder in the principal amount of $649.0 million. During the pendency
of the Cases, MobileMedia has paid the lenders thereunder adequate
protection payments equal to the amount of interest due at the non-default
rate. The Amended Plan provides that the banks will be paid 100% of the
principal amount of their claims in full in cash on the Effective Date,
together with certain fees and expenses and any unpaid accrued interest
thereon up to the Effective Date at the non-default rate. On or prior to
the Effective Date, MobileMedia will pay to the holders of the Class 4
claims all net proceeds realized from the MobileMedia Tower Sites Sale
pursuant to the Purchase Agreement between MobileMedia and Pinnacle Towers
Inc. dated July 7, 1998 (the "MobileMedia Tower Sale Agreement"). The
Merger Agreement provides that it is a condition to closing that the net
proceeds from the MobileMedia Tower Sale Agreement payable to Class 4
creditors total not less than $165.0 million. Arch is obligated to pay the
balance of the Class 4 claims in cash on the Effective Date.
5. Class 5 consists of claims arising under the Dial Page Notes. The
outstanding principal balance of the Dial Page Notes, together with
interest accrued thereon through the Effective Date and the reasonable fees
and expenses of the Indenture Trustee for the Dial Page Notes, will be paid
in full in cash on the Effective Date. MobileMedia estimates that these
claims will total approximately $2.1 million as of June 30, 1998. Arch is
obligated to provide the cash needed to pay the Dial Page Notes.
6. Class 6 claims consist of all pre-petition unsecured claims which are
not entitled to priority and not included in any other class. MobileMedia
estimates that the total amount of Class 6 claims that will be allowed is
approximately $ million. A pro rata share of the Creditor Stock Pool and
the Rights will be distributed to Class 6 creditors in full satisfaction of
their claims, except that any Class 6 creditor whose claim is not allowed
as of the date the Rights Offering is commenced or on the date of a
supplemental Rights distribution, and who later has a Class 6 claim
allowed, will be paid in cash the value of the Rights that the creditor
would have received had its claim been allowed as of the date that the
Rights Offering was commenced (the "Cash Equivalent"). The funds to make
such cash payments will be obtained from the sale of Rights which are
reserved from distribution to Class 6 creditors on account of disputed
claims as of the date the Rights Offering is commenced, and which remain
undistributed immediately after the date the Amended Plan is confirmed. If
the proceeds from the sale of the Rights which are reserved from
distribution are insufficient to pay the Cash Equivalent because Class 6
claims are allowed for more than the estimated amount, Arch is obligated to
pay the Cash Equivalent out of its own funds.
7. Class 7 claims consist of claims of holders of MobileMedia promissory
notes based on alleged violations of applicable securities laws and any
claims by officers or directors or underwriters for indemnification related
thereto. The Amended Plan provides that no payment will be made with
respect to Class 7 claims.
8. Class 8 claims consist of all equity interests in Parent and all
claims related to alleged violations of applicable securities laws and
various claims for indemnification by any officer, director, underwriter,
employee or professional related thereto. The Amended Plan provides that
the holders of equity interests in Parent, any related claims thereto and
any claims for indemnification will receive no distribution under the
Amended Plan.
9. Class 9 consists of any claim by Parent, MMC or any of MMC's
subsidiaries against one another and the equity interests held by Parent,
MMC or MMC's subsidiaries in one another. The Amended Plan provides that
such claims and equity interests are cancelled, except that MMC will retain
its shareholder interest in MobileComm.
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EXECUTORY CONTRACTS
The Amended Plan provides that all executory contracts of MobileMedia are to
be assumed by the Surviving Corporation except for those which are the subject
of a specific motion to reject and those which are set forth in a schedule to
the Amended Plan of executory contracts to be rejected. All the defaults under
contracts which are to be assumed must be cured on the Effective Date.
MobileMedia estimates that the cost to cure defaults under contracts to be
assumed totals approximately $ . Arch will make the funds available to pay
cure payments.
IMPLEMENTATION OF PLAN
The Amended Plan contemplates that the Standby Purchasers will purchase any
rights which are not exercised by the holders of Class 6 claims in accordance
with the terms of each Standby Purchaser's commitment. In the event that as a
result of the exercise of rights, any "person" or "group" or the Standby
Purchasers collectively would in the aggregate beneficially own, within the
meaning of Section 13(d)(3) of the Exchange Act, more than 49% of the capital
stock of Arch outstanding on the Effective Date, the Standby Purchasers will
receive shares of Class B Common Stock in lieu of Arch Common Stock such that
the Standby Purchasers in the aggregate will not beneficially own more than
49% of the shares of Arch capital stock normally entitled to vote in the
election of directors and 49% of the total voting power of all the Arch
capital stock outstanding on the Effective Date.
The Amended Plan further provides that following Confirmation but prior to
the Effective Date the current officers and directors of MobileMedia will
continue to be responsible for the operations of MobileMedia and that the
Unsecured Creditors Committee will continue to exist. On the Effective Date,
the Unsecured Creditors Committee will cease to exist, and the officers and
directors of Merger Subsidiary will become the officers and directors of the
Surviving Corporation. Also on the Effective Date, Parent will contribute its
assets to MobileMedia and will then be dissolved, all subsidiaries of MMC as
well as those of MobileComm will be merged into MobileComm and all assets of
MMC, other than its shares in MobileComm will be conveyed to MobileComm, and
all FCC licenses to operate MobileMedia's wireless network will then be
conveyed to a wholly owned limited liability company of MobileComm.
The Unsecured Creditors Committee prior to its expiration will appoint a
person, subject to Arch's and MobileMedia's consent, who will be responsible
for winding up the bankruptcy estate of MobileMedia. Arch has agreed to fund
the costs of such estate representative according to a budget which shall be
mutually agreed upon by Arch and such estate representative. The estate
representative will have the power to object to claims and to resolve all such
objections. Any causes of action of MobileMedia arising under the Bankruptcy
Code or otherwise are preserved for the benefit of the Combined Company, to be
pursued or not in the discretion of the Combined Company.
The Amended Plan provides that Class 6 creditors will receive their share of
the Arch Combined Common Stock and the Arch Warrants purchased through the
exercise of Rights and of the Creditor Stock Pool from Arch and the Exchange
Agent. The Creditor Stock Pool will be distributed on the Effective Date, or
as soon thereafter as is practical. To the extent that there are disputed
claims in Class 6 as of the Effective Date, the Exchange Agent will reserve
from distribution from the Creditor Stock Pool sufficient shares of Arch
Common Stock so that if a holder of a disputed claim has its claim allowed for
the full amount asserted, such holder will receive the same distribution it
would have received had its claim been allowed as of the first distribution
from the Creditor Stock Pool. When a disputed claim is resolved, and to the
extent such claim is allowed, the holder of such claim will receive a
distribution of Arch Common Stock equal to what the claimant would have
received had the claim been allowed when the original distribution of Arch
Common Stock was made by the Exchange Agent and a cash payment in respect of
the Rights the holder of such claim would have been entitled to receive had
such claim been allowed when the Rights were distributed. Also included in
Class 6 are claims arising from the rejection of contracts and leases. If the
reserve established for such claims is inadequate, there is a possibility that
there will be insufficient shares in the Creditor Stock Pool to make the pro
rata distribution to all holders of Class 6 claims whose claims are allowed
after the Effective Time. When all Class 6 claims have been resolved,
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the Exchange Agent will make a final distribution of then remaining shares in
the Creditor Stock Pool on a pro rata basis. If, at the time of the final
distribution, there are less than 10,000 shares in the Creditor Stock Pool,
such shares will not be distributed and instead will be delivered to Arch and
become treasury shares.
CONDITIONS TO EFFECTIVENESS OF THE PLAN
The Bankruptcy Court will schedule a hearing to consider confirmation of the
Amended Plan. The list that follows is qualified by reference to the Amended
Plan and the Merger Agreement. The conditions to the Effective Date set forth
in the Amended Plan are:
(a) That the Confirmation Order has been entered by the Bankruptcy Court,
more than ten (10) days have elapsed since the Confirmation Date, no stay
of the Confirmation Order is in effect and the Confirmation Order has not
been reversed, modified or vacated;
(b) That all conditions to the Closing under the Merger Agreement (other
than the condition that the Effective Date shall have occurred) have been
satisfied or waived by the party entitled thereto; and
(c) That the commitments under the DIP Credit Agreement have terminated,
all amounts owing under or in respect of the DIP Credit Agreement have been
paid in full in cash and any outstanding letters of credit issued under and
in connection with the DIP Credit Agreement or the MobileMedia 1995 Credit
Agreement have been terminated or satisfied, or the Debtors have provided
cash collateral therefor in accordance with the terms of the DIP Credit
Agreement or the MobileMedia 1995 Credit Agreement, as applicable.
DISCHARGE
The Amended Plan incorporates the provisions of Section 1141(d) of the
Bankruptcy Code which provide that except as specifically set forth in the
Amended Plan or the Confirmation Order, all claims against MobileMedia and all
equity interests in MobileMedia will be discharged and/or extinguished on the
Effective Date. In addition, the Amended Plan provides that any person holding
a claim against MobileMedia or an interest in MobileMedia is enjoined from
taking any action which seeks to enforce any claim or assert any interest in
MobileMedia that is inconsistent with the Amended Plan.
RELEASES AND INDEMNIFICATION
The Amended Plan provides that MobileMedia shall release all officers and
directors of all liabilities for any and all actions up through and to the
Effective Date, except for claims against former officers or directors who are
considered by the FCC to be alleged or actual wrongdoers as of the Effective
Date of the Amended Plan for purposes of MobileMedia's Second Thursday
Application provided that such release shall not be provided to any officer or
director who has a Disputed Claim as of the Effective Date. MobileMedia also
agrees to continue in full force and effect, without the benefit of any
discharge, its indemnification obligations to those persons who are officers
and employees of MobileMedia as of the Effective Date, but not directors, and
not any officers who are as of the effective date of the Amended Plan
considered by the FCC to be alleged or actual wrongdoers for purposes of
MobileMedia's Second Thursday Application except for indemnification claims
(i) relating to the Securities Actions, (ii) based upon factual allegations or
causes of action similar to those alleged in the Securities Actions or (iii)
relating to any action to rescind a purchase or sale of a security of
MobileMedia or for damages relating to any such purchase or sale. MobileMedia
has also agreed to purchase a directors and officers' liability insurance
policy covering claims made within three years after the Effective Date with
respect to acts or omissions occurring prior to the Effective Date for its
current and former directors and officers, other than those former officers
and directors who are now or hereafter considered by the FCC to be alleged
wrongdoers for purposes of MobileMedia's Second Thursday Application with an
aggregate coverage of up to $40,000,000 or such lesser amount as may be
purchased for a premium of $750,000.
JURISDICTION
The Bankruptcy Court shall retain jurisdiction to oversee implementation of
the Amended Plan, to resolve any disputes relating to the Merger, to hear all
applications for professional fees, to hear all objections to claims and other
matters as set forth in the Amended Plan or as may be provided for in the
Confirmation Order.
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CALCULATION OF SHARES
The number of shares of Arch Combined Common Stock and Arch Warrants to be
issued pursuant to the Merger Agreement and the Amended Plan will be
determined by reference to the Arch Common Stock Price (as defined below). The
"Arch Common Stock Price" will be equal to the average per share closing sales
price of Arch Common Stock in the Nasdaq National Market for four randomly
selected days over the period of August 24, 1998 to and including September
22, 1998; provided that the Arch Common Stock Price shall not be less than
$6.25 nor greater than $10.625.
The aggregate number of shares of Arch Combined Common Stock to be issued
pursuant to the Amended Plan will range from approximately 48.8 million shares
at an Arch Market Price of $10.625 to 57.7 million shares at an Arch Market
Price of $6.25. See "Stockholdings Before and After the Merger". A portion of
such aggregate number of shares shall be issued pursuant to the Rights
Offering, with the remainder being allocated to the Creditor Stock Pool. The
number of shares of Arch Combined Common Stock to be sold in the Rights
Offering will be determined by dividing $217.0 million by the exercise price
of a Right. The exercise price of each Right will be 80% of the Arch Common
Stock Price.
The number of Arch Warrants shall be determined by reference to the number
of shares of Arch Common Stock issued (on an as-converted basis, assuming the
conversion of the Series C Preferred Stock) as of the record date plus the
number of shares to be issued pursuant to the Merger Agreement and the Amended
Plan. The Arch Warrants issued in the Rights Offering, pursuant to the Standby
Purchase Agreements and to Arch stockholders will be equal to approximately
2.5%, 2.5% and 7.0%, respectively, of the total number of shares of Arch
Common Stock on a Fully Diluted Basis after giving effect to the Arch
Warrants. The Arch Warrants will have an initial exercise price of $8.19 per
share and will be exercisable from the date of issuance until September 1,
2001.
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THE COMBINED COMPANY
OVERVIEW
Arch, after giving effect to the acquisition of MobileMedia, would be the
second largest paging operator in the United States in terms of pager units in
service, net revenues (total revenues less cost of products sold) and EBITDA.
On a pro forma basis (before the financial impact of expected operational cost
synergies), at and for the six months ended June 30, 1998, the Combined
Company would have had approximately 7.2 million pagers in service, net
revenues of $403.5 million, EBITDA (before reorganization expenses and
restructuring charges) of $125.5 million and total debt of $1.3 billion. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements".
Arch believes that the Combined Company will be well positioned to compete
effectively in the highly competitive paging industry for the following
reasons. The combination of MobileMedia's market presence in major
metropolitan markets with Arch's historical emphasis on middle and small
markets should significantly broaden the geographic scope of Arch's marketing
presence and should position the Combined Company to compete more effectively
for large corporate customers with diverse geographic operations. With a
significantly larger subscriber base, the Combined Company should be better
able to serve strategic distribution arrangements, as well as amortize
marketing investments over a larger revenue base. In addition, MobileMedia's
third party retail distribution agreements, which serve the more rapidly
growing consumer market, should complement the more than 200 Arch-owned retail
outlets. Similarly, MobileMedia's two nationwide paging networks (and the
potential for higher revenue nationwide services) should enhance Arch's local
coverage and provide an opportunity to take advantage of Arch's distribution
platforms. MobileMedia's plan to deploy its nationwide N-PCS spectrum
utilizing its existing network infrastructure should permit Arch to market N-
PCS (primarily multi-market alphanumeric and text messaging services) sooner
than it would otherwise have been able to, and these services are expected to
offer higher revenue and more growth potential than basic paging services.
Finally, MobileMedia's investments to date in two national call centers should
supplement Arch's own call center and complement Arch's strategy of evolving
to "scalable" regional customer service centers.
STRATEGY
Arch expects the Combined Company to execute the following strategy:
Cost Reductions. Arch's management has worked closely with MobileMedia's
management to identify redundant managerial and administrative functions that
Arch's management believes can be eliminated without material impact to
customer related activities.
Low Cost Provider. Arch management will continue to evolve its cost
structure to seek greater cost efficiencies. Arch expects to be able to
gradually improve the operating processes of the Combined Company to further
reduce the Combined Company's operating costs from continuing efficiency
gains. The greater scale of the combined operations should permit Arch to
further reduce per unit operating costs.
Balanced Distribution Channels. Arch's combination of direct sales, company-
owned stores, and third party resellers will be supplemented by MobileMedia's
own local market direct sales force, and its distribution agreements with
third party regional and national retailers. In addition, MobileMedia's
national accounts sales force should significantly enhance Arch's efforts to
improve distribution to nationwide customers.
Expanded Product Line. The Combined Company will have one of the broadest
product offerings in the paging industry. MobileMedia's N-PCS Spectrum will
provide Arch with more economical and broader access to higher ARPU,
nationwide and regional services and text messaging services, which to date
Arch has marketed on a limited basis through the resale of other carriers'
services on less attractive terms.
69
<PAGE>
Enhanced Value-Added Services. The Combined Company's larger subscriber base
should offer new revenue opportunities from the sale of enhanced value-added
services such as voicemail, resale of long-distance service and fax storage
and retrieval.
UNAUDITED FINANCIAL PROJECTIONS AND OPERATIONAL COST SYNERGIES
Arch and MobileMedia have developed the Unaudited Combined Company
Projections consisting of unaudited pro forma operating and financial results
for the six-month period ending December 31, 1998 and the twelve-month period
ending December 31, 1999. The Unaudited Combined Company Projections assume
confirmation of the Amended Plan and consummation of the Merger Agreement and
the Amended Plan as of December 31, 1998. The Unaudited Combined Company
Projections have been filed with the Bankruptcy Court on August 20, 1998 in
connection with MobileMedia's filing of the Amended Plan.
The Unaudited Combined Company Projections, which were developed by
management of each of Arch and MobileMedia, with the assistance of their
respective financial advisors, are based on:
.Arch's projected financial results, as developed by management of Arch,
pro forma for anticipated cost reductions associated with the recently
announced Divisional Reorganization;
. MobileMedia's projected financial results, as developed by management of
MobileMedia, pro forma for the sale of tower assets and the related
rental by MobileMedia of certain transmitter space and equipment on such
towers;
. Certain adjustments to MobileMedia's projected results made by Arch
management 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 MobileMedia's Chapter 11 filing and the integration of
Arch's and MobileMedia's operations.
The Unaudited Combined Company Projections do not include the financial
benefits of potential operational expense reductions and capital expenditure
efficiencies (the "Potential Cost Savings") described below. A portion of the
Potential Cost Savings is expected to be realized in 1999, but has not been
included in the Unaudited Combined Company Projections due to the uncertainty
of the Effective Date of the Merger, the timing of achieving such Potential
Cost Savings and the possibility that the Potential Cost Savings will not be
fully achieved.
THE UNAUDITED COMBINED COMPANY PROJECTIONS WERE NOT PREPARED WITH A VIEW TO
COMPLYING 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 MOBILEMEDIA
HAVE EXAMINED OR COMPILED THE ACCOMPANYING UNAUDITED COMBINED COMPANY
PROJECTIONS AND ACCORDINGLY DO NOT EXPRESS AN OPINION OR ANY OTHER FORM OF
ASSURANCE WITH RESPECT THERETO.
ARCH AND MOBILEMEDIA DO NOT PUBLISH THEIR RESPECTIVE BUSINESS PLANS AND
STRATEGIES OR PROJECTIONS OF THEIR RESPECTIVE ANTICIPATED FINANCIAL POSITION
OR RESULTS OF OPERATIONS. THE PRO FORMA PROJECTIONS WERE PREPARED FOR, AND ARE
CONTAINED IN, THE DISCLOSURE STATEMENT BEING DISTRIBUTED TO MOBILEMEDIA'S
CREDITORS IN CONNECTION WITH THE APPROVAL OF THE AMENDED PLAN. THEY WERE
INCLUDED THEREIN IN ORDER TO SATISFY APPLICABLE REQUIREMENTS FOR INFORMATION
REQUIRED TO BE INCLUDED IN A BANKRUPTCY COURT APPROVED DISCLOSURE STATEMENT.
THEY ARE PROVIDED HEREBY SO THAT ARCH STOCKHOLDERS WILL HAVE THE SAME
INFORMATION BEING PROVIDED TO MOBILEMEDIA'S CREDITORS. ACCORDINGLY, ARCH AND
MOBILEMEDIA DO NOT INTEND, AND DISCLAIM ANY OBLIGATION TO, (A) FURNISH UPDATED
UNAUDITED COMBINED COMPANY PROJECTIONS, (B) INCLUDE SUCH UPDATED INFORMATION
IN ANY DOCUMENTS WHICH MAY BE REQUIRED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, OR (C) OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY
AVAILABLE.
70
<PAGE>
ARTHUR ANDERSEN LLP, THE INDEPENDENT PUBLIC ACCOUNTANTS FOR ARCH, HAS
NEITHER COMPILED NOR EXAMINED SUCH PROJECTIONS AND, ACCORDINGLY, DOES NOT
EXPRESS ANY OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT TO, ASSUMES NO
RESPONSIBILITY FOR AND DISCLAIMS ANY ASSOCIATION WITH, SUCH PROJECTIONS. ERNST
& YOUNG LLP, THE INDEPENDENT AUDITORS FOR MOBILEMEDIA, HAS NEITHER COMPILED
NOR EXAMINED SUCH PROJECTIONS AND, ACCORDINGLY, DOES NOT EXPRESS ANY OPINION
OR ANY OTHER FORM OF ASSURANCE WITH RESPECT TO, ASSUMES NO RESPONSIBILITY FOR
AND DISCLAIMS ANY ASSOCIATION WITH, SUCH PROJECTIONS.
THE UNAUDITED COMBINED COMPANY PROJECTIONS PROVIDED HEREIN HAVE BEEN
PREPARED BY ARCH AND MOBILEMEDIA. THE UNAUDITED COMBINED COMPANY PROJECTIONS,
ALTHOUGH PRESENTED WITH NUMERICAL SPECIFICITY, ARE BASED UPON A SERIES OF
ESTIMATES AND ASSUMPTIONS WHICH, ALTHOUGH CONSIDERED REASONABLE BY ARCH AND
MOBILEMEDIA, MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF
WHICH ARE BEYOND THE CONTROL OF ARCH AND MOBILEMEDIA. NO REPRESENTATIONS CAN
BE OR ARE MADE AS TO THE ACCURACY OF THE UNAUDITED COMBINED COMPANY
PROJECTIONS. SOME ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE, AND EVENTS AND
CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH THE UNAUDITED COMBINED
COMPANY PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED OR MAY
BE UNANTICIPATED AND, ACCORDINGLY, MAY AFFECT FINANCIAL RESULTS IN A MATERIAL
AND POSSIBLY ADVERSE MANNER. THE UNAUDITED COMBINED COMPANY PROJECTIONS,
THEREFORE, MAY NOT BE RELIED UPON AS A GUARANTY OR OTHER ASSURANCE OF THE
ACTUAL RESULTS THAT WILL OCCUR. THE FOREGOING ASSUMPTIONS AND RESULTANT
COMPUTATIONS WERE MADE SOLELY FOR PURPOSES OF PREPARING THE UNAUDITED COMBINED
COMPANY PROJECTIONS.
71
<PAGE>
UNAUDITED COMBINED COMPANY PROJECTED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 5.0 $ 2.0
Accounts receivable, net................................... 73.6 76.0
Inventories................................................ 14.5 15.2
Prepaid expenses and other................................. 14.1 14.1
-------- --------
Total current assets..................................... 107.2 107.3
-------- --------
Property and equipment, net................................ 431.0 472.2
Intangible and other assets................................ 1,201.7 1,035.3
-------- --------
$1,739.9 $1,614.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt....................... -- 1.2
Accounts payable........................................... 77.7 79.8
Accrued expenses........................................... 12.6 13.4
Accrued interest........................................... 7.5 7.5
Customer deposits and deferred revenue..................... 49.9 52.1
Accrued restructuring charges.............................. 10.6 --
-------- --------
Total current liabilities................................ 158.3 154.0
-------- --------
Long-term debt, less current maturities.................... 1,347.6 1,459.2
-------- --------
Other long-term liabilities................................ 35.2 17.7
-------- --------
Stockholders' equity (deficit)............................... 198.8 (16.1)
-------- --------
$1,739.9 $1,614.8
======== ========
</TABLE>
72
<PAGE>
UNAUDITED COMBINED COMPANY PROJECTED STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Service, rental and maintenance revenues.... $ 395.9 $ 819.6
Product sales............................... 49.6 102.7
------- -------
Total revenues.......................... 445.5 922.3
Cost of products sold..................... (38.8) (81.1)
------- -------
406.7 841.2
Operating expenses: (1)
Service, rental and maintenance........... 102.6 211.0
Selling................................... 57.0 117.2
General and administrative................ 125.3 258.0
Depreciation and amoritzation............. 166.8 318.9
------- -------
Total operating expenses................ 451.7 905.1
------- -------
Operating income (loss)..................... (45.0) (63.9)
Interest expense, net....................... (73.0) (146.0)
Other expenses.............................. (4.0) (5.0)
------- -------
Net income (loss)........................... $(122.0) $(214.9)
======= =======
EBITDA...................................... $121.8 $255.0
======= =======
</TABLE>
- --------
(1) Does not include the financial impact of potential operational expense
reductions that may be achieved following the Merger.
73
<PAGE>
UNAUDITED COMBINED COMPANY PROJECTED STATEMENT OF CASH FLOW
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Net cash provided by operating activities.......................... $ 119.5
-------
Cash flows from investing activities:
Additions to property and equipment, net......................... (185.7)
Additions to intangible and other assets......................... (8.0)
-------
Net cash used for investing activities............................. (193.7)
-------
Cash flows from financing activities:
Issuance of long-term debt....................................... 71.2
-------
Net cash provided by financing activities.......................... 71.2
-------
Net decrease in cash and cash equivalents.......................... (3.0)
Cash and cash equivalents, beginning of period..................... 5.0
-------
Cash and cash equivalents, end of period........................... $ 2.0
=======
</TABLE>
POTENTIAL COST SAVINGS
During the negotiations leading up to the execution of the Merger Agreement,
management of Arch and MobileMedia estimated operational expense reductions
and capital expenditure efficiencies they believed could be achieved in
connection with the Merger. Senior management from Arch and MobileMedia,
together with their respective financial advisors, attended multiple meetings
during April and July 1998 to discuss, review and compare organizational
structures and staffing arrangements in order to identify potential
opportunities to eliminate redundant costs and estimate the resulting
financial impact. Three primary areas of estimated expense reductions
included: (i) redundant managerial and administrative overhead at both Arch
and MobileMedia; (ii) duplicative purchased services, including subcontracted
paging services; and (iii) duplicative capital expenditures.
Potential personnel redundancies and associated estimated financial impact
were identified following a comparison of staffing levels at corporate,
divisional and regional offices and on a market-by-market basis. No personnel
reductions were identified in MIS operations, call center operations, local
market-level customer service, and most other "customer facing" activities.
Purchased services identified include operations-related services, such as
telecommunications and network services, subcontracted paging network
services, third party dispatch services, and advertising and promotion
expenditures; as well as professional services, including legal and
accounting. These purchased services were reviewed to identify potential cost
savings achievable through volume discounts, conversion to company-owned
networks, replacement with lower cost service providers, and elimination of
redundant expenditures.
The two companies' planned capital expenditures were reviewed and savings
opportunities identified for negotiating greater volume discounts on the
purchase of pagers, avoiding network expenditures by utilizing complementary
existing infrastructure, and eliminating duplicative expenditures related to
each company's current N-PCS strategy.
The following table presents the range of estimated annual ongoing expense
reductions and annual capital expenditure savings that management of Arch and
MobileMedia believe might be achieved based upon the foregoing review. Such
estimates are based on current operating run-rates and the existing cost
structures of Arch and MobileMedia, respectively. The Potential Cost Savings
shown below represent expense reduction opportunities and efficiencies that
Arch believes will be implemented during the first twelve months following
74
<PAGE>
the Effective Time of the Merger, based on current expense run-rates. The
estimated financial benefits as shown represent annualized savings. This table
does not reflect additional unidentified savings opportunities or costs and
timing risks associated with achieving the Potential Cost Savings described.
ESTIMATED RANGE OF ANNUAL OPERATIONAL EXPENSE REDUCTIONS BASED ON CURRENT COSTS
(IN MILLIONS)
<TABLE>
<CAPTION>
LOW HIGH
----- -----
<S> <C> <C>
Operating expense reductions:
Market level personnel overlap................................... $ 6.6 $ 8.0
Regional/divisional level management overlap..................... 3.6 4.4
Corporate administrative overlap................................. 5.8 7.6
Purchased services............................................... 7.5 12.5
----- -----
Potential annual expense reductions............................ $23.5 $32.5
===== =====
Capital expenditure efficiencies:
Pager purchases.................................................. $ 1.7 $ 4.2
Network and N-PCS implementation................................. 8.0 10.0
----- -----
Potential annual capital expenditure efficiencies.............. $ 9.7 $14.2
===== =====
</TABLE>
75
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet has
been prepared to reflect the Merger using the purchase method of accounting,
assuming the Merger had occurred on June 30, 1998. Under the purchase method
of accounting, the purchase price will be allocated to assets acquired and
liabilities assumed based on their estimated fair values at the Effective
Time. Income of the Combined Company will not include income (or loss) of
MobileMedia prior to the Effective Time. The unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1997 and
the six months ended June 30, 1998 present the results of operations of Arch
and MobileMedia assuming the Merger had been effected on January 1, 1997. The
pro forma condensed consolidated financial statements reflect the issuance of
52,118,000 shares of Arch Common Stock in connection with the Merger and the
payment of $262.0 million in cash. The unaudited pro forma financial data
should be read in conjunction with the notes thereto and the consolidated
historical financial statements of Arch and MobileMedia, including the
respective notes thereto, which are included in this Proxy Statement.
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 been consummated during the periods indicated.
Moreover, the pro forma condensed consolidated financial statements reflect
preliminary pro forma adjustments made to combine Arch with MobileMedia
utilizing the purchase method of accounting. The actual adjustments will be
made as of the Effective Time of the Merger and may differ from those
reflected in the pro forma financial statements.
Under the terms of the Merger Agreement, the number of shares of Arch Common
Stock (on an as-converted basis) to be issued by Arch, and the percentages
which such shares represent of all outstanding shares on an as-converted
basis, will vary depending on the stock price of Arch. See "The MobileMedia
Plan of Reorganization--Calculation of Shares". For purposes of presenting the
pro forma condensed consolidated financial statements included herein, Arch
has assumed the market price of Arch Common Stock to be $8.4375, which
represents the mid-point in the range of consideration to be paid. This
assumption results in pro forma shares to be issued of 52,118,000 which are
valued at $439.7 million. In the event that the market price of Arch Common
Stock at the relevant time for determining such adjustment is below $8.4375,
additional shares of Arch Common Stock will be issued. This will have the
effect of reducing stockholders' equity, earnings per share and other
financial measurements as well as increasing the dilution to current Arch
stockholders. See Note 11 of Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements below. See "Risk Factors--Uncertainties
Related to the Transaction--Use of Pro Forma Assumptions".
76
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ARCH MOBILEMEDIA PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 4,913 $ 11,559 $ 16,472
Accounts receivable
net.................. 32,483 39,890 $ (1,807) (7) 70,566
Inventories........... 13,278 916 14,194
Prepaid expenses and
other................ 3,582 10,954 14,536
---------- ----------- ----------- ----------
Total current
assets............. 54,256 63,319 (1,807) 115,768
---------- ----------- ----------- ----------
Property and
equipment, net....... 229,862 227,699 (5,768) (6) 451,793
Intangible and other
assets............... 687,431 305,345 (284,228)(10) 1,270,539
583,108 (10)
(21,117) (2)
---------- ----------- ----------- ----------
$ 971,549 $ 596,363 $ 270,188 $1,838,100
========== =========== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current maturities of
long-term debt....... $ -- $ 1,075,681 $ (479,000)(2) $ --
(170,000)(6)
(426,681)(1)
Accounts payable...... 22,951 19,939 (16,124)(1) 24,959
(1,807)(7)
Accrued expenses...... 12,850 64,412 (24,062)(1) 53,200
Accrued interest...... 7,453 23,037 (23,037)(1) 7,453
Customer deposits and
deferred revenue..... 16,281 32,446 48,727
Accrued restructuring. 15,846 5,041 (5,041)(1) 45,846
30,000 (10)
---------- ----------- ----------- ----------
Total current
liabilities........ 75,381 1,220,556 (1,115,752) 180,185
---------- ----------- ----------- ----------
Long-term debt, less
current maturities... 1,003,357 -- 322,000 (3) 1,325,357
---------- ----------- ----------- ----------
Deferred income taxes. -- 2,655 (2,655)(1) --
---------- ----------- ----------- ----------
Other long-term
liabilities.......... 10,240 -- -- 10,240
---------- ----------- ----------- ----------
Stockholders' equity
(deficit):
Preferred stock....... 3 -- -- 3
Common stock.......... 211 -- 521 (5) 732
Additional paid-in
capital.............. 376,867 676,025 (676,025)(4) 816,093
439,226 (5)
Accumulated deficit... (494,510) (1,302,873) 1,302,873 (4) (494,510)
---------- ----------- ----------- ----------
Total stockholders'
equity (deficit)... (117,429) (626,848) 1,066,595 322,318
---------- ----------- ----------- ----------
$ 971,549 $ 596,363 $ 270,188 $1,838,100
========== =========== =========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements
77
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ARCH MOBILEMEDIA PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Service, rental and
maintenance revenues... $ 351,944 $ 491,174 $ (2,500)(6) $ 831,285
(9,333)(7)
Products sales.......... 44,897 36,218 -- 81,115
----------- --------- ---------- -----------
Total revenues...... 396,841 527,392 (11,833) 912,400
Cost of products sold... (29,158) (35,843) -- (65,001)
----------- --------- ---------- -----------
367,683 491,549 (11,833) 847,399
----------- --------- ---------- -----------
Operating expenses:
Service, rental and
maintenance.......... 79,836 139,333 9,686 (6) 219,522
(9,333)(7)
Selling............... 51,474 69,544 -- 121,018
General and
administrative....... 106,041 179,599 -- 285,640
Depreciation and
amortization......... 232,347 140,238 (521)(6) 417,631
29,888 (10)
15,679 (10)
Bankruptcy related
expense.............. -- 19,811 (19,811)(9) --
----------- --------- ---------- -----------
Total operating
expenses........... 469,698 548,525 25,588 1,043,811
----------- --------- ---------- -----------
Operating income (loss). (102,015) (56,976) (37,421) (196,412)
Interest expense, net... (97,159) (67,611) 67,611 (8) (134,749)
(37,590)(8)
Other (expenses) income. (3,872) 3 -- (3,869)
----------- --------- ---------- -----------
Income (loss) before
income tax benefit and
extraordinary item..... (203,046) (124,584) (7,400) (335,030)
Benefit from income
taxes.................. 21,172 -- -- 21,172
----------- --------- ---------- -----------
Income (loss) before
extraordinary item..... $ (181,874) $(124,584) $ (7,400) $ (313,858)
=========== ========= ========== ===========
Basic income (loss)
before extraordinary
item per share......... $ (8.77) $ (4.31)
=========== ===========
Weighted average common
shares outstanding..... 20,746,240 52,118,000 (5) 72,864,240
=========== ========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements
78
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ARCH MOBILEMEDIA PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Service, rental and
maintenance revenues... $ 184,280 $215,109 $ (1,262)(6) $ 393,900
(4,227)(7)
Products sales.......... 21,305 13,794 -- 35,099
---------- -------- ---------- ----------
Total revenues...... 205,585 228,903 (5,489) 428,999
Cost of products sold... (14,690) (10,774) -- (25,464)
---------- -------- ---------- ----------
190,895 218,129 (5,489) 403,535
---------- -------- ---------- ----------
Operating expenses:
Service, rental and
maintenance.......... 40,409 56,028 4,887 (6) 97,097
(4,227)(7)
Selling............... 24,244 31,460 -- 55,704
General and
administrative....... 56,516 68,752 -- 125,268
Depreciation and
amortization......... 108,400 60,748 (264)(6) 191,668
14,944 (10)
7,840 (10)
Restructuring expense. 16,100 -- -- 16,100
Bankruptcy related
expense.............. -- 9,250 (9,250)(9) --
---------- -------- ---------- ----------
Total operating
expenses........... 245,669 226,238 13,930 485,837
---------- -------- ---------- ----------
Operating income (loss). (54,774) (8,109) (19,419) (82,302)
Interest expense, net... (51,123) (29,113) 29,113 (8) (69,918)
(18,795)(8)
Other expenses.......... (2,219) (47) -- (2,266)
---------- -------- ---------- ----------
Income (loss) before
extraordinary item..... $ (108,116) $(37,269) $ (9,101) $ (154,486)
========== ======== ========== ==========
Basic income (loss)
before extraordinary
item per share......... $ (5.17) $ (2.12)
========== ==========
Weighted average common
shares outstanding..... 20,918,048 52,118,000 (5) 73,036,048
========== ========== ==========
</TABLE>
See accompanying notes to unaudited proforma condensed consolidated financial
statements
79
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) To eliminate liabilities of MobileMedia which (i) Arch will not assume,
(ii) will be satisfied in cash or (iii) will be exchanged for Arch Common
Stock.
(2) To record the payment of $479.0 million to satisfy certain claims
associated with MobileMedia's secured creditors. This amount was funded by
$262.0 million from Arch borrowings and the proceeds of the Rights
Offering of $217.0 million. Deferred financing costs associated with the
former MobileMedia credit facility and notes of $21.1 million were written
off in connection with this paydown of debt.
(3) To record the additional Arch borrowings necessary to fund its obligations
in the Merger, as follows: (i) $262.0 million to pay the MobileMedia
secured creditors, (ii) $35.0 million to satisfy various administrative
costs associated with the bankruptcy and (iii) $25.0 million of
transaction costs.
(4) To eliminate MobileMedia equity balances.
(5) To record the issuance of 52,118,000 shares of Arch Common Stock pursuant
to the Merger Agreement and the exercise of the Rights to purchase Arch
Common Stock.
(6) To record the effect of the proposed sale of MobileMedia's tower sites to
a third party. The net proceeds of this transaction, approximately $170.0
million, will be utilized as partial payment of MobileMedia's secured
creditors. This entry removes various assets associated with this
business, removes rental income earned by these assets from earnings and
provides ongoing rental expense for the use of transmitter space on such
towers.
(7) To eliminate accounts receivable, payable, revenues and expenses between
Arch and MobileMedia.
(8) To remove the interest expense associated with the various MobileMedia
credit facilities and notes eliminated pursuant to the Amended Plan and to
record the interest associated with the additional Arch borrowings used to
fund the Merger.
(9) To eliminate expenses incurred by MobileMedia related primarily to its
administration of the bankruptcy proceedings.
(10) To record the excess of purchase price over the assumed fair value of the
identifiable assets acquired and the related amortization for the year
ended December 31, 1997 and the six months ended June 30, 1998. The
excess of purchase price over the assumed fair value of identifiable
assets acquired is calculated as follows:
<TABLE>
<S> <C> <C>
Consideration exchanged:
Payments to secured creditors........................ $479,000
Assumed fair value of shares issued to unsecured
creditors........................................... 168,497
Assumed fair value of rights and warrants issued..... $ 271,250
Less: Proceeds of rights offering.................... (217,000) 54,250
--------- --------
701,747
Liabilities assumed:
Administrative costs............................... 35,000
Other.............................................. 74,804
--------
Total consideration exchanged........................ 811,551
Transaction costs.................................... 25,000
Restructuring reserve................................ 30,000
--------
Total purchase price................................. 866,551
Less fair value of tangible net assets acquired........ 283,443
--------
Excess of purchase price over tangible net assets
acquired.............................................. 583,108
Less estimated fair value of FCC licenses and other
intangibles........................................... 284,228
--------
Estimated additional intangible assets and goodwill to
be recorded........................................... $298,880
========
</TABLE>
80
<PAGE>
The related amortization on the additional intangibles assets and goodwill
was calculated on a straight-line basis over 10 years in the amounts of
$29,888 and $14,944 for the year ended December 31, 1997 and the six
months ended June 30, 1998, respectively. The amortization related to the
$284.2 million estimated fair value of FCC licenses and other intangibles
has already been provided in the historical financial statements of
MobileMedia. The MobileMedia historical amortization was adjusted by
$15,679 and $7,840 for the year ended December 31, 1997 and the six months
ended June 30, 1998, respectively, to conform the estimated useful lives
of these assets to those used by Arch.
(11) As discussed in the introduction, the proposed transaction contemplates a
range of shares to be exchanged based on the subsequent market price of
Arch's stock during the applicable period of determination. The range of
stock prices is $6.25 to $10.63. The following unaudited pro-forma
consolidated information is provided for informational purposes, assuming
the stock price is at the low and high points of the range and the
current market price as of August 14, 1998 of $3.50. See "The MobileMedia
Plan of Reorganization--Calculation of Shares".
<TABLE>
<CAPTION>
ARCH MARKET PRICE
----------------------------------
CURRENT LOW POINT HIGH POINT
---------- ---------- ----------
<S> <C> <C> <C>
Excess of purchase price over tangible
net assets acquired.................. $ 410,530 $ 504,261 $ 662,067
Total assets.......................... 1,665,522 1,759,253 1,917,059
Stockholders' equity.................. 149,740 243,471 401,277
Operating income (loss):
For the year ended December 31,
1997............................... (179,154) (188,527) (204,308)
For the six months ended June 30,
1998............................... (73,673) (78,360) (86,250)
Income (loss) before extraordinary
item:
For the year ended December 31,
1997............................... (296,600) (305,973) (321,754)
For the six months ended June 30,
1998............................... (145,857) (150,544) (158,434)
Basic income (loss) before
extraordinary item per share:
For the year ended December 31,
1997............................... (3.78) (3.90) (4.63)
For the six months ended June 30,
1998............................... (1.85) (1.91) (2.27)
Shares exchanged (000s)............... 57,744 57,744 48,796
</TABLE>
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INDUSTRY OVERVIEW
GENERAL
Paging is a method of wireless communication which uses an assigned radio
frequency to contact a paging subscriber anywhere within a designated service
area. A subscriber carries a pager which receives messages by the transmission
of a one-way radio signal. To contact a subscriber, a message is usually sent
by placing a telephone call to the subscriber's designated telephone number.
The telephone call is received by an electronic paging switch which generates
a signal that is sent to radio transmitters in the service area. Depending
upon the topography of the service area, the operating radius of a radio
transmitter typically ranges from three to 20 miles. The transmitters
broadcast a signal that is received by the pager a subscriber carries, which
alerts the subscriber by a tone or vibration that there is a voice, tone,
digital or alphanumeric message.
The paging industry has been in existence since 1969 when the FCC allocated
a group of radio frequencies for use in providing one-way and two-way types of
mobile communications services. Throughout its history, the paging industry
has been characterized by consolidation, substantial growth and technological
change. Historically, the paging industry has been highly fragmented, with a
large number of small, local operators. Since the 1980s, concentration in the
paging industry has increased as paging companies continue to grow rapidly
either internally or through acquisitions.
Arch believes that paging is the most cost-effective form of mobile wireless
communications. Paging has an advantage over conventional telephone service
because a pager's reception is not restricted to a single location, and over a
cellular telephone or broadband PCS handset because a pager is smaller, has a
longer battery life and, most importantly, because pagers and air time
required to transmit an average message cost less than equipment and air time
for cellular telephones or broadband PCS handsets. Paging subscribers
generally pay a flat monthly service fee for pager services, regardless of the
number of messages, unlike cellular telephone or broadband PCS subscribers,
whose bills typically have a significant variable usage component. For these
reasons, some cellular subscribers use a pager in conjunction with their
cellular telephone to screen incoming calls and thus lower the expense of
cellular telephone service, and to a lesser extent, some broadband PCS
subscribers use a pager in conjunction with their broadband PCS handsets,
which often incorporate messaging functions, but have a much shorter battery
life.
Industry sources estimate that, since 1992, the number of pagers in service
in the United States has grown at an annual rate of approximately 25% and will
continue to grow at an annual rate of approximately 8% through the year 2001.
Based on industry sources, Arch believes that there were in excess of 49
million pagers in service in the United States at December 31, 1997. Factors
contributing to this growth include: (i) a continuing shift towards a service-
based economy; (ii) increasing mobility of workers and the population at
large; (iii) increasing awareness of the benefits of mobile communications
among the population at large; (iv) the relatively high cost of two-way mobile
communications, such as cellular telephone services; (v) introduction of new
or enhanced paging services, including nationwide paging capability; (vi)
continuing improvements in the performance of paging equipment; and (vii)
significant price/performance improvements in paging services. The paging
industry has undergone substantial consolidation over the past ten years, and
Arch believes that the top five paging carriers represent approximately 50% of
the pagers in service. Nonetheless, Arch believes that the paging industry
remains fragmented, with more than 300 licensed carriers in the United States,
and will continue to undergo consolidation.
The paging industry has benefited from technological advances resulting from
research and development conducted by vendors of pagers and transmission
equipment. Such advances include microcircuitry, liquid crystal display
technology and standard digital encoding formats, which have enhanced the
capability and capacity of paging services while lowering equipment and air
time costs. Technological improvements have enabled Arch to provide better
quality services at lower prices to its subscribers and have generally
contributed to strong growth in the market for paging services.
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The paging industry has traditionally distributed its services through
direct marketing and sales activities. In recent years, additional channels of
distribution have evolved, including: (i) carrier-operated stores; (ii)
resellers, who purchase paging services on a wholesale basis from carriers and
resell those services on a retail basis to their own customers; (iii) agents
who solicit customers for carriers and are compensated on a commission basis;
(iv) retail outlets that often sell a variety of merchandise, including pagers
and other telecommunications equipment; and (v) most recently, the Internet.
While most paging subscribers traditionally have been business users, industry
observers believe that pager use among retail consumers has increased
significantly in recent years. In addition, paging subscribers have
increasingly chosen to purchase rather than lease their pagers. These trends
are expected to continue.
PAGING AND MESSAGING SERVICES
The following table describes the principal paging and messaging services
currently available in the paging industry.
<TABLE>
<CAPTION>
TYPE OF SERVICE DESCRIPTION
--------------- -----------
<C> <S>
Numeric (Digital Display) Paging
Service......................... Numeric paging service permits a caller
utilizing a touchtone telephone to transmit
to a subscriber a numeric message
consisting of a telephone number, an
account number or coded information.
Numeric pagers have memory capability to
store several such numeric messages which
can be recalled by a subscriber when
desired.
Alphanumeric Paging Service...... Alphanumeric paging service allows
subscribers to receive and store messages
consisting of both letters and numbers.
Alphanumeric pagers have sufficient memory
to store thousands of characters. This
service also has the capability to tie into
computer-based networks to provide advanced
messaging services. Callers may input
messages either by using an operator
dispatch center, a personal computer
equipped with applicable software or a
portable alphanumeric input device.
Voice Mail Service............... Voice mail service enables a caller to
leave a recorded message and automatically
alerts a subscriber, through a pager, that
a message has been recorded. A subscriber
may retrieve messages by calling his or her
voice mailbox at a paging network center.
Wireless Electronic Mail Service. Wireless electronic mail allows the user to
receive messages via wireless receivers
used in conjunction with portable personal
computers or "PDAs" (this service is not
currently offered by Arch or MobileMedia).
</TABLE>
COMPETITION
The paging industry is highly competitive with price being the primary means
of differentiation among providers of numeric display paging services.
Companies in the industry also compete on the basis of coverage area offered
to subscribers, available services offered in addition to basic numeric or
tone paging, transmission quality, system reliability, and customer service.
Arch and MobileMedia compete by maintaining competitive pricing of their
products and service offerings, by providing high-quality, reliable
transmission networks and by furnishing subscribers a superior level of
customer service. Several hundred licensed paging companies provide only local
basic numeric or tone paging service. Compared to these companies, Arch and
MobileMedia offer wireless messaging services on a local, regional and
nationwide basis. In addition, Arch and MobileMedia offer enhanced services
such as alphanumeric paging, voice mail and voice mail notifications, news,
sports, weather reports and stock quotes.
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<PAGE>
Arch and MobileMedia compete with one or more competitors in all markets in
which they operate. Although some of Arch's and MobileMedia's competitors are
small, privately owned companies serving one market area, others are large
diversified telecommunications companies serving numerous markets. Some of
Arch's and MobileMedia's competitors possess financial, technical and other
resources greater than those of Arch and MobileMedia. Major paging carriers
that currently compete in one or more of Arch's and MobileMedia's markets
include PageNet, Metrocall, and AirTouch Communications, Inc.
As paging services become increasingly interactive, and as two-way services
become increasingly competitive, the scope of competition for communications
service customers in Arch's and MobileMedia's markets may broaden. For
example, the FCC has created potential sources of competition by auctioning
new spectrum for Wireless Communications Services and Local Multipoint
Distribution Service and scheduling an auction in the 220-222 MHZ service.
Further, the FCC has announced plans to auction licenses in the General
Wireless Communications Services, a service created from spectrum reallocated
from federal government use in 1995. Moreover, entities offering service on
wireless two-way communications technology, including cellular, broadband PCS
and specialized mobile radio services, as well as mobile satellite service
providers, also compete with the paging services that Arch and MobileMedia
provide. See "Risk Factors--Risks Common to Arch and MobileMedia--Competition
and Technological Change."
In the 1995 FCC auctions for regional narrowband PCS licenses, MobileMedia
purchased licenses for a nationwide system with a common two-way frequency. In
addition, MobileMedia acquired a second narrowband PCS license for a
nationwide system in the MobileComm Acquisition. Competitors of MobileMedia,
some of which have substantially greater resources than MobileMedia, also
acquired PCS licenses in the FCC auctions. One of MobileMedia's competitors,
SkyTel, recently introduced a two-way narrowband PCS wireless data service.
Although Arch cannot predict the types of PCS services which will be offered
by those companies, Arch expects that those services will compete with the
narrowband PCS and paging services to be offered by MobileMedia.
REGULATION
Paging operations and the construction, modification, ownership and
acquisition of paging systems are subject to extensive regulation by the FCC
under the Communications Act and, to a much more limited extent, by public
utility or public service commissions in certain states. The following
description does not purport to be a complete discussion of all present and
proposed legislation and regulations relating to Arch's and MobileMedia's
paging operations.
FEDERAL REGULATION
Regulatory Classification.
Paging companies historically have been subject to different federal
regulatory requirements depending upon whether they were providing service as
a "Radio Common Carrier ("RCC"), a Private Carrier Paging Operator ("PCP") or
as a reseller. Arch's and MobileMedia's paging operations encompass RCC, PCP
and resale operations. However, federal legislation enacted in 1993 required
the FCC to reduce the disparities in the regulatory treatment of similar
mobile services (such as RCC and PCP services), and the FCC has taken, and
continues to take, actions to implement this legislation. Under the new
regulatory structure, all of Arch's and MobileMedia's paging services are
classified as CMRS. As CMRS providers, Arch and MobileMedia are regulated as
common carriers, except that the FCC has exempted paging services, which have
been found to be highly competitive, from some typical common carrier
regulations, such as tariff filing and resale requirements.
The classification of Arch's and MobileMedia's paging operations as CMRS
affects the level of permissible foreign ownership, as discussed below, and
the nature and extent of the state regulation to which both may be subject. In
addition, the FCC now is required to resolve competing requests for CMRS
spectrum by conducting auctions, which may have the effect of increasing the
costs of acquiring additional spectrum in markets in which Arch and
MobileMedia operate. Also, Arch and MobileMedia are obligated to pay certain
regulatory fees in connection with their paging operations.
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FCC Regulatory Approvals and Authorizations
The Communications Act requires radio licensees such as Arch and MobileMedia
to obtain prior approval from the FCC for the assignment or transfer of
control of any construction permit or station license or authorization or any
rights thereunder. This statutory requirement attaches to acquisitions of
other paging companies (or other radio licensees) by Arch and MobileMedia as
well as transfers of a controlling interest in any of Arch's or MobileMedia's
licenses, construction permits or any rights thereunder. To date, the FCC has
approved each assignment and transfer of control for which Arch and
MobileMedia have sought approval. Although there can be no assurance that any
future requests for approval of transfers of control and/or assignments of
license will be acted upon in a timely manner by the FCC, or that the FCC will
grant the approval requested, with the exception of the pending FCC
investigation into MobileMedia's qualification to continue to be an FCC
licensee, neither Arch nor MobileMedia knows of any reason that any such
applications will not be approved or granted.
Effective April 2, 1998, the FCC's Wireless Telecommunications Bureau (the
"Bureau") which directly regulates Arch's and MobileMedia's paging activities
announced that it will forbear from enforcing its filing requirements with
respect to pro forma assignments and transfers of control of certain wireless
authorizations, such as Arch's and MobileMedia's RCC and PCP licenses.
Pursuant to this decision, wireless telecommunications carriers now only have
to file a written notification of a pro forma transaction within 30 days after
the transaction is completed. This decision will expedite the process and
reduce the costs related to corporate reorganizations; however, Arch and
MobileMedia may still be required to obtain prior FCC approval for the pro
forma assignment or transfer of control of some of their licenses not covered
by the forbearance decision, such as certain business radio authorizations.
The FCC paging licenses granted to Arch and MobileMedia are for varying
terms of up to 10 years, at the end of which renewal applications must be
approved by the FCC. In the past, paging license renewal applications
generally have been granted by the FCC upon a showing of compliance with FCC
regulations and of adequate service to the public. With the exception of the
pending FCC proceeding regarding MobileMedia's qualifications to remain an FCC
licensee, Arch and MobileMedia are unaware of any circumstances which would
prevent the grant of any pending or future renewal applications; however, no
assurance can be given that any of Arch's or MobileMedia's renewal
applications will be free of challenge or will be granted by the FCC. It is
possible that there may be competition for radio spectrum associated with
licenses as they expire, thereby increasing the chances of third-party
interventions in the renewal proceedings. Other than those renewal
applications still pending, the FCC has thus far granted each license renewal
application that Arch or MobileMedia have filed.
On February 13, 1997, in connection with its filing for protection under the
Bankruptcy Code, MobileMedia sought a grant of permission from the FCC to
execute an involuntary, pro forma assignment of its licenses to MobileMedia as
debtors-in-possession. On March 3, 1997, the FCC granted such permission with
respect to MobileMedia's earth stations, on April 3, 1997, the FCC granted
such permission for the assignment of MobileMedia's microwave licenses and on
May 26, 1998 and July 17, 1998, the FCC granted such permission with respect
to MobileMedia's paging, air-to-ground and narrowband PCS licenses. In
addition, as noted above, FCC approval of the transfer of MobileMedia's
licenses pursuant to the Merger Agreement and the Plan (on terms that do not
impair the feasibility of the Plan and permit it to be implemented and
consummated) is a condition to effectiveness of the Plan and the closing of
the Merger.
The FCC's review and revision of rules affecting paging companies is ongoing
and the regulatory requirements to which Arch and MobileMedia are subject may
change significantly over time. For example, the FCC has decided to adopt a
market area licensing scheme for all paging channels under which carriers
would be licensed to operate on a particular channel throughout a broad
geographic area (for example, a Major Trading Area as defined by Rand McNally)
rather than being licensed on a site-by-site basis. These geographic area
licenses will be awarded pursuant to auction. Incumbent paging licensees that
do not acquire licenses at auction will be entitled to interference protection
from the market area licensee. Arch and MobileMedia are participating actively
in this proceeding in order to protect their existing operations and retain
flexibility, on an interim and long-term basis, to modify systems as necessary
to meet subscriber demands.
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<PAGE>
Currently, however, the Act requires that Arch and MobileMedia obtain
licenses from the FCC to use radio frequencies to conduct their paging
operations at specified locations. FCC licenses issued to Arch and MobileMedia
set forth the technical parameters, such as power strength and tower height,
under which Arch and MobileMedia are authorized to use those frequencies. In
many instances, Arch and MobileMedia require the prior approval of the FCC
before they can implement any significant changes to their radio systems. Once
the FCC's market area licensing rules are implemented, however, these site-
specific licensing obligations will be eliminated, with the exception of
applications still required by Section 22.369 of the FCC Rules (request for
authority to operate in a designated Quiet Zone), Section 90.77 (request for
authority to operate in a protected radio receiving location) and Section
1.1301 et seq. (construction/modification that may have a significant
environmental impact) or for coordination with Canada or Mexico.
The FCC has issued a Further Notice of Proposed Rulemaking in which the FCC
seeks comments on, among other matters, whether it should impose coverage
requirements on licensees with nationwide exclusivity (such as Arch and
MobileMedia), whether these coverage requirements should be imposed on a
nationwide or regional basis, and whether--if such requirements are imposed--
failure to meet the requirements should result in a revocation of the entire
nationwide license or merely a portion of the license. If the FCC were to
impose stringent coverage requirements on licensees with nationwide
exclusivity, Arch and MobileMedia might have to accelerate the build-out of
their systems in certain areas.
Telecommunications Act of 1996
The Telecommunications Act directly affects Arch and MobileMedia. Some
aspects of the Telecommunications Act may place financial obligations upon
each of Arch and MobileMedia or subject them to increased competition. For
example, the FCC has adopted new rules that govern compensation to be paid to
pay phone providers which has resulted in increased costs for certain paging
services including toll-free 800 number paging. Arch and MobileMedia have
generally passed these costs on to their subscribers, which makes their
services more expensive and which could affect the attraction or retention of
customers; however, there can be no assurance that Arch or MobileMedia will be
able to continue to pass on these costs. These rules are the subject of
several judicial appeals.
In addition, the FCC also has adopted new rules regarding payments by
telecommunications companies into a revamped fund that will provide for the
widespread availability of telecommunications services including Universal
Service. Prior to the implementation of the Telecommunications Act, Universal
Service obligations largely were met by local telephone companies,
supplemented by long-distance telephone companies. Under the new rules, all
telecommunications carriers, including paging companies, will be required to
contribute to the Universal Service Fund. In addition, certain state
regulatory authorities have enacted, or have indicated that they intend to
enact, similar contribution requirements based on state revenues. Neither Arch
nor MobileMedia can yet know the impact of these state contribution
requirements, if enacted and applied to Arch and MobileMedia. Moreover, Arch
and MobileMedia are unable at this time to estimate the amount of any such
payments that it will be able to bill to their subscribers; however, payments
into the Universal Service Fund will likely increase the cost of doing
business.
Some aspects of the Telecommunications Act could have a beneficial effect on
Arch's and MobileMedia's business. For example, proposed federal guidelines
regarding antenna siting issues may remove local and state barriers to the
construction of communications facilities, although states and municipalities
continue to exercise significant control with regard to such siting issues.
Moreover, in a rulemaking proceeding pertaining to interconnection between
LECs and CMRS providers such as MobileMedia and Arch, the FCC has concluded
that LECs are required to compensate CMRS providers for the reasonable costs
incurred by such providers in terminating traffic that originates on LEC
facilities, and vice versa. Consistent with this ruling, the FCC has
determined that LECs may not charge a CMRS provider or other carrier for
terminating LEC-originated traffic or for dedicated facilities used to deliver
LEC-originated traffic to one-way paging networks. Nor may LECs charge CMRS
providers for number activation and use fees. These interconnection issues are
still in dispute, and it is unclear whether the FCC will maintain its current
position.
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Depending on further FCC disposition of these issues, Arch and MobileMedia
may or may not be successful in securing refunds, future relief or both, with
respect to charges for termination of LEC-originated local traffic. If these
issues are ultimately resolved by the FCC in Arch's and MobileMedia's favor,
then Arch believes that it and MobileMedia would pursue relief through
settlement negotiations, administrative complaint procedures or both. If these
issues are ultimately decided in favor of the LECs, Arch and MobileMedia
likely would be required to pay all past due contested charges and may also be
assessed interest and late charges for amounts withheld.
Foreign Ownership
The Communications Act limits foreign investment in and ownership of
entities that are licensed as radio common carriers by the FCC. Because Arch
and Parent, through their subsidiaries, hold licenses from the FCC, in
general, no more than 25% of their stock may be owned or voted by aliens or
their representatives, a foreign government or its representatives, or a
foreign corporation. An FCC licensee may, however, make prior application to
the FCC for a determination that it is not in the public interest to deny its
parent company's foreign ownership in excess of the 25% foreign ownership
benchmark. Most recently, the FCC substantially liberalized its authorization
process for foreign entities investing in communications companies that are
domiciled in countries which are signatories to the WTO agreement. In
connection with the WTO agreement--agreed to by 69 countries--the FCC adopted
rules effective February 9, 1998 that create a very strong presumption in
favor of such a waiver if the foreign investor's home market country signed
the WTO.
STATE REGULATION
In addition to regulation by the FCC, certain states impose various
regulations on the common carrier paging operations of Arch and MobileMedia.
Regulation in some states historically required Arch and MobileMedia to obtain
certificates of public convenience and necessity before constructing,
modifying or expanding paging facilities or offering or abandoning paging
services. Rates, terms and conditions under which Arch and MobileMedia
provided services, or any changes to those rates, have also been subject to
state regulation. However, as a general rule, states are preempted from
exercising rate and entry regulation of CMRS, but may choose to regulate other
terms and conditions of service (for example, requiring the identification of
an agent to receive complaints). States also are accorded an opportunity to
petition the FCC for authority to continue to regulate CMRS rates if certain
conditions are met. State filings seeking rate authority have all been denied
by the FCC, although new petitions seeking such authority may be filed in the
future. The preemption of state entry regulation was confirmed in the
Telecommunications Act. In certain instances, the construction and operation
of radio transmitters also will be subject to zoning, land use, public health
and safety, consumer protection and other state and local taxes, levies and
ordinances. Further, some states and localities continue to exert jurisdiction
over (i) approval of acquisitions and transfers of wireless systems; and (ii)
resolution of consumer complaints. Arch and MobileMedia believe that to date
all required filings for Arch's and MobileMedia's paging operations have been
made.
FUTURE REGULATION
From time to time, legislation which could potentially affect Arch and
MobileMedia, either beneficially or adversely, is proposed by federal or state
legislators. There can be no assurance that legislation will not be enacted by
the federal or state governments, or that regulations will not be adopted or
actions taken by the FCC or state regulatory authorities, which might
materially adversely affect the business of Arch and/or MobileMedia. Changes
such as the allocation by the FCC of radio spectrum for services that compete
with Arch's and MobileMedia's business could adversely affect Arch's and
MobileMedia's results of operations. See "Risk Factors--Risks Common to Arch
and MobileMedia Government Regulation, Foreign Ownership and Possible
Redemption."
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BUSINESS
ARCH
Arch is a leading provider of wireless messaging services, primarily paging
services, and is the second largest paging company in the United States (based
on EBITDA). Arch had 4.1 million pagers in service at June 30, 1998. Arch
operates in 41 states and more than 180 of the 200 largest markets in the
United States. Arch offers local, regional and nationwide paging services
employing digital networks covering approximately 85% of the United States
population. Arch offers four types of paging services through its networks:
digital display, alphanumeric display, tone-only and tone-plus-voice. Arch
also offers enhanced and complementary services, including voice mail,
personalized greeting, message storage and retrieval, pager loss protection
and pager maintenance.
Arch has achieved significant growth in pagers in service and operating cash
flow through a combination of internal growth and acquisitions. From January
1, 1995 through June 30, 1998, Arch's total number of subscribers grew at a
compound rate on an annualized basis of 79.0%. For the same period on an
annualized basis, Arch's compound rate of internal subscriber growth
(excluding pagers added through acquisitions) was 56.1%. From commencement of
operations in September 1986, Arch has completed 33 acquisitions representing
an aggregate of 1.7 million pagers in service at the time of purchase.
The following table sets forth certain information regarding the approximate
number of pagers in service with Arch subscribers and net increases in number
of pagers through internal growth and acquisitions during the periods
indicated:
<TABLE>
<CAPTION>
PAGERS IN SERVICE NET INCREASE IN
AT BEGINNING OF PAGERS THROUGH INCREASE IN PAGERS PAGERS IN SERVICE
YEAR ENDED AUGUST 31, PERIOD INTERNAL GROWTH(1) THROUGH ACQUISITIONS(2) AT END OF PERIOD
- --------------------- ----------------- ------------------ ----------------------- -----------------
<S> <C> <C> <C> <C>
1987.................... 4,000 3,000 12,000 19,000
1988.................... 19,000 8,000 3,000 30,000
1989.................... 30,000 14,000 34,000 78,000
1990.................... 78,000 20,000 4,000 102,000
1991.................... 102,000 24,000 1,000 127,000
1992.................... 127,000 33,000 -- 160,000
1993.................... 160,000 70,000 24,000 254,000
1994.................... 254,000 138,000 18,000 410,000
<CAPTION>
FOUR MONTHS ENDED DECEMBER 31,
- ------------------------------
<S> <C> <C> <C> <C>
1994.................... 410,000 64,000 64,000 538,000
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<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
<CAPTION>
SIX MONTHS ENDED JUNE 30,
- -------------------------
<S> <C> <C> <C> <C>
1998.................... 3,890,000 241,000 -- 4,131,000
</TABLE>
- ---------------------
(1) Includes internal growth in acquired paging businesses after their
acquisition by Arch. Increases in pagers through internal growth are net
of subscriber cancellations during each applicable period.
(2) Based on pagers in service of acquired paging businesses at the time of
their acquisition by Arch.
BUSINESS STRATEGY
Arch's strategic objective is to strengthen its position as one of the
leading nationwide paging companies in the United States. Arch believes that
larger, multi-market paging companies enjoy a number of competitive
advantages, including: (i) operating efficiencies resulting from more
intensive utilization of existing paging systems; (ii) economies of scale in
purchasing and administration; (iii) broader geographic coverage of paging
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systems; (iv) greater access to capital markets and lower costs of capital;
(v) the ability to obtain additional radio spectrum; (vi) the ability to offer
high-quality services at competitive prices; and (vii) enhanced ability to
attract and retain management personnel. Arch believes that the current size
and scope of its operations afford it many of these advantages, and that it
has the scope and presence to effectively compete on a national level. In
addition, Arch believes that the paging industry will undergo further
consolidation, and Arch expects to participate in such consolidation.
Arch's operating objectives are to increase its EBITDA, deploy its capital
efficiently, reduce its financial leverage and expand its customer
relationships. Arch pursues 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. Arch believes that a low-cost
operating structure, compared to the other two fundamental competitive
tactics in the paging industry (differentiated premium pricing and niche
positioning), maximizes its flexibility to offer competitive prices while
still achieving target margins and EBITDA. Arch maintains a low-cost
operating structure through a combination of (i) the consolidation of
certain operating functions, including centralized purchases from key
vendors, to achieve economies of scale, and (ii) the installation of
technologically advanced, reliable, transmission systems. In June 1998, the
Arch Board approved the Divisional Reorganization, as part of which Arch
plans, over a period of 18 to 24 months, to consolidate its seven operating
divisions into four operating divisions and consolidate certain regional
administrative support functions, resulting in various operating
efficiencies. The Divisional Reorganization, once fully implemented, is
expected to result in annual cost savings of approximately $15.0 million
(approximately $11.5 million for salary and employee benefits and $3.5
million for lease obligations). See "Arch Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Efficient Capital Deployment. Arch's principal financial objective is to
reduce financial leverage by reducing capital requirements and increasing
EBITDA. To reduce capital expenditures, Arch has implemented a company-wide
focus on the sale, rather than lease, of pagers, since subscriber-owned
units require a lower level of capital investment than Arch-owned units. As
a result of these efforts, the number of subscriber-owned pagers, as a
percentage of net new pagers in service, increased from 56.6% in the six
months ended June 30, 1997 to 78.8% in the six months ended June 30, 1998.
In addition, Arch has modified its incentive compensation programs for line
managers so that bonuses are based, in part, on capital efficiency.
Fast Follower on N-PCS Opportunities. Consistent with its low-cost
provider competitive tactic, Arch has focused its capital and marketing
resources on one-way paging and other enhanced services rather than N-PCS
services. However, Arch recognizes the potential benefits to current and
prospective customers and the associated market opportunities from certain
N-PCS applications, such as two-way text and voice messaging services. Arch
has taken steps to position itself to participate in new and emerging N-PCS
services and applications, including marketing N-PCS services as a reseller
and its 49.9% equity interest in Benbow. See "--Investments in Narrowband
PCS Licenses".
Exploit Revenue Enhancement Opportunities. Arch believes there are a
number of new revenue opportunities associated with its 4.1 million pagers
in service, including increasing the proportion of subscribers utilizing
alphanumeric display services, which generate higher revenue, and selling
value-added, non-facilities-based enhanced services such as voicemail,
resale of long-distance service and fax storage and retrieval. See "--
Paging and Messaging Services, Products and Operations".
PAGING AND MESSAGING SERVICES, PRODUCTS AND OPERATIONS
Arch currently provides four basic types of paging services: digital
display, alphanumeric display, tone-only and tone-plus-voice. Depending upon
the type of pager used, a subscriber may receive information displayed or
broadcast by the pager or may receive a signal from the pager indicating that
the subscriber should call a prearranged number or a company operator to
retrieve a message.
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A digital display pager permits a caller to transmit to the subscriber a
numeric message that may consist of a telephone number, an account number or
coded information, and has the capability to store several such numeric
messages in memory for later recall by the subscriber. An alphanumeric display
pager allows subscribers to receive and store messages consisting of both
numbers and letters. A tone-only pager notifies the subscriber that a call has
been received by emitting an audible beeping sound or vibration. A tone-plus-
voice pager emits a beeping sound followed by a brief voice message. Arch
provides digital display, alphanumeric display and tone-only service in all of
its markets and tone-plus-voice service in only a few markets.
Digital display paging service, which was introduced by the paging industry
nearly 20 years ago, has in recent years grown at a faster rate than tone-only
or tone-plus-voice service and currently represents a majority of all pagers
in service. The growth of alphanumeric display service, which was introduced
in the mid-1980s, has been constrained by its difficult data-input and
specialized equipment requirements and its relatively high use of system
capacity during transmission. The following table summarizes the types of
Arch's pagers in service at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1995 1996 1997 1998
------------- ------------- ------------- -------------
UNITS % UNITS % UNITS % UNITS %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Digital display......... 1,755,000 87% 2,796,000 85% 3,284,000 85% 3,478,000 84%
Alphanumeric display.... 171,000 9 395,000 12 524,000 13 580,000 14
Tone-only............... 37,000 2 54,000 2 43,000 1 38,000 1
Tone-plus-voice......... 43,000 2 50,000 1 39,000 1 35,000 1
--------- --- --------- --- --------- --- --------- ---
Total.................. 2,006,000 100% 3,295,000 100% 3,890,000 100% 4,131,000 100%
========= === ========= === ========= === ========= ===
</TABLE>
Arch provides paging service to subscribers for a monthly fee. Subscribers
either lease the pager from Arch for an additional fixed monthly fee or they
own the pager, having purchased it either from Arch or from another vendor.
The monthly service fee is generally based upon the type of service provided,
the geographic area covered, the number of pagers provided to the customer and
the period of the subscriber's commitment. Subscriber-owned pagers provide a
more rapid recovery of Arch's capital investment than pagers owned and
maintained by Arch, but may generate less recurring revenue. Arch also sells
pagers to third-party resellers who lease or resell pagers to their own
subscribers and resell Arch's paging services under marketing agreements. The
following table summarizes the number of Arch-owned and leased, subscriber-
owned and reseller-owned pagers in service at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1995 1996 1997 1998
------------- ------------- ------------- -------------
UNITS % UNITS % UNITS % UNITS %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arch-owned and leased... 902,000 45% 1,533,000 47% 1,740,000 45% 1,791,000 43%
Subscriber-owned........ 596,000 30 914,000 28 1,087,000 28 1,205,000 29
Reseller-owned.......... 508,000 25 848,000 25 1,063,000 27 1,135,000 28
--------- --- --------- --- --------- --- --------- ---
Total.................. 2,006,000 100% 3,295,000 100% 3,890,000 100% 4,131,000 100%
========= === ========= === ========= === ========= ===
</TABLE>
Arch provides enhancements and ancillary services such as voice mail,
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.
Arch is also in the process of test marketing various non-facilities-based
value-added services that can be integrated with existing paging services.
These include, among other services, voicemail, resale of long distance
service and fax storage and retrieval.
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INVESTMENTS IN NARROWBAND PCS LICENSES
Arch has taken the following steps to position itself to participate in new
and emerging N-PCS services and applications.
Benbow PCS Ventures, Inc. Arch holds a 49.9% equity interest in Benbow PCS
Ventures, Inc. ("Benbow"), which holds (through Page Call, Inc. ("Page Call"))
exclusive rights to a 50 KHz outbound/12.5 KHz inbound N-PCS license in each
of the five regions of the United States. Benbow is a "designated entity" (a
small, minority-controlled or female-controlled business) under FCC rules and
is entitled to discounts and installment payment schedules in the payment of
its N-PCS licenses. Arch has the right to designate one of Benbow's three
directors and has veto rights with respect to specified major business
decisions by Benbow. Arch is obligated, to the extent such funds are not
available to Benbow from other sources and subject to the approval of Arch's
designee on Benbow's Board of Directors, to advance to Benbow sufficient funds
to service debt obligations incurred by Benbow in connection with the
acquisition of its N-PCS licenses and to finance construction of an N-PCS
system. The total purchase price for Benbow's licenses (together with the
purchase price of licenses acquired from Page Call), net of the discounts, was
$42.5 million. Arch estimates that the total cost to Benbow of servicing its
license-related debt obligations and constructing such N-PCS system (including
the effect of the Page Call acquisition) will be approximately $100.0 million
over the next five years. Arch's advances to Benbow are secured by Benbow's
assets, bear interest at an interest rate equal to that paid by Arch on its
senior debt, are due on demand and must be repaid prior to any distribution of
profits by Benbow. With certain exceptions, Arch has agreed not to exercise
its right to demand repayment of such advances prior to the occurrence of a
default. As of June 30, 1998, Arch had advanced $18.0 million to Benbow.
Pursuant to a five-year management agreement expiring on October 1, 2000,
Arch is responsible, subject to Benbow's ultimate control, for Benbow's day-
to-day operations and is paid a management fee and is reimbursed for its
expenses. Arch also has a right of first refusal to provide Benbow with
design, engineering and construction services for its N-PCS system as well as
to lease certain equipment to Benbow for use in connection with such system.
Arch has a right of first refusal with respect to any transfer of shares held
by Ms. June Walsh, who holds the remaining 50.1% equity interest in Benbow,
and Ms. Walsh has the right to require Arch, commencing January 23, 2000 (or
sooner under certain circumstances), to repurchase (subject to prior FCC
approval) her Benbow shares for an amount equal to the greater of (i) an
amount between $3.5 million and $5.0 million, depending on the timing and
circumstances under which Ms. Walsh exercises her put option, and (ii) the
fair market value of her shares (as determined by arbitration absent agreement
of the parties). If Arch exercises its right of first refusal or Ms. Walsh
exercises her put option, Benbow could lose some of the benefits of the
discounts and installment payment schedules for its FCC payments unless
another "designated entity" acquired control of Benbow under FCC rules. See
Note 1 of Notes to Arch's Consolidated Financial Statements included elsewhere
herein.
Benbow needs to construct its N-PCS system (or make other arrangements)
before it can offer N-PCS services. Benbow has indicated that it plans to roll
out its services over time to reach approximately one-third of the population
in the licensed areas by the end of 1999. Benbow's network will use a Reflex
25 paging protocol. Arch believes that Benbow will provide Arch with a
platform for a new generation of wireless messaging services, including two-
way messaging and other enhanced services, and that the value of its Benbow
relationship was significantly enhanced by the completion of the Page Call
acquisition. Arch has yet to determine how to best integrate its N-PCS
strategy with respect to Benbow and that of MobileMedia's intent to deploy its
N-PCS Spectrum which has already been funded.
On June 29, 1998, Benbow acquired Page Call's outstanding stock by issuing
to Page Call's former stockholders preferred stock and a promissory note in
the aggregate face amount of $17.2 million with a 12% annual return. At the
time of the closing, Benbow entered into a five-year consulting agreement with
one of Page Call's stockholders requiring consulting payments in the aggregate
amount of $911,000. Benbow's preferred stock and promissory note are
exchangeable for Arch Common Stock (i) at any time at the option of the
holders thereof, at an exchange price equal to the higher of (A) $13.00 per
share or (B) the market price of Arch's
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Common Stock, (ii) mandatorily on April 8, 2000, at the then prevailing market
price of Arch Common Stock, or (iii) automatically at an exchange price of
$13.00 per share, if the market price of Arch Common Stock equals or exceeds
$13.00 for 20 consecutive trading days. Arch is permitted to require Benbow to
redeem its preferred stock and promissory note at any time for cash. Arch
entered into guarantees (payable in Arch's Common Stock or cash, at Arch's
election) of all obligations of Benbow under the Benbow preferred stock,
promissory note and consulting agreement described above. Benbow's redemption
of its preferred stock and promissory note for cash, or Arch's payment of cash
pursuant to its guarantees of Benbow's preferred stock and promissory note,
would be subject to the availability of capital and any restrictions contained
in applicable debt instruments and under the DGCL (which currently would not
permit any such cash redemptions or payments). If Arch issues Arch 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. Page Call's
stockholders received customary registration rights with respect to any shares
of Arch's Common Stock issued in exchange for Benbow's preferred stock and
promissory note or pursuant to Arch's guarantees thereof.
CONXUS Communications, Inc. Arch currently holds a 10.5% equity interest in
CONXUS Communications, Inc. ("Conxus"), formerly known as PCS Development
Corporation, which holds exclusive rights to a 50 KHz outbound/50 KHz inbound
two-way messaging license throughout the United States. Conxus, like Benbow,
is a "designated entity" under FCC rules and is entitled to discounts and
installment payment schedules.
Each stockholder of Conxus is entitled to purchase services from Conxus at
"most favored customer" rates, based on like services. Conxus and Arch have
agreed to negotiate in good faith to enter into mutually acceptable
intercarrier, network access and similar agreements. If Arch wishes to
purchase N-PCS services of the kind offered by Conxus, Arch has agreed to
contract exclusively with Conxus for such services so long as such services
are competitive in price and quality with comparable services offered by
others. Arch is currently acting as a reseller of voice messaging services
through Conxus in a limited number of markets.
SUBSCRIBERS AND MARKETING
Arch's paging 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 and medical personnel, field sales personnel and service forces,
members of the construction industry and trades, and real estate brokers and
developers. Arch believes that pager use among retail consumers will increase
significantly in the future, although consumers do not currently account for a
substantial portion of Arch's subscriber base.
Although today Arch operates in more than 180 of the 200 largest U.S.
markets, Arch historically has focused on medium-sized and small market areas
with lower rates of pager penetration and attractive demographics. Arch
believes that such markets will continue to offer significant opportunities
for growth, and that its national scope and presence will also provide Arch
with growth opportunities in larger markets.
Arch markets its paging services through a direct marketing and sales
organization which, as of June 30, 1998, operated approximately 200 retail
stores. Arch also markets its paging services indirectly through independent
resellers, agents and retailers. Arch typically offers resellers paging
services in large quantities at wholesale rates that are lower than retail
rates, and resellers offer the services to end-users at a markup. Arch's costs
of administering and billing resellers are lower than the costs of direct end-
users on a per pager basis.
Arch also acts as a reseller of other paging carriers' services when
existing or potential Arch customers have travel patterns that require paging
service beyond the coverage of Arch's own networks.
In May 1997, Arch established a single national identity, Arch Paging, for
its paging services which previously had been marketed under various
trademarks. As part of this branding initiative, Arch adopted a new
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corporate logo, a corporate-wide positioning strategy tied to customer service
delivery, and launched its Internet Web site at www.arch.com. Arch believes
that its unified branding identity will give the Arch name national exposure
for the first time and result in significant economic leverage in its
marketing and communications efforts.
COMPETITION
See "Industry Overview--Competition".
REGULATION
See "Industry Overview--Regulation".
SOURCES OF EQUIPMENT
Arch does not manufacture any of the pagers or other equipment used in its
paging 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 in order to
achieve cost savings from volume purchases. Arch buys pagers primarily from
Motorola and NEC and purchases terminals and transmitters primarily from
Glenayre and Motorola. Arch anticipates that equipment and pagers will
continue to be available in the foreseeable future, consistent with normal
manufacturing and delivery lead times. See "Risk Factors--Risks Common to Arch
and MobileMedia--Dependence on Third Parties".
Because of the high degree of compatibility among different models of
transmitters, computers and other paging 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 paging
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
paging system equipment is among the most technologically sophisticated in the
paging industry.
EMPLOYEES
At June 30, 1998, Arch employed approximately 2,800 persons. None of Arch's
employees is represented by a labor union. Arch believes that its employee
relations are good. As part of the Divisional Reorganization, Arch anticipates
a net reduction of approximately 10% of its workforce. See "Business--Arch
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Divisional Reorganization".
TRADEMARKS
Arch owns the service marks "Arch" and "Arch Paging", and holds a federal
registration for the service mark "Arch Nationwide Paging" as well as various
other trademarks.
PROPERTIES
At June 30, 1998, Arch owned five office buildings and leased office space
(including its executive offices) in over 200 localities in 35 states for use
in conjunction with its paging operations. Arch leases transmitter sites
and/or owns transmitters on commercial broadcast towers, buildings and other
fixed structures in approximately 3,200 locations in 45 states. 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. In April 1998, Arch announced an agreement for the Arch Tower
Site Sale. Arch is selling communications towers, real estate, site management
contracts and/or leasehold interests involving 134 sites (including one site
acquired from entities affiliated with Benbow's controlling shareholder) in 22
states, and will lease back space on the towers on which it currently operates
communications equipment to service its own paging network. Arch held the
initial closing on June 26, 1998 and expects to complete the transaction in
the third quarter of 1998. As part of the
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Divisional Reorganization, Arch will close certain office locations and
redeploy other real estate assets. See "Business--Arch Management's Discussion
and Analysis of Financial Condition and Results of Operations--Divisional
Reorganization".
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 Arch.
ARCH MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
individuals who are the directors and executive officers of Arch.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
C. Edward Baker, Jr..... 47 Chairman of the Board, Chief Executive Officer and Director
Lyndon R. Daniels....... 45 President and Chief Operating Officer
John B. Saynor.......... 57 Executive Vice President and Director
J. Roy Pottle........... 39 Executive Vice President and Chief Financial Officer
Paul H. Kuzia........... 56 Executive Vice President/Technology and Regulatory Affairs
R. Schorr Berman(1)(2).. 49 Director
James S. Hughes(1)...... 55 Director
Allan L. Rayfield(2).... 63 Director
John A. Shane(1)(2)..... 65 Director
John Kornreich.......... 52 Director
</TABLE>
- --------
(1) Member of the Audit Committee of Arch.
(2) Member of the Executive Compensation and Stock Option Committee of Arch.
C. EDWARD BAKER, JR. has served as Chief Executive Officer and a director of
Arch since 1988 and of ACI since 1995. Mr. Baker became Chairman of the Board
of Arch in 1989 and of ACI in 1995. He also served as President of Arch from
1988 to January 1998 and of ACI from 1995 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 and ACI 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 1988 and of ACI since
1995. Mr. Saynor has served as Executive Vice President of ACI since 1995 and
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 and ACI 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 and ACI since September 1996. He served as Vice
President/Engineering and Regulatory Affairs of Arch from 1988 to September
1996 and of ACI from 1995 to September 1996. Prior to 1988, Mr. Kuzia was
director of operations at Message Center Inc.
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R. SCHORR BERMAN has been a director of Arch since 1986 and of ACI since
1995. 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.
JAMES S. HUGHES has been a director of Arch since 1986 and of ACI since
1995. 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.
ALLAN L. RAYFIELD has been a director of Arch since 1997 and of ACI since
1998. He has been a consultant 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 and of ACI since 1995.
He has been the President of Palmer Service Corporation since 1972. He has
been a general partner of Palmer Partners L.P., a venture capital firm, since
1981. He serves as a director of Overland Data, Inc., Summa Four, Inc., United
Asset Management Corporation and Gensym Corporation and as a trustee of Nvest
Funds.
JOHN KORNREICH has been a director of Arch and ACI since June 1998. Mr.
Kornreich has served as a Managing Director of Sandler Capital Management Co.,
Inc. since 1988.
The Arch Certificate and the Arch 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. Hughes and
Rayfield will expire at Arch's annual meeting of stockholders to be held in
1999, the term of Messrs. Saynor and Shane will expire at Arch's annual
meeting of stockholders to be held in 2000 and the term of Messrs. Baker,
Berman and Kornreich will expire at Arch's annual meeting of stockholders to
be held in 2001.
In connection with the Merger, designees of W.R. Huff and Whippoorwill are
expected to be elected to the Arch Board at the Effective Time. See "The
Merger Agreement--Related Agreements--Standby Purchase Agreements". The
expected nominees are:
EDWIN M. BANKS, age 35, has been employed by W.R. Huff 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 received his B.A.
degree from Rutgers College and his MBA degree from Rutgers University. Mr.
Banks also serves as a director of Magellan Health Services, Charter Medical
Corporation and ABCO Food Service.
H. SEAN MATHIS, age 51, has been Chairman of the Board and Chief Executive
Officer of Allis Chalmers, Inc. since January 1996 and previously served as a
Vice President of such 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 was the President of a predecessor to, and currently
is a director of, Allied Digital Technologies. He is also a director of
Thousand Trails, Inc.
The holders of Series C Preferred Stock have the right, voting as a separate
class, to elect one member of the Board of Directors of Arch and ACI, and such
director will have the right to be a member of any committee of such Boards of
Directors. Mr. Kornreich is currently the director elected by the holders of
Series C Preferred Stock.
Arch's executive officers are elected by the Arch Board and hold office
until their successors are elected or until their earlier death, resignation
or removal.
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Certain of Arch's executive officers have entered into non-competition
agreements with Arch which provide that, for a minimum period of one year
following termination, they will not compete with Arch nor, for a period of
three years following termination, recruit or hire any other Arch employee.
Arch has formed an offshore corporation to pursue wireless messaging
opportunities in Latin America. Arch and an entity owned by Mr. Hughes each
contributed $250,000 to this offshore corporation and each owns 13.3% of its
equity.
BOARD COMMITTEES
The Arch Board has an Audit Committee and an Executive Compensation and
Stock Option Committee. There is no standing nominating committee of the Arch
Board. The Audit Committee reviews the annual consolidated financial
statements of Arch and its subsidiaries prior to their submission to the Arch
Board 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 Executive Compensation and Stock Option Committee recommends to
Arch's Board the compensation of executive officers, key managers and
directors and administers Arch's stock option plans.
INDEMNIFICATION AND DIRECTOR LIABILITY
The Arch Certificate provides that Arch will, to the fullest extent
permitted by the DGCL, indemnify all persons whom it has the power to
indemnify against all costs, expenses and liabilities incurred by them by
reason of having been officers or directors of Arch, any subsidiary of Arch or
any other corporation for which such persons acted as an officer or director
at the request of Arch.
The Arch Certificate also provides that the directors of Arch will not be
personally liable for monetary damages to Arch or its stockholders for any act
or omission, provided that the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty
to Arch 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 DGCL (relating to illegal dividends or stock
redemptions) or (iv) for any transaction from which the director derived an
improper personal benefit. If the DGCL is amended to permit further
elimination or limitation of the personal liability of directors, then the
liability of a director of Arch shall be eliminated or limited to the fullest
extent permitted by the DGCL as so amended.
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ARCH EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
annual and long-term compensation of Arch's Chief Executive Officer and other
executive officers (the "Named Executive Officers") for the years ended
December 31, 1995, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- --------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION DURING 1997 YEAR SALARY $ BONUS $(1) COMPENSATION ($)(2) OPTIONS (#)(3)
- --------------------------------------- ---- -------- ---------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
C. Edward Baker, Jr...... 1997 $353,317 $227,500 $600 459,324(4)
Chairman, President and 1996 329,050 36,833 600 268,860(5)(6)
Chief Executive Officer 1995 281,650 106,000 600 40,000(7)
Lyndon R. Daniels........ 1997 -- -- -- --
President and Chief
Operating Officer
(joined Arch in January
1998)
J. Roy Pottle............ 1997 -- -- -- --
Executive Vice President
and Chief Financial
Officer (joined Arch in
February 1998)
John B. Saynor........... 1997 153,188 72,900 600 51,810(8)
Executive Vice President 1996 146,867 15,300 600 20,000(6)
1995 131,870 50,000 600 20,000(7)
Paul H. Kuzia............ 1997 157,633 77,400 600 86,574(9)
Executive Vice
President/Technology 1996 133,800 14,620 600 8,000(6)
and Regulatory Affairs 1995 123,300 46,000 600 8,000(7)
William A. Wilson........ 1997 133,599 150,500 600 32,836
Former Executive Vice
President and 1996 203,133 19,833 600 170,000(10)
Chief Financial
Officer(11) 1995 157,300 58,000 600 20,000(7)
</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 stock appreciation rights ("SARs") were
granted to any of the Named Executive Officers during the years ended
December 31, 1995, 1996 or 1997.
(4) Includes options to purchase 409,688 shares granted as part of Arch's
January 16, 1998 option repricing program.
(5) Includes options to purchase 106,860 shares replaced in connection with
Arch's October 23, 1996 option repricing program.
(6) Option replaced in connection with Arch's January 16, 1998 option
repricing program.
(7) Option replaced in connection with Arch's October 23, 1996 option
repricing program.
(8) Includes options to purchase 35,905 shares granted as part of Arch's
January 16, 1998 option repricing program.
(9) Includes options to purchase 69,687 shares granted as part of Arch's
January 16, 1998 option repricing program.
(10) Includes options to purchase 75,000 shares replaced in connection with
Arch's October 23, 1996 option repricing program.
(11) Mr. Wilson resigned on June 30, 1997.
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EXECUTIVE RETENTION AGREEMENTS
Arch is a party to Executive Retention Agreements (the "Retention
Agreements") for a total of 16 executives (the "Arch Executives"), including
Messrs. Baker, Daniels, Kuzia, Pottle and Saynor.
The purpose of the Retention Agreements is to assure the continued
employment and dedication of the Arch Executives without distraction from the
possibility of a Change in Control (as defined in the Retention Agreements) of
Arch. In the event of a Change in Control, and the termination of the
Executive's employment by Arch at any time within the 12-month period
thereafter (other than for cause, disability or death) or by the Executive for
Good Reason (as defined in the Retention Agreements), the Executive shall be
eligible to receive (i) a cash severance payment equal to the Executive's base
salary plus any other amounts earned through the date of termination (to the
extent not previously paid), (ii) an additional lump sum cash payment equal to
a specified multiple (the "Multiple") of the sum of (a) the Executive's annual
base salary in effect at the time of the Change in Control and (b) the average
bonus paid for the three calendar years immediately preceding the calendar
year during which the Change in Control occurs, and (iii) 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, until the earlier of (a) 12 months after termination or (b) the
Executive becomes reemployed with another employer and is eligible to receive
substantially equivalent benefits, Arch shall arrange to provide the Executive
with life, disability, accident and health insurance benefits similar to those
previously maintained. The Multiple for Messrs. Baker, Daniels, Kuzia, Pottle
and Saynor is three, and the Multiple for the other Arch Executives is one or
two. Good Reason is defined to include, among other things, a material
reduction in employment responsibilities, compensation or benefits or, in the
case of Mr. Baker, the failure to become the Chief Executive of any entity
succeeding or controlling Arch.
STOCK OPTION GRANTS
The following table summarizes certain information regarding options granted
to the Named Executive Officers during the year ended December 31, 1997. No
SARs were granted during the year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTIONS TERM(3)
-------------------------------------------------- -------------------
PERCENT OF
TOTAL
OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
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. ... 49,636(4) 2.89 $6.875 03/05/07 $214,609 $ 543,861
409,688(5) 23.89 5.0625 01/16/08 553,600 2,110,041
Lyndon R. Daniels....... -- -- -- -- -- --
J. Roy Pottle........... -- -- -- -- -- --
John B. Saynor.......... 15,905(4) 0.93 6.875 03/05/07 68,768 174,271
35,905(5) 2.09 5.0625 01/16/08 48,517 184,924
Paul H. Kuzia........... 16,887(4) 0.98 6.875 03/05/07 73,013 185,031
69,687(5) 4.06 5.0625 01/16/08 94,166 358,913
William A. Wilson....... 32,836 1.92 6.875 03/05/07 141,971 359,783
</TABLE>
- --------
(1) Options generally become exercisable at a rate of 20% of the shares
subject to the option on the first anniversary of the date of grant and
5% of the shares subject to the option per calendar quarter thereafter.
98
<PAGE>
(2) The exercise price is equal to the fair market value of Arch 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 respective options were granted and are not
intended to forecast future appreciation of the price of the Common
Stock. The Named Executive Officers will realize no gain upon the
exercise of these options without an increase in the price of the Common
Stock, which increase will benefit all Company stockholders
proportionately.
(4) Option replaced as part of the January 16, 1998 option repricing program.
(5) Option granted as part of the January 16, 1998 option repricing program.
OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table sets forth certain information regarding the exercise of
stock options during the year ended December 31, 1997 and stock options held
as of December 31, 1997 by the Named Executive Officers.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
NAME (#) ($)(1) (#) ($)(2)
---- ----------- -------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr .... -- -- 314,904(3) 188,816 $ 188,064 --
Lyndon R. Daniels....... -- -- -- -- -- --
John B. Saynor.......... -- -- 4,000 31,905 -- --
J. Roy Pottle........... -- -- -- -- -- --
Paul H. Kuzia........... -- -- 46,400 23,287 -- --
William A. Wilson....... -- -- -- -- -- --
</TABLE>
- --------
(1) Represents the difference between the exercise price and the fair market
value of Arch's Common Stock on the date of exercise.
(2) Based on the fair market value of Arch's Common Stock on December 31, 1997
($5.125 per share) less the option exercise price.
(3) Subsequent to December 31, 1997, Mr. Baker exercised an option for 94,032
shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of Arch's Compensation Committee are R. Schorr Berman,
Allan L. Rayfield and John A. Shane. Messrs. Berman and Shane served on the
Compensation Committee throughout 1997, and Mr. Rayfield joined the
Compensation Committee upon his election as a director in July 1997.
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, any of whose executive officers
has served as a director of Arch or as a member of the Compensation Committee
of Arch.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Arch Common Stock, as of June 30, 1998, by (i) each
person who is known by Arch to beneficially own more than 5% of its
outstanding shares of Arch Common Stock, (ii) each current director of Arch,
(iii) Arch's Chief Executive Officer and the other Named Executive Officers
and (iv) all current directors and executive officers of Arch as a group.
The following table does not reflect shares to be issued in connection with
the Merger. Based upon the mid-point of the range of shares which may be
issued in connection with the Merger Agreement and the Amended Plan, Arch will
issue 52,118,000 shares of Arch Combined Common Stock in the Merger. See "The
MobileMedia Plan of Reorganization--Calculation of Shares". After giving pro
forma effect to the issuance of 52,118,000 shares of Arch Combined Common
Stock in the Merger, and assuming that all shares sold in the Rights Offering
are purchased by the Standby Purchasers, the shares received by the Standby
Purchasers in connection with the Merger would represent an aggregate of
approximately 55% of the total number of shares of Arch Common Stock
outstanding immediately after the Merger on an as-converted basis. However,
the Standby Purchasers would not hold, in the aggregate, shares representing
more than 49.0% of the securities of Arch entitled to vote in the election of
directors and outstanding at the Effective Time. See "The Merger Agreement--
Related Agreements--Standby Purchase Agreements".
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES(1) PERCENTAGE(2)
---------------------------------------------------- --------- -------------
<S> <C> <C>
Sandler Capital Management (3) ..................... 4,594,364 17.9%
Franklin Resources, Inc. (4)........................ 2,514,080 9.8
Memorial Drive Trust (5)............................ 1,947,990 7.6
State of Wisconsin Investment Board (6)............. 1,388,000 5.4
Dimensional Fund Advisors Inc. (7).................. 1,304,900 5.1
J. & W. Seligman & Co. Incorporated (8)............. 1,257,372 4.9
Goldman, Sachs & Co. (9)............................ 1,225,500 4.8
C. Edward Baker, Jr. ............................... 186,647 0.7
Lyndon R. Daniels................................... 12,000 *
John B. Saynor...................................... 193,924 0.8
J. Roy Pottle....................................... -- --
Paul H. Kuzia....................................... 17,000 *
R. Schorr Berman (10)............................... 1,961,140 7.7
James S. Hughes..................................... 80,837 *
John Kornreich (11) ................................ 4,830,569 18.9
Allan L. Rayfield................................... 3,250 *
John A. Shane (12).................................. 94,785 *
William A. Wilson (13).............................. 600 *
All current directors and executive officers of Arch
as a group (10 persons) (14)....................... 7,380,152 28.6
</TABLE>
- ---------------------
* Less than 0.5%
(1) Unless otherwise indicated, each person or entity named 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.
(2) Assumes the conversion of Series C Preferred Stock into Arch Common Stock
at the initial conversion price of $5.50 per share. See "--Arch
Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Sandler Equity
Investment".
(3) The business address of Sandler is 767 Fifth Avenue, 45th Floor, New
York, New York 10153. Sandler has sole voting and investment power over
348,000 of such shares and shared voting and investment power over
4,246,364 of such shares. This information is based on the Schedule 13G
filed by Sandler with the Commission on July 10, 1998.
(4) The business address of Franklin Resources, Inc. is 777 Mariners Island
Boulevard, San Mateo, California 94404. Franklin Advisers, Inc., a
subsidiary of Franklin Resources, Inc., has sole voting power and sole
investment power with respect to 2,493,700 shares. Franklin Management,
Inc., a subsidiary of Franklin Resources, Inc., has sole investment power
with respect to 20,380 shares. Franklin Resources, Inc., the
100
<PAGE>
principal shareholders thereof, Franklin Advisers, Inc. and Franklin
Management, Inc. disclaim beneficial ownership of these securities. This
information is based on Amendment No. 1 to Schedule 13G filed by Franklin
Resources, Inc. with the Commission on January 26, 1998.
(5) The business address of Memorial Drive Trust is 125 Cambridge Park Drive,
Cambridge, Massachusetts 02140. All shares listed in the above table as
held by Memorial Drive Trust are held by MD Co. as nominee for Memorial
Drive Trust, a trust holding assets of a qualified profit sharing plan for
employees of Arthur D. Little, Inc., over which Mr. Berman may be deemed
to share voting and investment power. See footnote (10).
(6) The business address of the State of Wisconsin Investment Board is P.O.
Box 7842, Madison, Wisconsin 53707. This information is based on the
Schedule 13G filed by the State of Wisconsin Investment Board with the
Commission on January 27, 1998.
(7) The business address of Dimensional Fund Advisors Inc. is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401. Dimensional Fund
Advisors Inc. has sole voting power with respect to 860,800 shares and
sole investment power with respect to all 1,304,900 shares. Officers of
Dimensional Fund Advisors Inc. also serve as officers of DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company, each an open-
end management investment company. These officers have sole voting power
with respect to 139,100 shares owned by DFA Investment Dimensions Group
Inc. and 305,000 shares owned by The DFA Investment Trust Company. All of
these securities are owned by advisory clients of Dimensional Fund
Advisors Inc., none of which, to the knowledge of Dimensional Fund
Advisors Inc., owns more than 5% of the class. Dimensional Fund Advisors
Inc. disclaims beneficial ownership of such securities. This information
is based on the Schedule 13G filed by Dimensional Fund Advisors Inc. with
the Commission on February 10, 1998.
(8) The business address of J. & W. Seligman & Co. Incorporated is 100 Park
Avenue, New York, New York 10017. J. & W. Seligman & Co. Incorporated has
shared voting power with respect to 1,129,325 of such shares and shared
investment power with respect to all 1,257,372 shares. This information is
based on Amendment No. 1 to Schedule 13G filed by J. & W. Seligman & Co.
Incorporated with the Commission on February 12, 1998.
(9) The business address of Goldman, Sachs & Co. and its parent holding
company, The Goldman Sachs Group, L.P. (collectively "Goldman Sachs"), is
85 Broad Street, New York, New York 10004. Goldman Sachs has shared voting
power with respect to 854,100 shares and shared investment power with
respect to all 1,225,500 shares. Goldman Sachs disclaims beneficial
ownership of the shares beneficially owned by (i) managed accounts and
(ii) certain investment limited partnerships, of which a subsidiary of
Goldman Sachs is the general partner or managing general partner, to the
extent partnership interests in such partnerships are held by persons
other than Goldman Sachs or their affiliates. This information is based on
the Schedule 13G filed by Goldman Sachs with the Commission on February
17, 1998.
(10) Includes 1,947,990 shares 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.
(11) Includes 4,594,364 shares beneficially owned by Sandler, over which Mr.
Kornreich may be deemed to have voting and investment power as Managing
Director, and 190,000 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.
(12) Includes 1,051 shares 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, and 59,701 shares issuable
upon conversion of $1,000,000 principal amount of Arch's 6 3/4%
Convertible Subordinated Debentures due 2003 held by Palmer Organization
III, L.P., of which Mr. Shane is the general partner of the general
partner. See "Description of Certain Arch Indebtedness--Arch Convertible
Debentures".
(13) Consists of 600 shares held by or jointly with Mr. Wilson's children.
(14) Includes (i) 4,594,364 shares beneficially owned by Sandler and 190,000
shares beneficially owned by two limited partnerships of which Mr.
Kornreich is a general partner, (ii) 1,947,990 shares held by Memorial
Drive Trust, (iii) 1,051 shares held by Palmer Service Corporation, (iv)
59,701 shares issuable upon conversion of $1,000,000 principal amount of
Arch's 6 3/4% Convertible Subordinated Debentures due 2003 held by Palmer
Organization III, L.P. and (v) 74,347, 15,680, 10,250, 10,250, 750, 2,250,
10,250 and 123,777 shares issuable upon the exercise of outstanding stock
options held by Messrs. Baker, Kuzia, Berman, Hughes, Kornreich, Rayfield,
Shane and all current directors and executive officers of Arch as a group,
respectively, exercisable within 60 days after June 30, 1998.
101
<PAGE>
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 thereto included elsewhere
in this Proxy Statement.
Arch is a leading provider of wireless messaging services, primarily paging
services, and is the second largest paging company in the United States (based
on EBITDA). Arch had 4.1 million pagers in service at June 30, 1998. From
January 1, 1995 through June 30, 1998, Arch's total number of subscribers grew
at a compound rate on an annualized basis of 79.0%. For the same period on an
annualized basis, Arch's compound rate of internal subscriber growth
(excluding pagers added through acquisitions) was 56.1%.
Arch derives the majority of its revenues from fixed periodic (usually
monthly) fees, not dependent on usage, charged to subscribers for paging
services. 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 by Arch. 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: (i) an increase in the number of
subscriber owned and reseller owned pagers for which Arch receives no
recurring equipment revenue and (ii) an increase in the number of reseller
customers whose airtime is purchased at wholesale rates. The reduction in
average paging revenue per subscriber resulting from these trends has been
more than offset by the elimination of associated expenses so that Arch's
margins have improved over such period. Furthermore, recent data indicates
such rate of decline has slowed.
Arch has achieved significant growth in pagers in service and operating cash
flow through a combination of internal growth and acquisitions, including USA
Mobile in September 1995 and Westlink Holdings, Inc. ("Westlink") in May 1996.
Arch's total revenues have increased from $162.6 million in the year ended
December 31, 1995 to $331.4 million in the year ended December 31, 1996 and to
$396.8 million in the year ended December 31, 1997. Over the same periods,
through operating efficiencies and economies of scale, Arch has been able to
reduce its per pager operating costs to enhance its competitive position in
its markets. Due to the rapid growth in its subscriber base, Arch has incurred
significant selling expenses, which are charged to operations in the period
incurred. Arch had net losses of $36.6 million, $114.7 million and $181.9
million in the years ended December 31, 1995, 1996 and 1997, respectively, as
a result of significant depreciation and amortization expenses related to
acquired and developed assets and interest charges associated with
indebtedness. However, as its subscriber base has grown, Arch's operating
results have improved, as evidenced by an increase in its EBITDA from $47.2
million in the year ended December 31, 1995 to $105.8 million in the year
ended December 31, 1996 and to $130.3 million in the year ended December 31,
1997.
EBITDA is a commonly used measure of financial performance in the paging
industry and also is one of the financial measures used to calculate whether
Arch and its subsidiaries are in compliance with the covenants under their
respective debt agreements, but should not be construed as an alternative to
operating income or cash flows from operating activities as determined in
accordance with GAAP. One of Arch's financial objectives is to increase its
EBITDA, as such earnings are a significant source of funds for servicing
indebtedness and for investment in continued growth, including purchase of
pagers and paging system equipment, construction and expansion of paging
systems, and possible acquisitions. EBITDA, as determined by Arch, may not
necessarily be comparable to similarly titled data of other paging companies.
SHIFT IN OPERATING FOCUS
In April 1997, Arch reordered its operating priorities to improve capital
efficiency and strengthen its balance sheet by placing a higher priority on
leverage reduction than subscriber unit growth. As part of its reordered
operating priorities, Arch has implemented various initiatives to reduce
capital costs while sustaining acceptable levels of unit and revenue growth.
As a result, Arch's rate of internal growth in pagers in service slowed during
the second half of 1997 and is expected to remain below the rates of internal
growth previously achieved by
102
<PAGE>
Arch. As part of its reordered operating priorities, Arch is also reviewing
the possible sale of non-strategic assets. In April 1998, Arch announced an
agreement to sell certain tower site assets of ACI (the "Arch Tower Site
Sale") for approximately $38.0 million in cash (subject to adjustment). In the
Arch Tower Site Sale, ACI is selling communications towers, real estate, site
management contracts and/or leasehold interests involving 134 sites in 22
states and leasing back space on the towers on which it currently operates
communications equipment to service its own paging network. ACI will use its
net proceeds from the Arch Tower Site Sale (estimated to be $36.0 million) to
repay indebtedness. ACI held the initial closing of the Arch Tower Site Sale
on June 26, 1998 with gross proceeds to ACI of approximately $12.0 million
(excluding $1.3 million which was paid to Benbow for certain assets which
Benbow sold as part of this transaction) and currently expects to hold the
final closing for the balance of the transaction in the third quarter of 1998,
although no assurance can be given that the final closing will be held as
expected. See "Business--Arch--Investments in Narrowband PCS Licenses".
DIVISIONAL REORGANIZATION
In June 1998, the Arch Board approved the Divisional Reorganization. As part
of the Divisional Reorganization, which will be implemented over a period of
18 to 24 months, Arch plans to consolidate its seven operating divisions into
four operating divisions, and consolidate certain regional administrative
support functions, resulting in various operating efficiencies. Once fully
implemented, the Divisional Reorganization is expected to result in annual
cost savings of approximately $15 million. Arch expects to reinvest a portion
of these cost savings to expand its sales activities.
In connection with the Divisional Reorganization, Arch (i) anticipates a net
reduction of approximately 10% of its workforce, (ii) plans to close certain
office locations and redeploy other real estate assets and (iii) recorded a
restructuring charge of $16.1 million during the second quarter of 1998. The
restructuring charge consisted of approximately (i) $9.7 million for employee
severance and benefits, (ii) $3.5 million for lease obligations and
terminations and (iii) $2.9 million for the writedown of related assets. There
can be no assurance that the desired cost savings will be achieved or that the
anticipated reorganization of Arch's business will be accomplished smoothly,
expeditiously or successfully. The difficulties of such reorganization may be
increased by the need to integrate MobileMedia's operations in multiple
locations and to combine two corporate cultures. The inability to successfully
integrate the operations of MobileMedia could have a material adverse effect
on Arch following the Merger. See Note 9 to Arch's Consolidated Financial
Statements.
ACE/USAM MERGER
On June 29, 1998, Arch effected a number of restructuring transactions
involving certain of its direct and indirect wholly owned subsidiaries. Arch
Communications Enterprises, Inc. ("ACE") was merged (the "ACE/ USAM Merger")
into API, which was then a subsidiary of USA Mobile Communications, Inc. II
("USAM"). In connection with the ACE/USAM Merger, USAM changed its name to ACI
and issued 100 shares of its common stock to Arch. Immediately prior to and in
connection with the ACE/USAM Merger, (i) USAM contributed its operating assets
and liabilities to an existing subsidiary of USAM, (ii) The Westlink Company,
which held ACE's 49.9% equity interest in Benbow, distributed its Benbow
assets and liabilities to a new subsidiary of ACE, The Westlink Company II,
(iii) ACE contributed its operating assets and liabilities to an existing
subsidiary of ACE, (iv) all of USAM's subsidiaries were merged into API, and
(v) The Westlink Company II was merged into a new API subsidiary, Benbow
Investments, Inc. ("Benbow Investments").
103
<PAGE>
RESULTS OF OPERATIONS
The following table presents certain items from Arch's Combined Statements
of Operations as a percentage of net revenues (total revenues less cost of
products sold) and certain other information for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues............. 114.7 % 109.0 % 107.9 % 107.9 % 107.7 %
Cost of products sold...... (14.7) (9.0) (7.9) (7.9) (7.7)
------- ------- ------- ------- -------
Net revenues............... 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Service, rental and
maintenance............. 20.9 21.4 21.7 21.2 21.2
Selling.................. 17.3 15.4 14.0 14.8 12.7
General and
administrative.......... 28.5 28.4 28.8 28.5 29.6
Depreciation and
amortization............ 42.5 63.1 63.2 66.8 56.8
Restructuring charge..... -- -- -- -- 8.4
------- ------- ------- ------- -------
Operating income (loss).. (9.2)% (28.3)% (27.7)% (31.3)% (28.7)%
======= ======= ======= ======= =======
Net income (loss)........ (25.8)% (37.7)% (49.5)% (52.9)% (57.5)%
======= ======= ======= ======= =======
EBITDA..................... 33.3 % 34.8 % 35.4 % 35.5 % 36.5 %
======= ======= ======= ======= =======
Annual service, rental and
maintenance expenses per
pager..................... $ 28 $ 25 $ 22 $ 22 $ 20
</TABLE>
Six Months Ended June 30, 1998 Compared with Six Months Ended June 30, 1997
Total revenues increased to $205.6 million (a 5.8% increase) in the six
months ended June 30, 1998, from $194.3 million in the six months ended June
30, 1997. Net revenues (total revenues less cost of products sold) increased
to $190.9 million (a 6.1% increase) in the six months ended June 30, 1998 from
$180.0 million in the six months ended June 30, 1997. Service, rental and
maintenance revenues, which consist primarily of recurring revenues associated
with the sale or lease of pagers, increased to $184.3 million (a 7.2%
increase) in the six months ended June 30, 1998 from $172.0 million in the six
months ended June 30, 1997. These increases in revenues were due primarily to
the increase through internal growth in the number of pagers in service from
3.7 million at June 30, 1997 to 4.1 million at June 30, 1998. Maintenance
revenues represented less than 10% of total service, rental and maintenance
revenues in the six months ended June 30, 1998 and 1997. Arch does not
differentiate between service and rental revenues. Product sales, less cost of
products sold, decreased to $6.6 million (a 17.3% decrease) in the six months
ended June 30, 1998 from $8.0 million in the six months ended June 30, 1997,
respectively, as a result of a decline in the average revenue per pager sold.
Service, rental and maintenance expenses, which consist primarily of
telephone line and site rental expenses, increased to $40.4 million (21.2% of
net revenues) in the six months ended June 30, 1998 from $38.1 million (21.2%
of net revenues) in the six months ended June 30, 1997. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of subscribers. As existing
paging systems become more populated through the addition of new subscribers,
the fixed costs of operating these paging systems are spread over a greater
subscriber base. Annualized service, rental and maintenance expenses per
subscriber were $20 in the six months ended June 30, 1998 as compared to $22
in the corresponding 1997 periods.
Selling expenses decreased to $24.2 million (12.7% of net revenues) in the
six months ended June 30, 1998 from $26.6 million (14.8% of net revenues) in
the six months ended June 30, 1997. The decrease was due primarily to a
decrease in the number of net new subscriber additions and nonrecurring
marketing costs incurred in 1997 to promote Arch's new Arch Paging brand
identity. The number of net new subscriber additions resulting
104
<PAGE>
from internal growth decreased by 35.0% in the six months ended June 30, 1998
compared to the six months ended June 30, 1997. Most selling expenses are
directly related to the number of net new subscribers added.
General and administrative expenses increased to $56.5 million (29.6% of net
revenues) in the six months ended June 30, 1998, respectively, from $51.3
million (28.5% of net revenues) in the six months ended June 30, 1997. The
increase was due primarily to administrative and facility costs associated
with supporting more pagers in service.
Depreciation and amortization expenses decreased to $108.4 million in the
six months ended June 30, 1998 from $120.2 million in the six months ended
June 30, 1997. These expenses principally reflect Arch's acquisitions of
paging businesses in prior periods, accounted for as purchases, and investment
in pagers and other system expansion equipment to support growth.
Operating losses were $54.8 million in the six months ended June 30, 1998
compared to $56.3 million in the six months ended June 30, 1997, as a result
of the factors outlined above, including the $16.1 million restructuring
charge recorded in the second quarter of 1998.
Net interest expense increased to $51.1 million in the six months ended June
30, 1998 from $47.7 million in the six months ended June 30, 1997. The
increase is principally attributable to an increase in Arch's outstanding
debt. Interest expense for the six months ended June 30, 1998 and 1997 include
approximately $18.0 million and $16.2 million, respectively, of non-cash
interest accretion on the 10 7/8% Arch Discount Notes under which semi-annual
interest payments commence on September 15, 2001. See "Description of Certain
Arch Indebtedness--Arch Discount Notes".
The Company recognized income tax benefits of $10.6 million in the six
months ended June 30, 1997. This benefit represents the tax benefit of
operating losses incurred subsequent to the acquisitions of USA Mobile
Communications Holdings, Inc. ("USA Mobile") and Westlink which were available
to offset deferred tax liabilities arising from the Company's acquisition of
USA Mobile in September 1995 and Westlink in May 1996. The tax benefit of
these operating losses was fully recognized during 1997. Accordingly, Arch has
established a valuation reserve against its deferred tax asset which reduced
the income tax benefit to zero. Arch does not expect to recover, in the
foreseeable future, its deferred tax asset and will continue to increase its
valuation reserve accordingly.
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 $109.8 million in the six months ended June 30, 1998
from $95.2 million in the six months ended June 30, 1997, as a result of the
factors outlined above.
EBITDA increased 9.1% to $69.7 million (36.5% of net revenues) in the six
months ended June 30, 1998 from $63.9 million (35.5% of net revenues) in the
six months ended June 30, 1997, as a result of the factors outlined above.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Total revenues increased $65.5 million, or 19.8%, to $396.8 million in the
year ended December 31, 1997 from $331.4 million in the year ended December
31, 1996 and net revenues increased $63.8 million, or 21.0%, from $303.9
million to $367.7 million over the same period. Service, rental and
maintenance revenues increased $60.5 million, or 20.8%, to $351.9 million in
the year ended December 31, 1997 from $291.4 million in the year ended
December 31, 1996. These increases in revenues were due primarily to the
increase in the number of pagers in service from 3.3 million at December 31,
1996 to 3.9 million at December 31, 1997 and the full year impact of the
Westlink acquisition which was completed in May 1996. Maintenance revenues
represented less than 10% of total service, rental and maintenance revenues in
the years ended December 31, 1996 and 1997.
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Product sales, less cost of products sold, increased 25.9% to $15.7 million in
the year ended December 31, 1997 from $12.5 million in the year ended December
31, 1996 as a result of a greater number of pager unit sales.
Service, rental and maintenance expenses increased to $79.8 million (21.7%
of net revenues) in the year ended December 31, 1997 from $65.0 million (21.4%
of net revenues) in the year ended December 31, 1996. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of subscribers. Annual
service, rental and maintenance expenses per subscriber decreased to $22 in
the year ended December 31, 1997 from $25 in the year ended December 31, 1996.
Selling expenses increased to $51.5 million (14.0% of net revenues) in the
year ended December 31, 1997 from $47.0 million (15.4% of net revenues) in the
year ended December 31, 1996. The increase in selling expenses was due to the
full year impact of the Westlink acquisition and the marketing costs incurred
to promote Arch's Arch Paging brand identity. Arch's selling cost per net new
pager in service increased to $87 in the year ended December 31, 1997 from $58
in the year ended December 31, 1996, primarily due to fixed selling costs and
increased marketing costs being spread over fewer net new pagers put into
service.
General and administrative expenses increased to $106.0 million (28.8% of
net revenues) in the year ended December 31, 1997 from $86.2 million (28.4% of
net revenues) in the year ended December 31, 1996. The increase in absolute
dollars was due primarily to increased expenses associated with supporting
more pagers in service, including the full year impact of Westlink, as well as
expenses associated with the establishment of Arch's National Services
Division. See "Business--Arch--Subscribers and Marketing".
Depreciation and amortization expenses increased to $232.3 million (63.2% of
net revenues) in the year ended December 31, 1997 from $191.9 million (63.1%
of net revenues) in the year ended December 31, 1996. These expenses reflect
Arch's acquisitions of paging businesses, accounted for as purchases, and
continued investment in pagers and other system expansion equipment to support
continued growth.
Operating loss increased to $102.0 million in the year ended December 31,
1997 from $86.1 million in the year ended December 31, 1996 as a result of the
factors outlined above.
Net interest expense increased to $97.2 million in the year ended December
31, 1997 from $75.9 million in the year ended December 31, 1996. The increase
was attributable to an increase in Arch's average outstanding debt. In 1997
and 1996 interest expense includes approximately $33 million and $24 million,
respectively, of non-cash interest accretion on the Company's 10 7/8% Senior
Discount Notes due 2008 under which semi-annual interest payments commence on
September 15, 2001. See Note 3 to Arch's Consolidated Financial Statements.
During the years ended December 31, 1997 and 1996, Arch recognized income
tax benefits of $21.2 million and $51.2 million, respectively, representing
the tax benefit of operating losses subsequent to the acquisitions of USA
Mobile in September 1995 and Westlink in May 1996 which were available to
offset deferred tax liabilities arising from Arch's acquisitions of USA Mobile
and Westlink.
During 1996, Arch recognized an extraordinary charge of $1.9 million,
representing the write-off of unamortized deferred financing costs associated
with the prepayment of indebtedness under a prior credit facility.
Net loss increased to $181.9 million in the year ended December 31, 1997
from $114.7 million in the year ended December 31, 1996 as a result of the
factors outlined above. Included in the net loss for the years ended December
31, 1997 and 1996 were charges of $3.9 million and $2.0 million, respectively,
representing Arch's pro rata share of Benbow's losses since the Westlink
acquisition in May 1996.
EBITDA increased 23.2% to $130.3 million (35.4% of net revenues) in the year
ended December 31, 1997 from $105.8 million (34.8% of net revenues) in the
year ended December 31, 1996 as a result of the factors outlined above.
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Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Total revenues increased $168.8 million, or 103.8%, to $331.4 million in the
year ended December 31, 1996 from $162.6 million in the year ended December
31, 1995 and net revenues increased $162.1 million, or 114.3%, from $141.8
million to $303.9 million over the same period. Service, rental and
maintenance revenues increased $152.9 million, or 110.4%, to $291.4 million in
the year ended December 31, 1996 from $138.5 million in the year ended
December 31, 1995. These increases in revenues were due primarily to the
increase in the number of pagers in service from 2.0 million at December 31,
1995 to 3.3 million at December 31, 1996. Acquisitions of paging companies
added 0.5 million pagers in service during 1996, with the remaining 0.8
million pagers added through internal growth. Maintenance revenues represented
less than 10% of total service, rental and maintenance revenues in the years
ended December 31, 1995 and 1996. Product sales, less cost of products sold,
increased 274.0% to $12.5 million in the year ended December 31, 1996 from
$3.3 million in the year ended December 31, 1995 as a result of a greater
number of pager unit sales.
Service, rental and maintenance expenses increased to $65.0 million (21.4%
of net revenues) in the year ended December 31, 1996 from $29.7 million (20.9%
of net revenues) in the year ended December 31, 1995. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of subscribers. Annual
service, rental and maintenance expenses per subscriber decreased to $25 in
the year ended December 31, 1996 from $28 in the year ended December 31, 1995.
Selling expenses increased to $47.0 million (15.4% of net revenues) in the
year ended December 31, 1996 from $24.5 million (17.3% of net revenues) in the
year ended December 31, 1995. The increase in selling expenses was due to the
addition of sales personnel to support continued growth in the subscriber
base, as the number of net new pagers in service resulting from internal
growth increased by 122.7% from the year ended December 31, 1995 to the year
ended December 31, 1996. Arch's selling cost per net new pager in service
decreased to $58 in the year ended December 31, 1996 from $67 in the year
ended December 31, 1995, primarily due to increased sales through indirect
distribution channels.
General and administrative expenses increased to $86.2 million (28.4% of net
revenues) in the year ended December 31, 1996 from $40.4 million (28.5% of net
revenues) in the year ended December 31, 1995. The increase was due primarily
to increased expenses associated with supporting more pagers in service.
Depreciation and amortization expenses increased to $191.9 million (63.1% of
net revenues) in the year ended December 31, 1996 from $60.2 million (42.5% of
net revenues) in the year ended December 31, 1995. These expenses reflect
Arch's acquisitions of paging businesses, accounted for as purchases, and
continued investment in pagers and other system expansion equipment to support
continued growth.
Operating loss increased to $86.1 million in the year ended December 31,
1996 from $13.0 million in the year ended December 31, 1995 as a result of the
factors outlined above.
Net interest expense increased to $75.9 million in the year ended December
31, 1996 from $22.5 million in the year ended December 31, 1995. The increase
was attributable to an increase in Arch's average outstanding debt. Interest
expense in 1996 includes approximately $24 million of non-cash interest
accretion on the Company's 10 7/8% Senior Discount Notes due 2008. See Note 3
to Arch's Consolidated Financial Statements.
During the years ended December 31, 1996 and 1995, Arch recognized income
tax benefits of $51.2 million and $4.6 million, respectively, representing the
tax benefit of operating losses subsequent to the acquisitions of USA Mobile
and Westlink which were available to offset deferred tax liabilities arising
from Arch's acquisitions of USA Mobile and Westlink.
During 1996 and 1995, Arch recognized an extraordinary charge of $1.9
million and $1.7 million, respectively, representing the write-off of
unamortized deferred financing costs associated with the prepayment of
indebtedness under separate prior credit facilities.
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Net loss increased to $114.7 million in the year ended December 31, 1996
from $36.6 million in the year ended December 31, 1995 as a result of the
factors outlined above. Included in net loss for the year ended December 31,
1995 was a charge of $4.0 million representing Arch's pro rata share of USA
Mobile's net loss 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. Included in the net
loss for the year ended December 31, 1996 was a charge of $2.0 million
representing Arch's pro rata share of Benbow's losses since the Westlink
acquisition in May 1996.
EBITDA increased 124.2% to $105.8 million (34.8% of net revenues) in the
year ended December 31, 1996 from $47.2 million (33.3% of net revenues) in the
year ended December 31, 1995 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
pagers and paging system equipment, to service debt and to finance
acquisitions.
Capital Expenditures and Commitments
Excluding acquisitions of paging businesses, Arch's capital expenditures
were $60.5 million in the year ended December 31, 1995, $155.6 million in the
year ended December 31, 1996, $102.8 million in the year ended December 31,
1997 and $59.9 million in the six months ended June 30, 1998. To date, Arch
has funded its capital expenditures with net cash provided by operating
activities and the incurrence of debt.
Arch currently anticipates capital expenditures of approximately $85 million
to $90 million for the year ending December 31, 1998, primarily for the
purchase of pagers, paging system equipment and transmission equipment, as
well as expenditures for information systems and advances to Benbow (as
described below). Such amounts are subject to change based on Arch's internal
growth rate and acquisition activity, if any, during 1998. Included in Arch's
anticipated capital expenditures for 1998 is funding to upgrade hardware and
internally develop software for a centralized billing and management
information system which is expected to offer the back office capability to
support significant future growth and to address year 2000 issues. See "Risk
Factors--Risks Common to Arch and MobileMedia--Impact of the Year 2000 Issue".
Arch believes that it will have sufficient cash available from operations and
credit facilities to fund these expenditures.
Arch is obligated, to the extent such funds are not available to Benbow from
other sources, to advance to Benbow sufficient funds to service its license
related debt obligations incurred by Benbow in connection with its acquisition
of its N-PCS licenses and to finance construction of an N-PCS system. The
total cost to Benbow of servicing its debt obligations and constructing an N-
PCS system (including the effect of Benbow's acquisition of Page Call) will be
approximately $100.0 million over the next five years. Arch currently
anticipates that approximately $40.0 million (approximately $10.0 million in
each of the next four years) of such amount will be funded by Arch and the
balance will be funded through vendor financing and other sources. Arch also
is funding ongoing obligations in connection with Benbow's recent acquisition
of Page Call. See "Business--Arch--Investments in Narrowband PCS Licenses".
Other Commitments
Interest payments on the $467.4 million principal amount at maturity of Arch
Discount Notes commence September 15, 2001. Arch expects to service such
interest payments out of cash made available to it by its subsidiaries. Based
on the principal amount of Arch Discount Notes presently outstanding, such
interest payments will equal $25.4 million on March 15 and September 15 of
each year until scheduled maturity on March 15, 2008. A default by Arch in its
payment obligations under the Arch Discount Notes could have a material
adverse effect on the business, financial condition, results of operations or
prospects of Arch. See "Risk Factors--Risks Related to Arch--Arch's
Indebtedness and High Degree of Leverage".
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Sources of Funds
Arch's net cash provided by operating activities was $14.7 million, $37.8
million and $63.6 million in the years ended December 31, 1995, 1996 and 1997,
respectively, and $43.9 million in the six months ended June 30, 1998. 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 of
Notes to Arch's Consolidated Financial Statements. Arch's ability to access
future borrowings will be dependent, in part, on its ability to continue to
grow its EBITDA. After giving pro forma effect to the Merger and assuming an
offering of the Planned ACI Notes, Arch estimates it will have $415 million
outstanding, and approximately $185 million in available borrowing capacity
under the API Credit Facility. If Arch is unable to complete the Planned ACI
Notes offering and therefore borrows under the Bridge Facility, Arch estimates
that the principal amount outstanding under the API Credit Facility would
increase to $500 million and available borrowing capacity would be reduced to
$100 million.
API Credit Facility
In June 1998, ACE amended its existing credit facility to establish senior
secured revolving credit and term loan facilities with API as borrower in the
aggregate amount of $400.0 million consisting of (i) a $175.0 million reducing
revolving credit facility (the "Tranche A Facility"), (ii) a $100.0 million
364-day revolving credit facility under which the principal amount outstanding
on the 364th day following the closing will convert to a term loan (the
"Tranche B Facility") and (iii) a $125.0 million term loan which was available
in a single drawing on the closing date (the "Tranche C Facility"). See
"Description of Certain Arch Indebtedness--API Credit Facility".
Effective as of August 18, 1998, API, The Bank of New York, Royal Bank of
Canada and Toronto Dominion (Texas), Inc. executed a commitment letter for the
API Credit Facility Increase, which, subject to approval by each of API's
lenders, would result in a $25.0 million increase in the Tranche A Facility, a
$25.0 million increase in the Tranche B Facility and a $150.0 million increase
in the Tranche C Facility. See "Description of Certain Arch Indebtedness--API
Credit Facility " and "Risk Factors--Risks Related to Arch--API Credit
Facility, Bridge Facility and Indenture Restrictions".
Bridge Facility
Effective as of August 18, 1998, ACI and the Bridge Lenders executed a
commitment letter for the Bridge Facility pursuant to which a $120 million
term loan will be available for a single drawing on the closing date of the
Merger. See "Description of Certain Arch Indebtedness--Bridge Facility" and
"Risk Factors--Risks Related to Arch--Amended Credit Facility, Bridge Facility
and Indenture Restrictions".
Issuance and Sale of Private Notes
In June 1998, ACI issued and sold $130.0 million principal amount of private
notes to Bear Stearns, Barclays Capital Inc., RBC Dominion Securities
Corporation, BNY Capital Markets, Inc. and TD Securities (USA) Inc. for net
proceeds of $122.6 million (after deducting the discount to the Initial
Purchasers and estimated offering expenses payable by Arch) in a private
placement made pursuant to Rule 144A under the Securities Act. The Private
Notes were sold at an initial price to investors of 98.049% of the face amount
of their investment. See "Description of Arch Indebtedness--ACI 12 3/4% Notes
".
Sandler Equity Investment
On June 29, 1998, two partnerships managed by Sandler Capital Management
Company, Inc., ("Sandler") 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 Preferred Stock. Simultaneously, Arch
contributed to ACI as an equity investment $24.0 million of the net proceeds
from the sale of Series C Preferred Stock, ACI contributed such
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amount to API as an equity investment and API used such amount to repay
indebtedness under ACE's existing credit facility as part of the establishment
of the API Credit Facility. 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 Arch
Board. Immediately prior to the Series C Preferred Stock financing,
partnerships managed by Sandler owned 4.3% of the outstanding Arch Common
Stock. After giving effect to the issuance of the Series C Preferred Stock,
the holders of the Series C Preferred Stock beneficially owned (including the
Common Stock owned by partnerships managed by Sandler) 21.3% of Arch Common
Stock. See "Description of Arch Capital Stock".
Inflation
Inflation has not had a material effect on Arch's operations to date. Paging
systems equipment and operating costs have not increased in price and Arch'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 pagers. 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 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Company adopted
SFAS No. 130 in 1998. The adoption of this standard did not have an effect on
its reporting of income.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Arch intends to adopt SFAS No. 131 for
its year ending December 31, 1998. The adoption of this standard is not
expected to have a significant impact on its 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 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. Arch intends to adopt SOP 98-5 effective January 1,
1999. The adoption of SOP 98-5 is not expected to have a material effect on
Arch's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued 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 currently in earnings. Arch intends
to adopt this standard effective January 1, 2000. 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.
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MOBILEMEDIA
Parent, through MobileMedia, operates one of the largest paging companies in
the United States, with approximately 3.2 million units in service as of June
30, 1998. Through its sales offices, nationwide retail distribution network,
company-operated retail stores and resellers, MobileMedia offers local,
regional and national coverage to subscribers in all 50 states and the
District of Columbia, including local coverage to each of the 100 most
populated metropolitan markets in the United States. MobileMedia markets its
services primarily under the MobileComm brand name. Parent's business is
conducted primarily through MobileMedia, and MMC and its various subsidiaries
hold MobileMedia's FCC licenses and, where applicable, state public utility
commission authorizations that grant MobileMedia the authority to operate its
paging systems.
MobileMedia distributes its paging services using three primary distribution
channels: direct, reseller and retail, as described below. MobileMedia's
paging and wireless messaging services consist principally of numeric and
alphanumeric paging services. As of June 30, 1998, MobileMedia had
approximately 2.6 million numeric units in service, representing approximately
81% of its subscriber base, approximately .6 million alphanumeric units in
service, representing approximately 18% of its subscriber base, with other
types of units in service representing the remaining approximately 1% of its
subscriber base.
BUSINESS STRATEGY
Since the Petition Date, MobileMedia has been engaged in restructuring its
operations with the objective of improving performance, principally in the
areas of order entry, billing and collections, inventory controls, management
information systems conversion and customer service. MobileMedia has also
undertaken cost reduction analyses and has taken actions that have the
objective of reducing telecommunications, subcontracting and lease expenses,
among others. In addition, MobileMedia has sought to refocus its marketing and
sales efforts in an attempt to achieve unit additions consistent with positive
cash flow, and is continuing to change its management structure with the
objective of establishing profit and loss accountability in each market.
PAGING AND MESSAGING SERVICES PRODUCTS AND OPERATIONS
Paging and Messaging Services.
MobileMedia currently offers a variety of paging and messaging services. To
send a page to a MobileMedia subscriber, a party must initiate contact with a
paging terminal. This is typically accomplished, depending on the type of
paging service, by use of a touch-tone telephone, with the assistance of an
operator employed by or working on behalf of MobileMedia or through software
loaded onto the sender's personal computer, an input device or the Internet.
The paging terminal then sends an encoded message to MobileMedia's transmitter
network, which broadcasts the call to its geographic service area. This
broadcast signal is received by the subscriber's pager, which decodes the
information, alerts the subscriber and displays the message received. The main
paging services offered by MobileMedia are:
Numeric (Digital Display) Paging Service. Numeric paging service permits
a caller, using a touch-tone telephone, to transmit to a subscriber a
numeric message consisting of a telephone number, an account number or
coded information. Numeric pagers have memory capability to store several
such numeric messages which can be recalled by a subscriber when desired.
As of June 30, 1998, MobileMedia had approximately 2.6 million numeric
units in service.
Alphanumeric Paging Service. Alphanumeric paging service allows
subscribers to receive and store messages consisting of both letters and
numbers. Alphanumeric pagers have sufficient memory to store numerous
messages. This service has the capability to tie into computer-based
networks to provide advanced messaging services. Callers may send messages
either by using an operator dispatch center, a personal computer equipped
with a modem and MessageSoft software or a portable alphanumeric input
device, such as the AlphaMate manufactured by Motorola. Internet and
WorldWide Web access is also possible for many alphanumeric paging
customers. As of June 30, 1998, MobileMedia had approximately .6 million
alphanumeric units in service.
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Other Services. In addition to local, regional and nationwide paging
service--both numeric and alphanumeric--MobileMedia offers a variety of
enhanced services such as voice mail and voice mail notification, e-mail
notification and news, sports reports and stock quotes.
The following table sets forth the number of MobileMedia customers by
service type as of the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- ---------------
TYPE OF SERVICE NUMBER % NUMBER % NUMBER % NUMBER % NUMBER %
--------------- --------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Numeric Display......... 1,934,774 81.7% 3,713,579 83.9% 2,820,443 82.0% 3,297,379 83.0% 2,624,869 81.0%
Alphanumeric............ 384,843 16.2% 658,769 14.9% 593,280 17.2% 638,266 16.0% 598,702 18.5%
Other................... 49,484 2.1% 51,759 1.2% 26,619 0.8% 38,115 1.0% 18,169 0.5%
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total................... 2,369,101 100.0% 4,424,107 100.0% 3,440,342 100.0% 3,973,760 100.0% 3,241,740 100.0%
========= ===== ========= ===== ========= ===== ========= ===== ========= =====
Customers with
nationwide services
(included above)....... 63,101 325,924 330,254 337,293 330,642
</TABLE>
Products and Services
Subscribers for paging services enter into a service contract with
MobileMedia that provides for either the purchase or lease of pagers and the
payment of airtime and other charges. As of June 30, 1998, approximately 50%
of units in service were purchased either by subscribers or by resellers, and
approximately 50% were owned by MobileMedia and leased to subscribers.
Customer-owned and -maintained ("COAM") pagers and those owned by resellers do
not require capital investment by MobileMedia, unlike MobileMedia-owned pagers
leased to subscribers. MobileMedia also sells its services in bulk quantities
to resellers, who subsequently sell MobileMedia's services to end-users.
Resellers are responsible for sales, billing, collection and equipment
maintenance costs. MobileMedia sells other products and services, including
pagers and accessories and pager replacement and maintenance contracts. The
following table sets forth MobileMedia's units in service by ownership as of
the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- ---------------
OWNERSHIP NUMBER % NUMBER % NUMBER % NUMBER % NUMBER %
--------- --------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Company owned and rented
to subscribers......... 1,087,183 45.9% 1,996,141 45.2% 1,712,941 49.8% 1,901,678 47.9% 1,633,794 50.4%
COAM.................... 514,068 21.7% 1,112,194 25.1% 861,250 25.0% 1,019,939 25.7% 805,338 24.8%
Resellers............... 767,850 32.4% 1,315,772 29.7% 866,151 25.2% 1,052,143 26.4% 802,608 24.8%
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total................... 2,369,101 100.0% 4,424,107 100.0% 3,440,342 100.0% 3,973,760 100.0% 3,241,740 100.0%
========= ===== ========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
NETWORKS AND LICENSES
MobileMedia operates local, regional and national paging networks which
enable its customers to receive pages over a broad geographical area. The
extensive coverage provided by this network infrastructure provides
MobileMedia with an advantage over certain competitors whose networks lack
comparable coverage in securing accounts with large corporate clients and
retail chains, who frequently demand national network coverage from their
paging service provider.
Although MobileMedia's networks provide local, regional and national
coverage, its networks operate over numerous frequencies and are subject to
some capacity constraints in certain geographic markets. The use of multiple
frequencies adds complexity to inventory management, customer service and
order fulfillment processes. Certain of MobileMedia's networks utilize older
technologies and are comparatively costlier to operate. Although the capacity
of MobileMedia's network infrastructure varies significantly market-by-market,
customer usage of MobileMedia's systems is close to capacity in several
markets, thus limiting future growth in such markets in the absence of
additional capital investment.
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MobileMedia is seeking to improve overall network efficiency through the
deployment of new paging terminals, the consolidation of subscribers on fewer,
higher capacity networks and increasing the transmission speed (baud rate) of
certain of its existing networks. MobileMedia believes its investments in its
network infrastructure will facilitate and improve the delivery of high
quality paging services while at the same time reducing associated costs of
such services.
Nationwide wireless networks. MobileMedia operates two nationwide 900 MHz
networks. As part of the MobileComm Acquisition, MobileMedia acquired
MobileComm's fully operational nationwide wireless "8875" network, which
was upgraded in 1996 to incorporate high-speed FLEX technology developed by
Motorola. In addition, in 1996, MobileMedia completed the construction of a
second nationwide "5375" network that uses FLEX technology. The use of FLEX
technology significantly increases transmission capacity and represents a
marked improvement over other systems that use older paging protocols.
Nationwide two-way narrowband PCS networks. Narrowband PCS networks
enable paging companies to offer two-way paging services and to make more
efficient use of radio spectrum than do non-PCS networks. MobileMedia
purchased five regional licenses through the FCC's 1994 auction of
narrowband PCS licenses, providing the equivalent of a nationwide 50 kHz
outbound/12.5 kHz inbound PCS system. In addition, as part of the
MobileComm Acquisition, MobileMedia acquired a second two-way narrowband
PCS license for a nationwide 50 kHz outbound/12.5 kHz inbound system.
In order to retain its narrowband PCS licenses, MobileMedia must comply with
certain minimum buildout requirements. With respect to each of the regional
PCS licenses purchased at the FCC's 1994 auction, MobileMedia would be
required to build out the related PCS system to cover 150,000 sq. km. or 37.5%
of each of the five regional populations by April 27, 2000 and 300,000 sq. km.
or 75% of each of the five regional populations by April 27, 2005. With
respect to the nationwide PCS license acquired as part of the MobileComm
Acquisition, MobileMedia would be required to build out the related PCS system
to cover 750,000 sq. km. or 37.5% of the U.S. population by September 29, 1999
and 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. MobileMedia
estimates that the costs of these minimum build-outs (which would not be
sufficient for MobileMedia to provide significant narrowband PCS applications)
could be as much as approximately $9 million. MobileMedia has concluded that,
given the expected high demand for nationwide alphanumeric services, the
potential demand for guaranteed receipt services and MobileMedia's high fixed
costs for maintaining and building out its existing networks, the most
economical means for satisfying projected demand is for MobileMedia to
construct a fully operational narrowband PCS network with ReFLEX 25
capability. MobileMedia estimates that the cost for this construction will be
approximately $40 million over the next two years, and that it will be able to
complete the construction relatively economically using its existing
nationwide network infrastructure and supplementing it with additional
transmitters and receivers. On May 12, 1998, the Bankruptcy Court authorized
MobileMedia to enter into contracts during 1998 up to the amount of $16
million in connection with the buildout of the network necessary to support
narrowband PCS services.
SALES AND MARKETING
MobileMedia's sales and marketing efforts are directed toward adding
additional units with existing subscribers and identifying new potential
subscribers. Subscribers to MobileMedia's paging and wireless communications
services generally have been individuals and organizations whose employees are
highly mobile or whose business involves multiple work locations and who are
required to remain in contact at all times. Traditional subscribers include
medical personnel, sales and service organizations, specialty trade
organizations, manufacturing organizations and governmental agencies. However,
paging services are increasingly appealing to mass market consumers for
private, non-business uses such as communicating with family and friends.
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Sales Channels
MobileMedia markets its paging services through three primary sales
channels: direct, reseller and retail.
Direct. In the direct channel, MobileMedia leases or sells pagers
directly to its customers and bills and services such customers.
MobileMedia's direct customers range from individuals and small- and
medium-sized businesses to Fortune 500 accounts and government agencies.
Business and government accounts typically exhibit lower churn rates than
consumer accounts. The direct channel will continue to have the highest
priority among MobileMedia's marketing and sales efforts, given its
critical contribution to recurring revenue and projected growth.
MobileMedia is engaged in efforts to improve sales productivity and
strengthen its direct channel sales force, which suffered from high
turnover and open positions during much of 1997. In addition, MobileMedia
has commenced implementing consumer direct marketing techniques in 1998. As
of June 30, 1998, the direct channel accounted for approximately 79% of
recurring revenue.
Reseller. In the reseller channel, MobileMedia sells access to its
transmission networks in bulk to a third party, who then resells such
services to the end users (usually consumers or small businesses).
MobileMedia offers paging services 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 MobileMedia retains the credit risk
of the reseller. Because resellers are responsible for customer equipment,
the capital costs that would otherwise be borne by MobileMedia are reduced.
MobileMedia's resellers generally are not exclusive distributors of
MobileMedia's services and often resell paging services of more than one
provider. Competition among service providers to attract and maintain
reseller distribution is based primarily upon price, including the sale of
pagers to resellers at discounted rates. MobileMedia intends to be an
active participant in the reseller channels and to concentrate on accounts
that are profitable and where longer term partnerships can be established
with selected resellers. As of June 30, 1998, the reseller channel
accounted for approximately 11% of recurring revenue.
Retail. In the retail channel, MobileMedia sells pagers to retailers and,
after the consumer purchases the pager from the retailer, the consumer
contacts MobileMedia 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 (as opposed to
lease) paging units, reducing MobileMedia's capital investment
requirements. Subscribers obtained through retailers are billed and
serviced directly by MobileMedia. Retail distribution permits MobileMedia
to penetrate the consumer market by supplementing direct sales efforts. As
of June 30, 1998, the retail channel accounted for approximately 10.5% of
recurring revenue.
COMPETITION
See "Industry Overview--Competition".
REGULATION
See "Industry Overview--Regulation".
SOURCES OF EQUIPMENT
MobileMedia does not manufacture any of the pagers or related transmitting
and paging terminal equipment used in its paging operations. MobileMedia
currently purchases pagers from a limited number of suppliers and in turn
sells or leases the pagers to its subscribers. Motorola is the primary
supplier of pagers to MobileMedia. Glenayre is MobileMedia's primary supplier
of paging terminals, paging transmitters and voice mail system equipment. On
February 6, 1997, MobileMedia obtained Bankruptcy Court approval to pay the
pre-petition outstanding accounts payable owing to Motorola, Glenayre, NEC and
Panasonic Communications & Systems Company ("Panasonic" and together with
Motorola, Glenayre and NEC, the "Key Suppliers"), in exchange for
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which each of Motorola, NEC, Panasonic and Glenayre entered into post-petition
supply agreements with MobileMedia.
EMPLOYEES
At June 30, 1998, MobileMedia employed 3,107 people in various capacities,
with 161 in MobileMedia's corporate headquarters in Fort Lee, New Jersey and
the balance in its five regions. None of such employees is covered by
collective bargaining agreements. MobileMedia believes its employee relations
are good.
TRADEMARKS
MobileMedia markets its services primarily under the trade name MobileComm
and the federally registered mark MOBILECOMM, except in the Greater
Metropolitan Cincinnati area and in certain parts of Western Pennsylvania and
Western New York, in which it markets its services under the federally
registered mark MOBILEMEDIA. MobileMedia markets its messaging services under
the federally registered mark VOICESTAR, and other services under the
federally registered mark SPORTSCASTER and the unregistered mark MOBILECOMM
CITYLINK. MobileMedia also owns other federally registered marks including:
DIAL PAGE, DMC DIGITAL MOBILE COMMUNICATIONS, EZ ALERT, MEMORY MANAGER,
MESSAGESOFT, MOBILEMEDIA (and design) MOBILEMEDIA (and Globe Design),
MOBILEMEDIA PAGING & PERSONALCOM and PAGERXTRA. In addition, MobileMedia has
applications on file for federal registration of the marks MMS and MOBILECOMM
(and design.)
PROPERTIES
In addition to its FCC licenses and network infrastructure (which includes
radio transmission and satellite uplink equipment), MobileMedia has the
following categories of assets: (i) pagers (including both pagers held as
fixed assets for lease and pager inventory for sale), pager parts and
accessories; (ii) its subscriber base and related accounts receivable; (iii)
intellectual property; (iv) real estate and improvements; (vi) leased assets;
(vii) computer and telephone systems and equipment; (viii) furniture, fixtures
and equipment; (ix) ownership of one-third of the equity of Abacus
Communications Partners, L.P.; (x) goodwill and other intangibles; and (xi)
cash and cash equivalents.
On January 22, 1998, the Bankruptcy Court approved MobileMedia's entry into
a lease with Miller Freeman, Inc. (the "Fort Lee Lease"). Pursuant to the Fort
Lee Lease, MobileMedia relocated its headquarters to Fort Lee, New Jersey as
of March 23, 1998, resulting in cost savings to MobileMedia of approximately
$3 million over the term of the Fort Lee Lease. On March 18, 1998, the
Bankruptcy Court approved the assignment of the lease for the premises that
previously served as MobileMedia's headquarters. The Bankruptcy Court has also
extended the period during which MobileMedia can decide whether to assume or
reject non-residential real property leases to the confirmation date of the
Plan. As of June 30, 1998, 121 leases had been rejected with Bankruptcy Court
approval. On April 14, 1998, the Bankruptcy Court approved MobileMedia's
motion to assume the lease for the premises that serves as its Dallas, Texas
customer service center.
Sale of Owned Tower Assets
On July 7, 1998, MobileMedia and Pinnacle Towers Inc. ("Pinnacle") executed
an agreement, subject to Bankruptcy Court approval, to sell MobileMedia's
transmission towers and associated assets ("Tower Assets"), and to rent from
Pinnacle transmitter space on the Tower Assets. MobileMedia will recognize
proceeds from the sale of the Tower Assets of $170.0 million, and the
projected annual rental expense is expected to be approximately $10.7 million.
The proceeds of the MobileMedia Tower Site Sale will be paid to the Pre-
Petition Lenders, which Lenders have liens on all of the assets being sold.
The MobileMedia Tower Site Sale is the product of an extensive bidding
process. Prior to executing this agreement, Blackstone, on behalf of
MobileMedia, contacted approximately 40 potential Tower Asset buyers and
executed confidentiality agreements with, and distributed Tower Asset
information to, approximately 30 of these
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potential buyers. After permitting certain potential purchasers to conduct due
diligence, MobileMedia and Blackstone determined that Pinnacle's offer
represented the highest and best offer.
In connection with the agreement to sell the tower assets to Pinnacle,
MobileMedia filed two motions on July 14, 1998. One motion sought to establish
procedures for bidding on the Tower Assets and provides for liquidated damages
and the reimbursement of expenses to Pinnacle under certain circumstances.
This relief was granted on July 23, 1998. The second motion sought Bankruptcy
Court approval of the sale of the Tower Assets to Pinnacle, and the rental of
transmitter sites from Pinnacle and the payment of the sale proceeds to the
Pre-Petition Lenders. The relief requested in this Motion was granted on
August 10, 1998.
At August 1, 1998, MobileMedia leased office space (including its executive
offices) in approximately 33 states for use in conjunction with its paging
operations. MobileMedia leases transmitter sites and/or owns transmitters on
commercial broadcast towers, buildings and other fixed structures.
MobileMedia's leases are for various terms and provide for monthly lease
payments at various rates. MobileMedia believes that it will be able to obtain
additional space as needed at acceptable cost.
EVENTS LEADING UP TO MOBILEMEDIA'S BANKRUPTCY FILINGS
Beginning in 1995, MobileMedia grew its business primarily through
acquisitions. In August 1995, MobileMedia completed the acquisition of the
paging and wireless messaging business of Dial Page (the "Dial Page
Acquisition"). The purchase price of the Dial Page Acquisition was largely
financed through an initial public offering of 8,800,000 shares of Parent
Class A Common Stock which, at a price to the public of $18.50 per share,
generated net proceeds of approximately $151.9 million, which proceeds were
contributed to MMC. The total purchase price of the Dial Page Acquisition was
$187.4 million, which included the assumption of $85 million outstanding
principal amount of the 12 1/4% Dial Page Notes. Concurrently with the
transaction, MMC repurchased all but approximately $1.6 million of the Dial
Page Notes. The Dial Page Acquisition added approximately 0.4 million units in
service in the southeastern United States to MMC's subscriber base.
In January 1996, MobileMedia completed the acquisition of MobileComm, the
paging and wireless messaging unit of BellSouth Corporation and an associated
nationwide two-way narrowband 50/12.5 kHz PCS license (the "MobileComm
Acquisition"). The purchase price for the MobileComm Acquisition was $928.7
million which was financed by (i) Parent's public offering of 15,525,000
shares of Class A Common Stock which, at a price to the public of $23.75 per
share, generated net proceeds of approximately $354.9 million, of which $340
million was contributed by Parent to MMC, (ii) a concurrent public offering by
MMC of $250 million aggregate principal amount at maturity of 9 3/8% Notes
(the "MobileMedia 9 3/8 Notes") and (iii) loan facilities aggregating $750
million, consisting of a $550 million secured term loan facility and a $200
million secured revolving loan facility (the "MobileMedia 1995 Credit
Facility"), evidenced by The MobileMedia 1995 Credit Agreement. $500 million
of the secured term loan facility was used as consideration for the MobileComm
Acquisition. Fifty million dollars of the MobileMedia 1995 Credit Facility was
used to repay MMC's former credit facility. The MobileComm Acquisition added
approximately 1.7 million units in service to MobileMedia's subscriber base.
During 1996, MobileMedia experienced difficulties executing its post-
acquisition business strategy. These difficulties related largely to the
process of integration of the operations of Dial Page and MobileComm into
those of MobileMedia. As a result, MobileMedia did not achieve expected growth
in its subscriber base and revenues, nor did it realize anticipated
efficiencies and cost reductions from the elimination of duplicative
functions.
During 1996, MobileMedia's financial position deteriorated. As of September
30, 1996, MMC was in violation of certain financial covenants under its $750
million 1995 Credit Agreement, which resulted in the occurrence of "Events of
Default" under the MobileMedia 1995 Credit Agreement and precluded MMC from
borrowing additional funds thereunder. MMC's obligations under the MobileMedia
1995 Credit Agreement are guaranteed by Parent and by all the subsidiaries of
MMC. In the fall of 1996, MobileMedia commenced
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negotiations with The Chase Manhattan Bank, the agent for the lenders under
the MobileMedia 1995 Credit Agreement, regarding the terms of a possible
financial restructuring.
In press releases issued on September 27 and October 21, 1996, MobileMedia
disclosed that misrepresentations had been made to the FCC by former members
of management and that other violations had occurred during the licensing
process for as many as 400 to 500 authorizations, 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 on
October 15, 1996. The results of an expanded investigation were submitted to
the FCC on November 8, 1996. MobileMedia is still in the process of resolving
these issues with the FCC. See "--MobileMedia Management's Discussion and
Analysis of Financial Condition and Results of Operations--Pending FCC Action
Against MobileMedia".
In November and December of 1996, MobileMedia sought to modify payment terms
with certain of its larger vendors, some of which had not been paid in
accordance with their scheduled payment terms. In the fall of 1996, Motorola,
MobileMedia's largest supplier of pagers and pager repair parts, informed
MobileMedia that it would require credit support to assure payment of
approximately $35 million past due accounts payable and would refuse to accept
orders for products or services from, and refuse to make shipments to,
MobileMedia pending resolution of the matter. Subsequently, Glenayre,
MobileMedia's primary supplier of paging terminals, transmitters and related
parts, and NEC and Panasonic, MobileMedia's secondary suppliers of pagers,
also made demands on MobileMedia for payment of their past due accounts in the
aggregate amount of $11.8 million.
On November 1, 1996, MobileMedia failed to make a scheduled interest payment
of approximately $11.8 million on the MobileMedia 9 3/8% Notes, which failure
was not cured during the 30-day grace period ending November 30, 1996. In
addition, in December 1996 and January 1997, MobileMedia failed to make
scheduled interest payments in the aggregate amount of approximately $13.4
million under the MobileMedia 1995 Credit Agreement.
Negotiations between MobileMedia and the Pre-Petition Lenders, the holders
of the MobileMedia 9 3/8% Notes and certain other outstanding notes
(collectively, the "MobileMedia Notes") and with the Key Suppliers continued
through late 1996. When it became apparent that MobileMedia would be unable,
among other things, to reach agreements with the Key Suppliers to resume
shipments of critical inventory and equipment or to reach agreement with the
Pre-Petition Lenders and the holders of the MobileMedia Notes on the terms of
a restructuring of its indebtedness outside of Chapter 11 of the Bankruptcy
Code, MobileMedia concluded that it had no practical alternative other than to
seek protection under Chapter 11.
On January 30, 1997, MobileMedia filed a voluntary petition for
reorganization under Chapter 11 with the Bankruptcy Court.
LITIGATION
MobileMedia is attempting to resolve issues with the FCC surrounding
misrepresentations and violations that occurred during the licensing process.
In addition, MobileMedia is involved in the following litigation, potential
litigation or claims.
Securities Class Actions
Prior to the Petition Date, five actions allegedly arising under the federal
securities laws were filed against MobileMedia and certain of its officers,
directors and underwriters in the United States District Court for the
District of New Jersey. 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, but
alleges that (i) certain former officers of MobileMedia deceived the investing
public in violation of section 10(b) of the
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Exchange Act and Rule 10b-5 promulgated thereunder and section 20(b) of the
Exchange Act by making false statements or omissions in press releases and
public filings between June 29, 1995 and September 27, 1996 (the "Class
Period"), and (ii) certain officers, directors and underwriters of MobileMedia
violated sections 11, 12(a)(2) and 15 of the Securities Act by failing to
disclose information in offering documents filed with the Commission on or
around November 7, 1995 in connection with the secondary offering of
MobileMedia common stock and MobileMedia 9 3/8% Notes.
The plaintiffs in the New Jersey Actions allege that, as a result of alleged
misrepresentations, purchasers of Parent's common stock and MobileMedia 9 3/8%
Notes suffered hundreds of millions of dollars in damages as the truth
concerning, among other things, the severe problems with MobileMedia's growth
strategy and its submission of false license applications to the FCC began to
emerge and the price of MobileMedia securities dropped.
In June 1997, MobileMedia initiated an Adversary Proceeding in the
Bankruptcy Court to stay the prosecution of the New Jersey Actions. The basis
of MobileMedia's motion for a stay was, inter alia, that the continued
prosecution of the New Jersey Actions would interfere with MobileMedia's
efforts to reorganize and would deplete the assets of the estate.
Pursuant to a Stipulation entered into among MobileMedia 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 may conduct only limited
discovery in connection with the New Jersey Actions and may not file any
pleadings, except responses to motions to dismiss, until the earlier of
September 30, 1998 and the Effective Date of the Plan.
In addition to the New Jersey Actions, two lawsuits 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 Ernst & Young LLP. MobileMedia is not named as
a defendant in these two actions. The actions are styled Allen T. Gilliland
Trust v. Hellman & Friedman Capital Partners II, L.P., Civil Action No. 97-
3543 (N.D. Cal. 1997), and Allen T. Gilliland Trust v. Hellman & Friedman
MobileMedia Partners, L.L.C., Case No. 989891 (Cal. Super. Ct. 1997)
(together, the "California Actions" and, together with the New Jersey Actions,
the "Securities Actions"). The plaintiffs in the California Actions are or
were shareholders of Parent who purchased stock during 1995 and 1996 and
allege that Parent, through the actions of the named defendants, violated
federal securities laws, various provisions of the California Corporations
Code and California state law in connection with the sale of Parent's
securities and in various public filings.
On November 4, 1997, MobileMedia commenced an adversary proceeding in the
Bankruptcy Court seeking to stay the prosecution of the California Actions
against the named defendants. At a hearing held on December 10, 1997, the
Bankruptcy Court enjoined the plaintiffs in the California Actions until May
31, 1998 from prosecuting the California Actions, except that the Bankruptcy
Court permitted the plaintiffs in the California Actions to prosecute and
respond to certain legal motions and to request documents of defendants and
non-parties who do not currently serve on the Board of MobileMedia.
On May 15, 1998, MobileMedia filed a motion with the Bankruptcy Court
seeking an extension of the stay in connection with the California Actions.
Subsequent to negotiations with the plaintiffs in the California Actions,
MobileMedia submitted an agreed form of order that bars certain types of
discovery until September 15, 1998. This order was signed by the Bankruptcy
Court on May 29, 1998.
Neither the New Jersey Actions nor the California Actions name MobileMedia
or any of its subsidiaries as a defendant. However, proofs of claim have been
filed against MobileMedia by the plaintiffs in the New Jersey Actions, and
both the New Jersey Actions and the California Actions may give rise to claims
against MobileMedia's Directors, Officers and Corporate Liability Insurance
Policy. As to MobileMedia, however, these Claims are classified in Classes 7
and 8, and will receive no distributions under the Plan.
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Bankruptcy Claims
Since the June 16, 1997 bar date established by the Bankruptcy Court for
filing proofs of claim in the Cases, MobileMedia has been actively involved in
resolving the claims filed against its estates. As of July 31, 1998,
approximately 2,410 proofs of claim had been filed in the Cases. Approximately
1,260 of these claims, filed in an aggregate amount of approximately $91.4
million, have already been resolved by order of the Bankruptcy Court at an
aggregate allowed amount of approximately $3.65 million. As of July 31, 1998,
MobileMedia had also analyzed and resolved an additional 855 proofs of claim,
representing an aggregate allowed amount of $5.3 million. Excluding claims
filed by or on behalf of the Pre-Petition Lenders, the holders of the
MobleMedia Notes and taxing authorities, there are fewer than 40 unresolved
filed claims over $100,000, which claims have an aggregate filed value of less
than $30 million. MobileMedia has already filed objections with the Bankruptcy
Court to certain of these claims and is currently in the process of
reconciling and resolving those remaining. MobileMedia believes that, once
resolved, the aggregate allowed amount of these remaining claims will be
substantially less than $30 million.
MobileMedia is also in the process of reconciling and resolving the tax
claims filed against its estates. These tax claims were filed in an aggregate
amount of approximately $30 million. MobileMedia anticipates that these claims
will be allowed in an amount substantially less than the filed amount.
Potential Committee Litigation
At a hearing held before the Bankruptcy Court on January 27, 1998, counsel
to the Committee indicated its intention immediately to serve discovery
demands in connection with a potential objection to the Plan as filed on
January 27, 1998. The Committee's ex parte order authorizing discovery under
Bankruptcy Rule 2004 was approved by the Bankruptcy Court on February 5, 1998,
and the Committee subsequently served subpoenas for the production of
documents on MobileMedia and other parties. The production of documents by the
respondents was largely completed during March, although issues pertaining to
the production of certain privileged documents have yet to be resolved. On
April 1, the Unsecured Creditors Committee also served requests to conduct the
depositions of numerous individuals, including members of MobileMedia's
management, board of directors, professionals involved in the reorganization
proceedings, and members of the steering committee for MobileMedia's pre- and
post-petition secured lenders. Because the Committee supports the Plan in its
present form, it is not expected that this litigation will continue.
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MOBILEMEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PRESENTATION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following definitions are relevant to a review and discussion of
MobileMedia's operating results.
Services, rents and maintenance revenues ("paging revenue"): includes
primarily monthly, quarterly, semi-annually and annually billed recurring
revenue, not dependent on usage, charged to subscribers for paging and
related services such as voice mail and pager repair and replacement.
Net revenues: includes primarily paging revenues and sales of customer
owned and maintained pagers less cost of pagers sold.
Services, rents and maintenance expenses: includes costs related to the
management, operation and maintenance of MobileMedia's network systems.
Selling expenses: includes salaries, commissions and administrative costs
for MobileMedia's sales force and related marketing and advertising
expenses.
General and administrative expenses: includes primarily customer service
expense, executive management, accounting, office telephone, rents and
maintenance and information services.
Average revenues per Unit ("ARPU"): calculated by dividing (i) the average
monthly services, rents and maintenance revenues for the period by (ii) the
weighted average number of units in service for the period. ARPU, as
determined by MobileMedia, may not necessarily be comparable to similarly
titled data of other paging companies.
Average monthly operating expense per unit : calculated by dividing (i) the
average monthly services, rents and maintenance, selling and general and
administrative expenses for the period by (ii) the weighted average number
of units in service for the period.
As used herein, "EBITDA" represents earnings before other income (expense),
taxes, depreciation, and amortization and restructuring costs. Other income
(expense) consists primarily of interest expense. EBITDA is a financial
measure commonly used in the paging industry and should not be construed as an
alternative to operating income (as determined in accordance with GAAP), as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) or as a measure of liquidity. EBITDA is, however, the
primary financial measure by which MobileMedia's covenants are calculated
under the agreements governing MobileMedia's indebtedness. EBITDA as
determined by MobileMedia may not necessarily be comparable to similarly
titled data of other paging companies. EBITDA in 1996 is reported prior to the
impact of a $792.5 million asset impairment writedown pursuant to Statement of
Financial Accounting Standards No. 121. (See Note 2 of MobileMedia's Notes to
Consolidated Financial Statements included elsewhere herein).
As used herein, the term "acquisitions" refers to both the MobileComm
Acquisition and the Dial Page Acquisition.
OVERVIEW
The following discussion and analysis should be read in conjunction with
MobileMedia's Consolidated Financial Statements and Notes thereto included
elsewhere in this Proxy Statement.
MobileMedia builds and operates wireless messaging and communications
systems, and generates revenues from the provision of paging and other
wireless communications services. MobileMedia's strategy is to strengthen its
industry leadership position by providing superior paging and messaging
services at competitive prices.
MobileMedia's revenues are derived primarily from fixed periodic recurring
fees, not dependent on usage, charged to MobileMedia's subscribers for paging
services. While a subscriber remains in MobileMedia's service, future
operating results benefit from this recurring revenue stream with minimal
requirements for incremental selling expenses or other costs.
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On January 4, 1996, MobileMedia completed its acquisition of MobileComm and
on August 31, 1995 MMC purchased the paging business of Dial Page, Inc.
MobileMedia has incurred integration related costs in excess of those
originally anticipated to (i) transfer units-in-service between paging
networks to rationalize capacity, (ii) temporarily operate duplicative
functions, primarily customer service, and (iii) hire additional employees and
consultants to focus on the integration. Additionally, MobileMedia has
experienced increased loss of subscribers related to the integration
difficulties. Accordingly, MobileMedia's financial results have been
negatively impacted by the higher than anticipated integration costs and
increased loss of subscribers.
On January 30, 1997, Parent and MobileMedia filed voluntary petitions for
relief under the Bankruptcy Code in order to implement an operational and
financial restructuring ("Bankruptcy filing"). Parent and MobileMedia are
presently operating its business as debtors-in-possession subject to the
jurisdiction of the Bankruptcy Court. Pursuant to the requirements of the
Bankruptcy Code, Parent and MobileMedia are required to file monthly operating
reports with the United States Trustee. Such reports are publicly available
through the office of the Trustee, and copies of such reports to date have
been filed as Current Reports on Form 8-K with the Commission. Financial
statements included in MobileMedia's periodic reports since February, 1997
have not been prepared in accordance with GAAP due to MobileMedia's 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, are unaudited and have been revised periodically based on subsequent
determination of changes in facts and circumstances impacting previously filed
unaudited financial statements. The audited financial statements of
MobileMedia included herein reflect adjustments from the unaudited statements,
including but not limited to, an impairment adjustment of approximately $792.5
million recorded as of December 31, 1996.
On July 7, 1998, MobileMedia entered into an agreement to sell 163
transmission towers and 49 owned parcels of land to Pinnacle for $170 million.
The transaction also includes the assignment of leases related to towers
included in the sale. On August 10, 1998, the transaction was approved by the
Bankruptcy Court. It is anticipated that such transaction will close by
December 31, 1998. In connection with the transaction, MobileMedia will enter
into a lease agreement with Pinnacle under which MobileMedia will rent
transmitter space on towers for 683 transmitters for a period of fifteen years
at a cost of approximately $10.7 million per year.
On August 20, 1998, MobileMedia announced that it had executed a merger
agreement with Arch, pursuant to which MobileMedia will become a wholly-owned
subsidiary of Arch. On August , 1998, MobileMedia filed the Amended Plan that
reflects the proposed merger with Arch. The Amended Plan has the support of
the Unsecured Creditors Committee. Under the Amended Plan, most creditors of
MobileMedia will receive cash or equity securities of Arch in satisfaction of
their pre-petition claims against MobileMedia. Because there are a variety of
conditions precedent to the consummation of the Amended Plan and the merger
with Arch, there can be no assurance that the transactions contemplated
thereby will be consummated.
PENDING FCC ACTION AGAINST MOBILEMEDIA
MobileMedia disclosed in press releases dated September 27, 1996 and October
21, 1996 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 outside counsel, and a
comprehensive report regarding these matters was provided to the FCC in the
fall of 1996. In cooperation with the FCC, outside counsel's investigation was
expanded to examine all of MobileMedia's paging licenses, and the results of
that investigation were submitted to the FCC on November 8, 1996. Since
November 8, 1996, MobileMedia has continued to provide additional information
to the FCC.
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 approximately 94 applications for fill-in sites
around existing paging stations (which had been filed under the so-called "40-
mile rule") as defective because
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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. With
respect to each of the approximately 99 authorizations where the underlying
station was untimely constructed, the FCC granted MobileMedia interim
operating authority 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 in response to a request by MobileMedia, the FCC issued an
order staying the hearing proceeding for ten months 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 order, which is based on an FCC doctrine known
as Second Thursday, provides that if there is a change of control that meets
the conditions of Second Thursday, 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.
MobileMedia believes that a reorganization plan that provides for either a
conversion of certain existing debt to equity, in which case existing
MobileMedia equity interests will be eliminated, or a sale or merger of
MobileMedia will result in a change of control that will satisfy the Second
Thursday doctrine. MobileMedia has requested, and the FCC granted an extension
of the order staying the hearing for an additional six months to October 6,
1998. If MobileMedia is unable to present the FCC with a plan of
reorganization that satisfies the conditions of Second Thursday prior to the
expiration of the stay of the hearing, MobileMedia may be required to proceed
with the hearing, which, if adversely determined, could result in the loss of
MobileMedia's licenses or substantial monetary fines, or both. Such an outcome
would have a material adverse effect on MobileMedia's financial condition and
results of operations.
122
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared With Six Months Ended June 30, 1997
The following table presents certain items from MobileMedia's Consolidated
Statement of Operations and certain other information for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------
1997 1998
-------------------------- --------------------------
(IN THOUSANDS, EXCEPT PERCENTAGE AND UNIT DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenues
Services, rents and
maintenance........... $ 257,420 99.6% $ 215,109 98.6%
Equipment sales and ac-
tivation fees......... 18,048 7.0 13,794 6.3
------------- --------- ------------- ---------
Total revenues........... 275,468 106.6 228,903 104.9
Cost of products sold.... (16,948) (6.6) (10,774) (4.9)
------------- --------- ------------- ---------
258,520 100.0 218,129 100.0
Operating expenses
Services, rents and
maintenance........... 74,009 28.6 56,028 25.7
Selling................ 37,201 14.4 31,460 14.4
General and administra-
tive.................. 101,115 39.1 68,752 31.5
Restructuring costs.... 10,952 4.2 9,250 4.2
Depreciation and amor-
tization.............. 71,168 27.5 60,748 27.8
------------- --------- ------------- ---------
Total operating expenses. 294,445 113.9 226,238 103.7
------------- --------- ------------- ---------
Operating loss........... (35,925) (13.9) (8,109) (3.7)
Total other expense...... (35,467) (13.7) (29,160) (13.4)
------------- --------- ------------- ---------
Net loss................. $ (71,392) (27.6)% $ (37,269) (17.1)%
============= ========= ============= =========
OTHER DATA
EBITDA................... $ 46,195 17.9% $ 61,889 28.4%
Average Revenue per Unit
("ARPU")................ $ 10.22 $ 10.73
Average monthly operating
expense per unit........ $ 8.43 $ 7.79
Units in service (at end
of period).............. 3,973,760 3,241,740
</TABLE>
Units in service decreased from 3,973,760 as of June 30, 1997 to 3,241,740
as of June 30, 1998, a decrease of 18.4%. The decrease was attributable to a
decrease in gross unit additions and an increase in unit cancellations
primarily resulting from acquisition integration difficulties, billing system
clean up to remove non-revenue generating units and cancellation of units for
non-payment.
Services, rents and maintenance revenues decreased 16.4% to $215.1 million
for the six months ended June 30, 1998 compared to $257.4 million for the six
months ended June 30, 1997. The decrease was attributable to fewer units in
service and partially offset by a $0.51 increase in ARPU from $10.22 for the
six months ended June 30, 1997 to $10.73 for the six months ended June 30,
1998. The increase in ARPU was largely due to a greater percentage of units in
service in the direct distribution channel and a smaller percentage in the
reseller distribution channel. Units sold through the direct distribution
channel generally are sold at higher ARPU.
Equipment sales and activation fees decreased 23.6% to $13.8 million for the
six months ended June 30, 1998 compared to $18.0 million for the six months
ended June 30, 1997. The decrease in equipment sales was primarily due to
decreases in equipment sold through the retail distribution channel. Equipment
sales and activation fees, less cost of products sold, increased 174.5% to
$3.0 million for the six months ended June 30, 1998 from $1.1 million for the
six months ended June 30, 1997. This increase was primarily attributable to
sales of used pagers with lower net book values resulting from a change in
pager depreciation from a four-year life to a three-year life as of October 1,
1997.
123
<PAGE>
Net revenues decreased 15.6% to $218.1 million for the six months ended June
30, 1998 compared to $258.5 million for the six months ended June 30, 1997.
Services, rents and maintenance expenses decreased 24.3% to $56.0 million
for the six months ended June 30, 1998 compared to $74.0 million for the six
months ended June 30, 1997. This decrease resulted primarily from lower
subcontracted paging expenses by approximately $8.0 million resulting from
billing reconciliations, increased unit cancellations and customer migration
to company-owned networks and reduced paging related telecommunications
expenses by approximately $8.7 million. The decline in paging-related
telecommunications expenses resulted primarily from the FCC clarification of
its interconnection rules pursuant to the Telecommunications Act of 1996,
which prohibit local exchange carriers from charging paging carriers for the
cost of dedicated facilities used to deliver local telecommunications traffic
to paging networks. The FCC clarification, however, noted that the FCCs
considering requests for reconsideration of these rules. In addition, paging-
related telecommunications expense declined as a result of a reconfiguration
of MobileComm's network to maximize usage of lower cost facilities. As a
percentage of net revenue, services, rents and maintenance expenses decreased
from 28.6% to 25.7%.
Selling expenses for the six months ended June 30, 1998 decreased 15.4% to
$31.5 million compared to $37.2 million for the six months ended June 30,
1997. The decrease resulted primarily from lower sales personnel costs and
lower commissions attributable to lower sales headcount and lower gross
additions. Selling expenses as a percentage of net revenue were constant at
14.4%.
General and administrative expenses decreased 32.0% to $68.8 million for the
six months ended June 30, 1998 compared to $101.1 million for the six months
ended June 30, 1997 and decreased as a percentage of net revenues to 31.5% for
the six months ended June 30, 1998 from 39.1% for the six months ended June
30, 1997. The decrease primarily resulted from reduced bad debt expense due to
improvements in MobileMedia's billing and collections functions and lower
administrative telephone expenses resulting from lower call volume and lower
long distance rates as of October 1, 1997.
Restructuring costs decreased from $11.0 million for the six months ended
June 30, 1997 to $9.3 million for the six months ended June 30, 1998 due to a
decline in professional fees constituting administrative expenses incurred by
MobileMedia as a result of the bankruptcy filing on January 30, 1997.
Depreciation and amortization decreased 14.6% to $60.7 million for the six
months ended June 30, 1998 compared to $71.2 million for the six months ended
June 30, 1997. The decrease was primarily due to lower pager depreciation
attributable to a reduced depreciable base of pager assets resulting from the
change in useful life from four to three years on October 1, 1997 and
decreased pager purchases. As a percentage of net revenues, depreciation and
amortization expense increased to 27.8% for the six months ended June 30, 1998
from 27.5% for the six months ended June 30, 1997.
Operating loss decreased 77.4% to $8.1 million for the six months ended June
30, 1998 from $35.9 million for the six months ended June 30, 1997. The
decrease was primarily due to decreased operating expenses.
Total other expense, principally interest expense, decreased 17.8% to $29.2
million for the six months ended June 30, 1998 compared to $35.5 million for
the six months ended June 30, 1997. The decrease was primarily due to interest
on the $250,000 Senior Subordinated Notes due November 1, 2007 and the
$210,000 Senior Subordinated Deferred Coupon Notes not being recognized
subsequent to the bankruptcy filing and lower interest expense on
MobileMedia's DIP facility resulting from lower outstanding borrowings in
1998.
Net loss, as a result of the above factors, decreased 47.8% to $37.3 million
for the six months ended June 30, 1998 compared to $71.4 million for the six
months ended June 30, 1997.
EBITDA increased 34.0% to $61.9 million for the six months ended June 30,
1998 compared to $46.2 million for the six months ended June 30, 1997. As a
percentage of net revenues, EBITDA increased to 28.4%
124
<PAGE>
for the six months ended June 30, 1998 from 17.9% for the six months ended
June 30, 1997. The increase in EBITDA was primarily due to decreased operating
expenses. Average monthly operating expenses per unit in service decreased to
$7.79 for the six months ended June 30, 1998 compared to $8.43 for the six
months ended June 30, 1997.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
The following table presents certain items from MobileMedia's Consolidated
Statement of Operations and certain other information for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997
---------------------------- --------------------------
(IN THOUSANDS, EXCEPT PERCENTAGE AND UNIT DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA
Revenues
Services, rents and
maintenance.......... $ 568,892 100.1% $ 491,174 99.9%
Equipment sales and
activation fees...... 71,818 12.6 36,218 7.4
--------------- ---------- ------------- ---------
Total revenues.......... 640,710 112.8 527,392 107.3
Cost of products sold. (72,595) (12.8) (35,843) (7.3)
--------------- ---------- ------------- ---------
568,115 100.0 491,549 100.0
Operating expenses
Services, rents and
maintenance.......... 144,050 25.4 139,333 28.3
Selling............... 96,817 17.0 69,544 14.1
General and adminis-
trative.............. 218,607 38.5 179,599 36.5
Impairment of long-
lived assets......... 792,478 139.5 -- --
Restructuring costs... 4,256 0.7 19,811 4.0
Depreciation and amor-
tization............. 348,698 61.4 140,238 28.5
--------------- ---------- ------------- ---------
Total operating ex-
penses................. 1,604,906 282.5 548,525 111.6
--------------- ---------- ------------- ---------
Operating loss.......... (1,036,791) (182.5) (56,976) (11.6)
Total other expense..... (92,595) (16.2) (67,608) (13.8)
--------------- ---------- ------------- ---------
Loss before income tax
benefit................ (1,129,386) (198.7) (124,584) (25.3)
Income tax benefit...... (69,442) 12.2 -- --
--------------- ---------- ------------- ---------
Net loss................ $ (1,059,944) (186.5)% $ (124,584) (25.3)%
=============== ========== ============= =========
OTHER DATA
EBITDA.................. $ 108,641 19.1% $ 103,073 21.0%
ARPU.................... $ 11.08 $ 10.41
Average monthly operat-
ing expense per unit
(1).................... $ 8.95 $ 8.23
Units in service (at end
of period)............. 4,424,107 3,440,342
</TABLE>
- --------
(1) Does not include impact of $792.5 million asset impairment writedown in
1996.
Units in service decreased from 4,424,107 as of December 31, 1996 to
3,440,342 as of December 31, 1997, a decrease of 22.2%. The decrease was
attributable to a decrease in gross unit additions and an increase in unit
cancellations primarily resulting from acquisition integration difficulties,
billing system clean up to remove non-revenue generating units and
cancellation of units for non-payment.
Services, rents and maintenance revenues decreased 13.7% to $491.2 million
for the year ended December 31, 1997 compared to $568.9 million for the year
ended December 31, 1996 due to fewer units in service and lower ARPU. ARPU
decreased to $10.41 for the year ended December 31, 1997 from $11.08 for the
year ended December 31, 1996 largely due to continued competitive market
conditions.
125
<PAGE>
Equipment sales and activation fees decreased 49.6% to $36.2 million for the
year ended December 31, 1997 compared to $71.8 million for the year ended
December 31, 1996. The decrease in equipment sales was primarily attributable
to less equipment sold through the retail distribution channel. Equipment
sales and activation fees, less cost of products sold, increased from $(0.8)
million for the year ended December 31,1996 to $0.4 million for the year ended
December 31, 1997 primarily as a result of lower retail sales of equipment
sold at a discount. Cost of products sold for the year ended December 31, 1996
includes a writedown of $3.2 million, reflecting the establishment of a lower
of cost or market reserve for pagers held for resale through MobileMedia's
retail and reseller distribution channels.
Net revenues decreased 13.5% to $491.5 million for the year ended December
31, 1997 compared to $568.1 million for the year ended December 31, 1996.
Services, rents and maintenance expenses decreased 3.3% to $139.3 million
for the year ended December 31, 1997 compared to $144.1 million for the year
ended December 31, 1996, primarily due to billing reconciliation and lower
nationwide subcontracted paging expenses resulting from cancellations and
customer migration from networks not owned by MobileMedia to company-owned
networks.
Selling expenses for the year ended December 31, 1997 decreased 28.2% to
$69.5 million from $96.8 million for the year ended December 31, 1996
primarily due to lower sales personnel costs and lower sales commissions
attributable to lower sales headcount and lower gross additions. In addition,
reseller and retail distribution channel selling expenses declined as a result
of lower sales volume. Selling expenses as a percentage of net revenue
decreased to 14.1% for the year ended December 31, 1997 from 17.0% for the
year ended December 31, 1996.
General and administrative expenses decreased 17.8% to $179.6 million for
the year ended December 31, 1997 compared to $218.6 million for the year ended
December 31, 1996. General and administrative expenses decreased as a
percentage of net revenues to 36.5% for the year ended December 31, 1997 from
38.5% for the year ended December 31, 1996 primarily due to decreased bad debt
expense, customer service expenses related to the assimilation of MobileComm's
customer service functions, and consulting fees related to the integration of
the acquisitions. Bad debt expense decreased as a result of increased
collections resulting from improvements in MobileMedia's billing and
collection functions.
Restructuring costs increased from $4.2 million for the year ended December
31, 1996 to $19.8 million for the year ended December 31, 1997 due to
professional fees constituting administrative expenses incurred by MobileMedia
as a result of the bankruptcy filing on January 30, 1997 as compared to the
1996 expenses incurred in connection with MobileMedia's attempt to restructure
its debt.
Depreciation and amortization decreased 59.8% to $140.2 million for the year
ended December 31, 1997 compared to $348.7 million for the year ended December
31, 1996. The decrease was primarily due to a writedown of impaired assets by
$792.5 million pursuant to Statement of Financial Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of" effective December 31, 1996 (See Note 2 of MobileMedia's Notes
to Consolidated Financial Statements included elsewhere herein), amortization
of a non-competition agreement related to the MobileComm Acquisition which was
fully amortized in 1996 and decreased pager depreciation resulting from a
decrease in expenses related to unrecoverable subscriber equipment and a
reserve established to lower book values of certain pager models to current
market values in 1996. As a percentage of net revenues, depreciation and
amortization expense decreased to 28.5% for the year ended December 31, 1997
from 61.4% for the year ended December 31, 1996.
Operating loss decreased to $57.0 million for the year ended December 31,
1997 from $1,036.8 million for the year ended December 31, 1996. The decrease
was primarily due to the $792.5 million asset impairment writedown effective
December 31, 1996 and other factors indicated above.
Total other expense, principally interest expense, decreased 27.0% to $67.6
million for the year ended December 31, 1997 compared to $92.6 million for the
year ended December 31, 1996. The decrease was
126
<PAGE>
primarily due to interest expense related to MobileMedia's $250,000 Senior
Subordinated Notes due November 1, 2007 and $210,000 Senior Subordinated
Deferred Coupon Notes not being recognized subsequent to the Bankruptcy filing
on January 30, 1997.
Loss before income tax benefit, as a result of the above factors, decreased
to $124.6 million for the year ended December 31, 1997 from $1,129.4 million
for the year ended December 31, 1996.
Income tax benefit of $69.4 million resulted from the deferred tax
adjustment attributable to the $792.5 asset impairment writedown effective
December 31, 1996.
EBITDA decreased to $103.1 million for the year ended December 31, 1997
compared to $108.6 million for the year ended December 31, 1996, a decrease of
5.1%. As a percentage of net revenues, EBITDA increased to 21.0% for the year
ended December 31, 1997 from 19.1% for the year ended December 31, 1996.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
The following table presents certain items from MobileMedia's Consolidated
Statement of Operations and certain other information for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996
-------------------------- ----------------------------
(IN THOUSANDS, EXCEPT PERCENTAGE AND UNIT DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA
Revenues
Services, rents and
maintenance.......... $ 220,745 97.6% $ 568,892 100.1%
Equipment sales and
activation fees...... 32,251 14.3 71,818 12.6
------------- --------- --------------- ----------
Total revenues.......... 252,996 111.9 640,710 112.8
Cost of products sold. (26,885) (11.9) (72,595) (12.8)
------------- --------- --------------- ----------
226,111 100.0 568,115 100.0
Operating expenses
Services, rents and
maintenance.......... 59,800 26.4 144,050 25.4
Selling............... 45,203 20.0 96,817 17.0
General and adminis-
trative.............. 59,034 26.1 218,607 38.5
Impairment of long-
lived assets......... -- -- 792,478 139.5
Restructuring costs... -- -- 4,256 0.7
Depreciation and amor-
tization............. 71,408 31.6 348,698 61.4
------------- --------- --------------- ----------
Total operating ex-
penses................. 235,445 104.1 1,604,906 282.5
------------- --------- --------------- ----------
Operating loss.......... (9,334) (4.1) (1,036,791) (182.5)
Total other expense..... (31,745) (14.0) (92,595) (16.2)
------------- --------- --------------- ----------
Loss before income tax
benefit................ (41,079) (18.2) (1,129,386) (198.7)
Income tax benefit...... -- -- (69,442) 12.2
------------- --------- --------------- ----------
Net loss................ $ (41,079) (18.2)% $ (1,059,944) (186.5)%
============= ========= =============== ==========
OTHER DATA
EBITDA.................. $ 62,074 27.5% $ 108,641 19.1%
ARPU.................... $ 9.64 $ 11.08
Average monthly operat-
ing expense per unit
(1).................... $ 7.17 $ 8.95
Units in service (at end
of period)............. 2,369,101 4,424,107
</TABLE>
- --------
(1) Does not include impact of $792.5 million asset impairment writedown in
1996.
Units in service increased by 2,055,006 to 4,424,107 as of December 31, 1996
when compared to December 31, 1995. The increase was attributable to 1,764,752
units acquired from the MobileComm
127
<PAGE>
Acquisition and 290,254 net units acquired from internal growth through
MobileMedia's various sales distribution channels.
Services, rents and maintenance revenues increased 157.7% to $568.9 million
for the year ended December 31, 1996 compared to $220.7 million for the year
ended December 31, 1995 due to additional revenues associated with the
acquisitions and continued growth in the number of units in service. ARPU
increased to $11.08 for the year ended December 31, 1996 from $9.64 for the
year ended December 31, 1995 largely due to the impact of the acquired
subscribers from MobileComm and Dial Page. The ARPU impact of the acquisitions
was partly offset by net units added in 1996 through the reseller distribution
channel at lower ARPU. ARPU also declined as a result of continued competitive
market conditions.
Equipment sales and activation fees increased 122.7% to $71.8 million for
the year ended December 31, 1996 compared to $32.3 million for the year ended
December 31, 1995. The increase in equipment sales is attributable to
MobileMedia's significant presence in retail distribution as a result of the
MobileComm Acquisition. Equipment sales and activation fees, less cost of
products sold, decreased 114.5% to $(0.8) million for the year ended December
31,1996. The decrease is attributable to discounting of equipment selling
prices to large retailers as a means of generating subscriber additions
through the retail distribution channel. Cost of products sold also includes
an writedown of $3.2 million in 1996, reflecting the establishment of a lower
of cost or market reserve for pagers held for resale through MobileMedia's
retail and reseller distribution channels.
Net revenues increased 151.3% to $568.1 million for the year ended December
31, 1996 compared to $226.1 million for the year ended December 31, 1995.
Services, rents and maintenance expenses increased 140.9% to $144.1 million
for the year ended December 31, 1996 compared to $59.8 million for the year
ended December 31, 1995, primarily due to increased expense levels related to
the acquisitions and increased transmitter site lease expenses related to
MobileMedia's nationwide paging network which commenced service on April 1,
1996. The balance of the increase resulted primarily from an increase in
subcontracted paging expense by approximately $6.3 million primarily
associated with the increase in nationwide paging units serviced by networks
other than those owned by MobileMedia and $1.6 million in research and
development expenses related to the development of a two-way wireless
subscriber device. Services, rents and maintenance expenses decreased as a
percentage of net revenues to 25.4% for the year ended December 31, 1996 from
26.4% for the year ended December 31, 1995.
Selling expenses for the year ended December 31, 1996 increased 114.2% to
$96.8 million from $45.2 million for the year ended December 31, 1995
primarily due to the increased expense levels related to the acquisitions.
Selling expenses as a percentage of net revenue decreased to 17.0% for the
year ended December 31, 1996 from 20.0% for the year ended December 31, 1995.
General and administrative expenses increased 270.3% to $218.6 million for
the year ended December 31, 1996 compared to $59.0 million for the year ended
December 31, 1995 primarily due to the increased expense levels related to the
acquisitions. General and administrative expenses increased as a percentage of
net revenues to 38.5% for the year ended December 31, 1996 from 26.1% for the
year ended December 31, 1995. The balance of the increase resulted primarily
from increased bad debt expense, customer service expenses related to the
assimilation of MobileComm's customer service functions, and consulting fees
related to the integration of the acquisitions. During the third and fourth
quarters of 1996, MobileMedia experienced significant difficulty in collecting
outstanding accounts receivable. These difficulties resulted primarily from
inaccurate billing and inadequate resolutions of customer problems largely
caused by difficulties of integrating acquisitions. In addition, MobileMedia
paid $2.1 million in separation expenses in the second half of 1996 due to the
departure of several senior executives of MobileMedia and $0.7 million in
separation expenses in the first quarter of 1995 due to the departure of the
Chairman of the Board of Directors of MobileMedia.
Impairment of long-lived assets of $792.5 million included a writedown of
long-lived assets effective December 31, 1996, pursuant to Statement of
Financial Accounting Standards No. 121. (See Note 2 of MobileMedia's Notes to
Consolidated Financial Statements included elsewhere herein).
128
<PAGE>
Restructuring costs of $4.3 million for the year ended December 31, 1996
included legal and professional fees related to various restructuring
activities by MobileMedia prior to the Bankruptcy filing.
Depreciation and amortization increased 388.3% to $348.7 million for the
year ended December 31, 1996 compared to $71.4 million for the year ended
December 31, 1995. The increase was primarily due to additional amortization
expenses related to the acquisitions and increased pager depreciation
resulting from a decrease to the depreciable pager base resulting from
unrecoverable subscriber equipment and a reserve established to lower book
values of certain pager models to current market values. As a percentage of
net revenues, depreciation and amortization expense increased to 61.4% for the
year ended December 31, 1996 compared to 31.6% for the year ended December 31,
1995.
Operating loss increased to $1,036.8 million for the year ended December 31,
1996 from $9.3 million for the year ended December 31, 1995. The increase was
primarily due to the impairment loss and increased amortization expenses
relating to the acquisitions offset by the increase in net revenues.
Total other expense, principally interest expense, increased 191.7% to $92.6
million for the year ended December 31, 1996 compared to $31.7 million for the
year ended December 31, 1996. The increase was primarily due to additional
debt incurred to finance the acquisitions and capital expenditures.
Loss before income tax benefit, as a result of the above factors, increased
to $1,129.4 million for the year ended December 31, 1996 compared to $41.1
million for the year ended December 31, 1995.
Income tax benefit of $69.4 million resulted from the deferred tax
adjustment attributable to the $792.5 asset impairment writedown effective
December 31, 1996.
EBITDA increased to $108.6 million for the year ended December 31, 1996
compared to $62.1 million for the year ended December 31, 1995, an increase of
75.0%. As a percentage of net revenues, EBITDA decreased to 19.1% for the year
ended December 31, 1996 from 27.5% for the year ended December 31, 1995. The
increase in EBITDA was primarily due to the acquisitions described above.
LIQUIDITY AND CAPITAL RESOURCES
MobileMedia's operations and strategy require the availability of
substantial funds to finance the development and installation of wireless
communications systems, to procure subscriber equipment and to service debt.
Historically, these requirements have been funded by net cash from operating
activities, additional borrowings and capital contributions.
Chapter 11 Filing
On January 30, 1997, Parent and MobileMedia filed voluntary petitions for
relief under the Bankruptcy Code in order to implement an operational and
financial restructuring. Parent and MobileMedia are currently operating their
businesses as debtors-in-possession subject to the jurisdiction of the
Bankruptcy Court. Pursuant to the requirements of the Bankruptcy Code, Parent
and MobileMedia are required to file monthly operating reports with the
appointed United States Trustee (the "Trustee"). Such reports are publicly
available through the office of the Trustee, and copies of such reports to
date have been filed as Current Reports on Form 8-K with the Commission.
Financial statements included in Parent's periodic reports since February,
1997 have not been prepared in accordance with GAAP due to Parent's 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, are unaudited and have been revised periodically based on subsequent
determination of changes in facts and circumstances impacting previously filed
unaudited financial statements. The audited financial statements of
MobileMedia included herein reflect adjustments from the unaudited statements,
including but not limited to, an impairment adjustment of $792.5 million
recorded as of December 31, 1996.
129
<PAGE>
Agreement with Key Suppliers
In connection with the Filings, MobileMedia sought approval of the
Bankruptcy Court to pay the pre-petition claims of its Key Suppliers
(Motorola, Glenayre, NEC and Panasonic) in the aggregate amount of $47.4
million, which approval was granted by the Bankruptcy Court on February 6,
1997. Upon entry of the Bankruptcy Court's order approving the payments,
MobileMedia paid the pre-petition claims and entered into supply agreements
with each of the Key Suppliers. Each of the Key Suppliers has been shipping
product to MobileMedia in accordance with its respective supply agreement.
DIP Credit Agreement
In connection with the Filings, MobileMedia entered into the DIP Credit
Agreement with The Chase Manhattan Bank, as agent (the "Agent"), and certain
other financial institutions (collectively, the "DIP Agreement Lenders") that
initially provided MobileMedia with up to $200 million of post-petition,
debtor-in-possession ("DIP") financing. At a hearing on January 30, 1997, the
Bankruptcy Court entered an interim order approving the DIP facility, as a
result of which MobileMedia gained access to $70 million of such DIP funds,
subject to MobileMedia entering into agreements with its Key Suppliers to sell
equipment and provide services. This condition was satisfied when MobileMedia
entered into such agreements with the Key Suppliers. MobileMedia used $47.4
million of the available $70 million of DIP funds to pay the pre-petition
claims of their Key Suppliers, among other things. On February 19, 1997, the
Bankruptcy Court entered a final order approving MobileMedia's DIP facility,
as a result of which MobileMedia gained access to an additional $30 million of
DIP funds for a total of $100 million. The remaining $100 million of DIP funds
became available on May 1, 1997, as a result of MobileMedia's delivery of a
business plan to the Agent by April 15, 1997, which was found to be
satisfactory by the financial advisor to the DIP Agreement Lenders. Under the
terms of the DIP Credit Agreement and the order of the Bankruptcy Court
related thereto, MobileMedia is required to make monthly interest payments to
the DIP Agreement Lenders, and monthly "adequate protection" payments to the
pre-petition secured lenders of MobileMedia. During 1997, MobileMedia drew
down $47 million of borrowings and repaid $37 million under the DIP facility.
During January and February, 1998 MobileMedia repaid an additional $10
million. As of June 30, 1998 there were no funded borrowings under the DIP
facility and a $0.5 million letter of credit issued in 1997 remained a
contingent obligation of MobileMedia under the DIP facility. On January 27,
1998, the DIP facility was amended and, at the request of MobileMedia, reduced
from $200 million to $100 million. On July 28, 1998 MobileMedia received
interim approval from the Bankruptcy Court to extend its DIP facility to March
31, 1999 and to reduce availability thereunder further, at the request of
MobileMedia, from $100 million to $75 million.
Capital Expenditures and Commitments
Capital expenditures were $15.6 million for the six months ended June 30,
1998 compared to $23.8 million for the six months ended June 30, 1997 and
$40.6 million for the year ended December 31, 1997 compared to $161.9 million
for the year ended December 31, 1996. Capital expenditures decreased $8.2
million for the six months ended June 30, 1998 compared to the six-month
period ended June 30, 1997 and $121.3 million for the year ended December 31,
1997 compared to the corresponding period in 1996 principally as a result of
lower pager purchases resulting from fewer gross additions and increased
utilization of existing pager inventory stock. The Merger Agreement contains
certain restrictions on MobileMedia's ability to make certain capital
expenditures without the consent of Arch. See "The Merger Agreement--Certain
Covenants and Agreements".
MobileMedia anticipates capital spending for the calendar years 1998 and
1999 to be approximately $61 million and $95 million, respectively. Capital
spending includes approximately $12 million in 1998 and $22 million in 1999
for construction of a nationwide N-PCS network providing frequency reuse and
guaranteed message delivery capabilities. The remaining expenditures are
primarily for subscriber equipment and improvements to MobileMedia's one-way
network.
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Sources of Funds
MobileMedia's net cash provided by operating activities was $26.2 million
for the six months ended June 30, 1998 compared to a use of cash of $13.7
million for the six months ended June 30, 1997. Inventories decreased $6.8
million for the six months ended June 30, 1997 compared to no change for the
six months ended June 30, 1998 as a result of utilizing pager inventory stock
and lower sales volume in the retail sales distribution channel. Accounts
payable, accrued expenses and other liabilities decreased $18.8 million for
the six months ended June 30, 1997 compared to a decrease of $11.5 million for
the six months ended June 30, 1998. Net accounts receivable increased $1.8
million for the six months ended June 30, 1997 compared to a decrease of $15.5
million for the six months ended June 30, 1998 due to improved billing and
collections functions.
MobileMedia's net cash provided by operating activities was $14.9 million
for the year ended December 31, 1997 compared to $57.2 million for the year
ended December 31, 1996. Inventories decreased $12.5 million from December 31,
1996 to December 31, 1997 as a result of utilizing pager inventory stock and
lower sales volume in the retail sales distribution channel. Accounts payable,
accrued expenses and other liabilities decreased $25.4 million from $181.8
million as of December 31, 1996 to $156.4 million as of December 31, 1997
primarily due to payments to Key Suppliers during 1997. Net accounts
receivable decreased $11.3 million from $66.7 million as of December 31, 1996
to $55.4 million as of December 31, 1997 due to improved billing and
collections functions.
Tower Sale
On July 7, 1998, MobileMedia entered into an agreement to sell 163
transmission towers and 49 owned parcels of land to Pinnacle for $170 million.
The transaction also includes the assignment of leases related to towers
included in the sale. On August 10, 1998, the transaction was approved by
Bankruptcy Court. It is anticipated that such transaction will close by
December 31, 1998. In connection with the transaction, MobileMedia will enter
into an agreement with Pinnacle under which MobileMedia will rent transmitter
space on towers for 683 transmitters for the period of fifteen years at a cost
of approximately $10.7 million per year.
Debt Obligations
As of June 30, 1998, the debt obligations of MobileMedia included a debtor-
in-possession credit facility. See "--DIP Credit Agreement". MobileMedia is
subject to certain financial and operating restrictions contained in the DIP
Credit Agreement that are customary in 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.
Amounts outstanding under the DIP Credit Agreement bear interest at a rate of
LIBOR plus 250 basis points or Base Rate plus 150 basis points, at the option
of MobileMedia. During 1997, MobileMedia drew down $47 million of borrowings
and repaid $37 million under the DIP Credit Agreement. During January and
February, 1998 MobileMedia repaid an additional $10 million. As of June 30,
1998 there were no funded borrowings under the DIP Credit Agreement and a $0.5
million letter of credit issued in 1997 remained a contingent obligation of
MobileMedia under the DIP Credit Agreement.
In addition to the DIP Credit Agreement, the debt obligations of MobileMedia
also include the following:
The MobileMedia 1995 Credit Agreement, a $750 million senior secured and
guaranteed credit agreement with a syndicate of lenders including The Chase
Manhattan Bank. As of June 30, 1998 there was $649 million outstanding under
this facility consisting of term loans of $137.5 million and $412.5 million
and loans under a revolving credit facility totaling $99 million. This
agreement was entered into on December 4, 1995, in connection with the
financing of the MobileComm Acquisition. Commencing in 1996, MMC was in
default under this agreement. As a result of such default and the bankruptcy
filing, MMC has no borrowing capacity under this agreement. MMC's obligations
under the MobileMedia 1995 Credit Agreement are secured by substantially all
of the assets of MMC and all of its subsidiaries, including the capital stock
of the subsidiaries,
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and Parent and the subsidiaries of MMC have guaranteed all of MMC's
borrowings, including principal and interest. Performance of Parent's
obligations as a guarantor is secured by a pledge of the capital stock of MMC.
Since the petition date, MobileMedia brought current its interest payments and
has been making monthly adequate protection payments to the lenders under the
MobileMedia 1995 Credit Agreement equal to the amount of interest accruing
under such agreement.
$250 million Senior Subordinated MobileMedia 9 3/8% Notes issued in November
1995, concurrent with MobileMedia's second offering of Class A Common Stock
(See Note 11 to MobileMedia's Notes to Consolidated Financial Statements
included elsewhere herein). These notes bear interest at a rate of 9 3/8%
payable semiannually on May 1 and November 1 of each year. On November 1,
1996, MobileMedia did not make its scheduled interest payment on the
MobileMedia 9 3/8% Notes which constituted an event of default under this
indenture. The noteholders 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 and no
interest has accrued on the notes.
$210 million of Senior Subordinated Deferred Coupon Notes (the "MobileMedia
Deferred Coupon Notes") issued, at a discount, in November 1993. The
MobileMedia Deferred Coupon Notes accrete at a rate of 10.5%, compounded
semiannually, to an aggregate principal amount of $210,000 by December 1, 1998
after which interest is paid in cash at a rate of 10.5% and is payable
semiannually. By virtue of the missed interest payments on the MobileMedia 9
3/8% Notes and the MobileMedia 1995 Credit Agreement, an event of default has
occurred under this indenture. The noteholders 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 and no interest has accrued on the notes.
Other Matters
Prior to the bankruptcy filing, 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 Actions were
subsequently consolidated as In re MobileMedia Securities Litigation, No. 96-
5723 (AJL). The consolidated amended 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 MobileMedia 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 may conduct only limited discovery in
connection with the New Jersey Actions and may not file any pleadings, except
responses to motions to dismiss, until the earlier of September 30, 1998 and
the effective date pursuant to a plan of reorganization.
In addition to the New Jersey Actions, the two California 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 MobileMedia's independent
auditors. MobileMedia is not named as defendant in the California Actions.
On November 4, 1997, MobileMedia 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.
Neither the New Jersey Actions nor the California Actions name MobileMedia
as a defendant. However, proofs of claim have been filed against MobileMedia
by the plaintiffs in the New Jersey Actions, and both the New Jersey Actions
and the California Actions may give rise to claims against MobileMedia's
Directors, Officers and Corporate Liability Insurance Policy. Under the Plan,
these claims will receive no distributions.
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Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. 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.
While MobileMedia is aware that certain of its software and paging systems
require modification, it is in the process of determining the full extent to
which it will be required to modify or replace significant portions of its
software and paging systems so that its systems function properly with respect
to dates in the year 2000 and thereafter. At present, MobileMedia does not yet
have an estimate of the cost that may be incurred to comply with the Year 2000
issue. If such modifications and conversions are not made, or are not
completed on a timely basis, the Year 2000 issue could have a material adverse
effect on the operations of MobileMedia.
NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS
No. 130), which is effective for years beginning after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. SFAS No.
130 is effective for financial statements for fiscal years beginning after
December 15, 1997. MobileMedia's management does not anticipate that the
adoption of SFAS No. 130 will have any effect on MobileMedia's reporting.
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, and therefore MobileMedia will adopt the new requirements
retroactively in 1998. MobileMedia's management has not completed its review
of SFAS No. 131, but does not anticipate that the adoption of this statement
will have a significant effect on MobileMedia's reporting.
In April 1998, the Accounting Standards Executive Committee of the Financial
Accounting Standards Board issued SOP 98-5 "Reporting Costs of Start-Up
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 intends to adopt SOP 98-5 effective January 1, 1999. The adoption
of SOP 98-5 is not expected to have a material effect on MobileMedia's
financial position or results of operation.
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DESCRIPTION OF ARCH CAPITAL STOCK
The authorized capital stock of Arch consists of 75,000,000 shares of Arch
Common Stock, $.01 par value per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share. As of the Record Date, there were 21,067,110
outstanding shares of Arch Common Stock held by stockholders of record,
and 250,000 shares of Series C Preferred Stock held by 10 stockholders of
record. Upon approval of the Charter Amendment Proposal, and the filing of a
Certificate of Amendment with the Secretary of State of the State of Delaware,
the Arch Certificate will be amended to increase the number of authorized
shares of Arch Common Stock to 150,000,000 shares, of which 20,000,000 will be
designated Class B Common Stock, and to authorize the issuance of 20,000,000
shares of Class B Common Stock $.01 par value per share.
The following summary of certain provisions of Arch Common Stock, Preferred
Stock, Arch Certificate and Arch By-laws is not intended to be complete and is
qualified by reference to the provisions of applicable law and to the Arch
Certificate and Arch By-laws.
ARCH COMMON STOCK
Holders of Arch Common Stock are entitled to one vote per share, to receive
dividends when and if declared by the Arch Board and, subject to any
participating or similar rights of any series of Arch Preferred Stock at the
time outstanding, to share ratably in the assets of Arch legally available for
distribution to its stockholders in the event of liquidation. Holders of Arch
Common Stock will have no preemptive, subscription, redemption or conversion
rights. All shares of Arch Common Stock issued in the Merger will be fully
paid and nonassessable. The holders of Arch Common Stock do not have
cumulative voting rights.
ARCH CLASS B COMMON STOCK
The Class B Common Stock will be identical in all respects to Arch Common
Stock, except that holders of Class B Common Stock will not be entitled to
vote in the election of directors and will be entitled to 1/100th of a vote
per share with respect to all other matters. Except as otherwise required by
law, Class B Common Stock will vote as a single class together with the Arch
Common Stock.
The Class B Common Stock will only be issued to the Standby Purchasers to
the extent that such Standby Purchasers would own, in the aggregate, more than
49% of the shares of Common Stock outstanding, and any shares of Class B
Common Stock transferred by any Standby Purchaser to any transferee other than
another Standby Purchaser will automatically convert into an equal number of
shares of Arch Common Stock. Class B Common Stock is being used so that the
issuance of Arch Combined Common Stock to the Standby Purchasers in the Merger
will not trigger the change of control repurchase provisions contained in the
indentures governing certain notes previously issued by Arch and ACI. See
"Risk Factors--Uncertainties Related to the Transaction--Certain Risks
Associated with the Merger" and "Description of Certain Arch Indebtedness".
ARCH PREFERRED STOCK
The Arch Board 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, as to any such series, the voting rights, if any, applicable to such
series and such other designations, preferences and special rights as the Arch
Board may determine, including dividend, conversion, redemption and
liquidation rights and preferences. Arch does not have any present plans to
issue shares of its preferred stock, other than the shares of Arch Series C
Preferred Stock currently outstanding.
ARCH SERIES C PREFERRED STOCK
The Series C Preferred Stock has the rights and preferences summarized
below:
Conversion. The Series C Preferred Stock is convertible into Arch Common
Stock at an initial conversion price of $5.50 per share, subject to certain
adjustments.
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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 Arch's Common Stock valued at 95% of the then prevailing
market price or, if not paid quarterly, accumulating and payable upon
redemption or conversion of the Series C Preferred Stock or 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 ACI and such director has the right to be a member of
any committee of such Board of Directors. On all other matters, the Series C
Preferred Stock votes as a single class with the Arch Common Stock. Each share
of Series C Preferred Stock is currently entitled to 18 2/9 votes.
Redemption. The Series C Preferred Stock permits the holders in 2005 to
require Arch, at Arch's option, either to redeem the Series C Preferred Stock,
for either cash or convert such shares into Arch Common Stock valued at 95% of
the then prevailing market price of Arch Common Stock and is subject to
redemption for cash or conversion into Arch's Common Stock at ACI's option in
certain circumstances.
Liquidation Preference. Upon liquidation, dissolution or winding up of Arch,
the holders of Series C Preferred Stock will be entitled, before any
distribution or payment is made upon any Arch Common Stock, to be paid (i)
$100.00 per share of Series C Preferred Stock (subject to certain
adjustments), plus (ii) accrued and unpaid dividends on such shares of Series
C Preferred Stock before any amounts paid to the holders of shares of Arch
Common Stock. In the event that the assets of Arch are insufficient to permit
full payment to the holders of Series C Preferred Stock as provided above,
then the assets will be distributed pro rata among the holders of the Series C
Preferred Stock.
FOREIGN OWNERSHIP RESTRICTIONS
Under the Communications Act, no more than 25% of Arch capital stock can be
owned or voted by aliens or their representatives, a foreign government or its
representative or a foreign corporation. See "Industry Overview--Regulation".
Accordingly, the Arch Certificate provides that Arch may redeem outstanding
shares of its stock from certain holders if the continued ownership of such
stock by such holders (because of their foreign citizenship or otherwise)
would place the FCC licenses held by Arch in jeopardy. The Arch Certificate
provides that 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
Arch Certificate) or, if such shares were purchased within one year prior to
the redemption, the purchase price of such shares.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law and the Arch Certificate and Arch 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 certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of Arch
first to 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
Arch has a stockholders rights plan (the "Rights Plan") pursuant to which
each outstanding share of Arch Common stock has attached to it one preferred
stock purchase right (a "Right") to purchase from Arch a unit (a "Unit")
consisting of one one-thousandth of a share of Arch Series B Preferred stock
at a cash purchase price of $150 per Unit, subject to adjustment. Pursuant to
the Rights Plan, the Rights automatically attach to and trade together with
each share of Arch Common Stock.
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The Rights are not exercisable or transferable separately from the shares of
Arch Common Stock to which they are attached until the earlier of (i) ten
business days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more (22% in
certain circumstances) of the outstanding shares of the Arch Common Stock (a
"Stock Acquisition Date"), or (ii) ten business days following 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 Arch
Common Stock.
In the event that any person or entity becomes an Acquiring Person (except
pursuant to an offer for all outstanding shares of Arch Common Stock which
Arch's independent directors determine to be fair to, and in the best
interests of, Arch's stockholders), each holder of a Right other than the
Acquiring Person will thereafter have the right to receive, upon exercise,
that number of shares of Arch Common Stock which equals the exercise price of
the Right divided by one-half of the current market price of the Common Stock
at the Stock Acquisition Date. However, in any such event, all Rights that are
beneficially owned by an Acquiring Person shall be null and void.
In the event that a Stock Acquisition Date occurs and (i) Arch is acquired
in a merger or other business combination transaction in which Arch is not the
surviving corporation or the Arch Common Stock is changed or exchanged (other
than a merger that follows an offer determined to be fair by Arch's
independent directors as described above) or (ii) 50% or more of Arch's assets
or earning power is sold or transferred, each holder of a Right (except Rights
which previously have been voided as described above) shall thereafter have
the right to receive, upon exercise, that number of shares of common stock of
the acquiring company which equals the exercise price of the Rights divided by
one-half of the current market price of such common stock at the Stock
Acquisition Date.
The Rights are not currently exercisable. In connection with the execution
of the Merger Agreement, Arch amended the Rights Plan to permit each Standby
Purchaser to acquire, without becoming an Acquiring Person, up to the sum of
(i) the number of shares distributed to it from the Creditor Stock Pool, (ii)
the number of shares purchased by it pursuant to the exercise of Rights (iii)
the number of shares purchased directly pursuant to the Standby Purchase
Agreements and (iv) 5% of the outstanding Arch Common Stock (but in no event
more than a total of 25% of such outstanding stock in the case of W.R. Huff,
Whippoorwill or Credit Suisse First Boston Corporation and its affiliates).
The Amended Rights Plan further provides that the Standby Purchasers will not
be deemed to be a group for purposes of the Rights Plan solely because of
performance of their commitments under the Standby Purchase Agreements.
CLASSIFIED BOARD OF DIRECTORS
The Arch Certificate and Arch By-laws provide that the Arch Board will be
divided into three classes, with the terms of each class expiring in a
different year. The Arch By-laws provide that the number of directors will be
fixed from time to time exclusively by the Arch Board, but shall consist of
not more than 15 nor less than three directors. A majority of the Arch Board
then in office has the sole authority to fill in any vacancies on the Arch
Board. The Arch Certificate 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.
STOCKHOLDER ACTIONS AND MEETINGS
The Arch Certificate 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 Arch Certificate and Arch By-Laws
provide that special meetings of stockholders can be called by the Chairman of
the Arch 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
Arch Board, 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 Arch Board, or at the request of a majority of the
members of the Arch Board, or as specified in the stockholders' call for a
meeting. The Arch By-laws set forth an advance
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notice procedure with regard to the nomination, other than by or at the
direction of the Arch Board, of candidates for election as directors. The Arch
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 written notice of such stockholder's intent to make such nomination or
nominations has been given to the Secretary of Arch not later than 80 days
prior to the date of any annual or special meeting. In the event that the date
of such annual or special meeting was not publicly announced by Arch more than
90 days prior to the meeting, notice from the stockholder must be delivered to
the Secretary of Arch not later than the close of business on the tenth day
following the day on which such announcement of the date of the meeting was
communicated to stockholders. The notice must contain certain information
about the proposed nominee as would be required to be included in a proxy
statement filed pursuant to the Commission's proxy rules had the nominee been
nominated by the Arch Board. The notice must also contain the consent of each
nominee to serve as a director of Arch if so elected and certain information
about the stockholder proposing to nominate such nominee.
AMENDMENT OF CERTAIN PROVISIONS OF THE ARCH CERTIFICATE AND ARCH BY-LAWS
The Arch Certificate 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 certain provisions of the Arch
Certificate, including provisions relating to the removal of directors, the
prohibition on stockholder action by written consent in lieu of a meeting, the
procedural requirements of stockholder meetings and the adoption, amendment
and repeal of certain articles of the Arch By-laws.
CONSIDERATION OF NON-ECONOMIC FACTORS IN ACQUISITIONS
The Arch Certificate empowers the Arch Board, when considering a tender
offer or merger or acquisition proposal, to take into account factors in
addition to potential economic benefits to stockholders. Such factors may
include: (i) 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; (ii) the
impact of such a transaction on the subscribers and employees of Arch and its
effect on the communities in which Arch operates; and (iii) the ability of
Arch to fulfill its objectives under applicable statutes and regulations.
RESTRICTIONS ON CERTAIN PURCHASES OF STOCK BY ARCH
The Arch Certificate prohibits Arch from repurchasing any shares of Arch's
stock from any person, entity or group that beneficially owns 5% of 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.
"Disinterested Stockholders" means each holder of less than 5% of the voting
power of Arch. This restriction on purchases by Arch does not apply to 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, to 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, to any purchase of Arch's
stock in accordance with the terms of any stock option or employee benefit
plan, or any purchase at prevailing marketing prices pursuant to a stock
repurchase program.
"BLANK CHECK" PREFERRED STOCK
The Arch Board 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, as to any such series, the voting rights, if any, applicable to such
series and such other designations, preferences and special rights as the Arch
Board may determine, including dividend, conversion, redemption and
liquidation rights and preferences. The issuance of preferred stock, while
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 Arch Common Stock and,
under certain circumstances, be used as a means of discouraging, delaying or
preventing a change of control in Arch.
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DELAWARE ANTI-TAKEOVER STATUTE
Section 203 of the DGCL is applicable to publicly held corporations
organized under the laws of Delaware, including Arch. Subject to certain
exceptions set forth therein, Section 203 of the DGCL provides that a
corporation shall not engage in any business combination with any "interested
stockholder" for a three-year period following the date that such stockholder
becomes an interested stockholder unless (a) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (b) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares) or (c) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified therein, an interested stockholder is defined
to mean any person that (i) is the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and the affiliates and associates of such person referred to in
(i) or (ii) of this sentence. Under certain circumstances, Section 203 of the
DGCL makes it more difficult for an interested stockholder to effect various
business combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or by-laws, elect not to be governed by this section, effective
twelve months after adoption. The Arch Certificate and the Arch By-laws do not
exclude Arch from the restrictions imposed under Section 203 of the DGCL. It
is anticipated that the provisions of Section 203 of the DGCL may encourage
companies interested in acquiring Arch to negotiate in advance with the Arch
Board.
DIRECTOR LIABILITY AND INDEMNIFICATION
Under the DGCL, a corporation has the power to indemnify any director or
officer against expenses, judgments, fines and settlements incurred in a
proceeding, other than an action by or in the right of the corporation if the
person acted in good faith and in a manner that the person reasonably believed
to be in the best interests of the corporation or not opposed to the best
interests of the corporation, and, in the case of a criminal proceeding, had
no reason to believe the conduct of the person was unlawful. In the case of an
action by or in the right of the corporation, the corporation has the power to
indemnify any officer or director against expenses incurred in defending or
settling the action if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the corporation; provided, however, that no indemnification may be made when a
person is adjudged liable to the corporation, unless a court determines such
person is entitled to indemnity for expenses, and then such indemnification
may be made only to the extent that such court shall determine. The DGCL
requires that to the extent an officer or director of a corporation is
successful on the merits or otherwise in defense of any third-party or
derivative proceeding, or in defense of any claim, issue or matter therein,
the corporation must indemnify the officer or director against expenses
incurred in connection therewith.
Under the DGCL, a corporation may adopt a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that such provision may not
eliminate or limit director monetary liability for: (i) breaches of the
director's duty of loyalty to the corporation or its stockholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of laws; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director
received an improper personal benefit.
The Arch Certificate provides that Arch will, to the fullest extent
permitted by Section 145 of the DGCL, indemnify all persons whom it has the
power to indemnify against all of the costs, expenses and liabilities incurred
by them by reason of having been officers or directors of Arch, or any
subsidiary of Arch, or of any other corporation for which such persons acted
as officer or director at the request of Arch.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Arch Common Stock is The Bank of New
York, 101 Barclay Street, New York, New York 10286.
REGISTRATION RIGHTS
Arch is granting certain registration rights to the Unsecured Creditors in
connection with the proposed Merger. See "The Merger Agreement--Related
Agreements--Registration Rights Agreements". The holders of Series C Preferred
Stock and the former stockholders of PageCall are also entitled to certain
registration rights. See "Business--Arch--Investments in Narrowband PCS
Licenses".
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DESCRIPTION OF CERTAIN ARCH INDEBTEDNESS
API CREDIT FACILITY
API, The Bank of New York (the "Bank"), Royal Bank of Canada and Toronto
Dominion (Texas), Inc., as managing agents, together with certain other
lenders are parties to the API Credit Facility in the current total amount of
$400.0 million, consisting of the $175.0 million reducing revolving Tranche A
Facility, (ii) the $100.0 million 364-day revolving credit Tranche B Facility
and (iii) the $125.0 million Tranche C Facility.
The Tranche A Facility is subject to scheduled quarterly reductions
commencing on September 30, 2000 and will mature on June 30, 2005. The term
loan portion of the Tranche B Facility will be amortized in quarterly
installments commencing September 30, 2000, with an ultimate maturity date of
June 30, 2005. The Tranche C Facility will be amortized in annual installments
commencing December 31, 1999, with an ultimate maturity date of June 30, 2006.
API's obligations under the API Credit Facility are secured by its pledge of
the capital stock of the former ACE operating subsidiaries. The API Credit
Facility is guaranteed by Arch, ACI and the former ACE operating subsidiaries.
Arch's guarantee is secured by a pledge of Arch's stock and notes in ACI, and
the guarantees of the former ACE operating subsidiaries are secured by a
security interest in those assets of such subsidiaries which were pledged
under ACE's former credit facility. Lenders representing 40% of the API Credit
Facility have the right to require ACI and its subsidiaries to grant security
interests in certain additional assets not currently pledged thereunder,
subject to granting a ratable security interest to holders of the ACI 9 1/2%
Notes and the ACI 14% Notes.
Borrowings under the API Credit Facility bear interest based on a reference
rate equal to either the Bank's Alternate Base Rate or the Bank's LIBOR rate,
in each case plus a margin based on ACI's or API's ratio of total debt to
annualized EBITDA.
The API Credit Facility requires payment of fees on the daily average amount
available to be borrowed under the Tranche A Facility and the Tranche B
Facility, which fees vary depending on ACI's or API's ratio of total debt to
annualized EBITDA.
The API 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 API Credit Facility. In
addition, the API Credit Facility requires Arch and its subsidiaries to meet
certain financial covenants, including covenants with respect to ratios of
EBITDA to fixed charges, EBITDA to debt service, EBITDA to interest service
and total indebtedness to EBITDA.
Effective as of August 18, 1998, API, the Bank, Toronto Dominion (Texas),
Inc., Royal Bank of Canada and Barclays Bank, PLC executed a commitment letter
for the API Credit Facility Increase which, subject to the approval of all API
lenders, will increase the API Credit Facility from $400 million to $600
million. The $200 million increase will be allocated among the senior credit
facilities as follows: (i) the Tranche A Facility will increase by $25 million
to $150 million, (ii) the Tranche B Facility will increase by $25 million to
$125 million and (iii) the Tranche C Facility will increase by $150 million to
$275 million. All other terms and conditions of the API Credit Facility
increase will remain unchanged except for minor changes to ACI's permitted
ratio of total debt to annualized EBITDA and the margins on which the interest
rates on borrowings are based. See "Risk Factors--Risks Related to Arch--
Lender Approval and Merger Cash Requirements".
BRIDGE FACILITY
ACI and The Bear Stearns Companies, Inc. (an affiliate of Bear Stearns), the
Bank, TD Securities (USA) Inc. and Royal Bank of Canada (collectively, the
"Bridge Lenders") have executed a commitment letter for the
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Bridge Facility on the following terms. Under the Bridge Facility, a $120
million term loan will be available to ACI in a single drawing upon the
closing of the Merger (the "Bridge Loan"). The Bridge Loan will bear interest
equal to the LIBOR rate plus 500 basis points (currently a total of %),
increasing by 50 basis points each quarter after funding to a maximum rate of
18%. If not paid on or before maturity 180 days after the closing of the
Merger, the Bridge Loan will convert into a term loan (the "Term Loan") due in
December 2006. The Term Loan will bear interest at the interest rate under the
Bridge Facility at the maturity of the Bridge Loan plus 50 basis points
increasing by 50 basis points each quarter after funding to a maximum rate of
18%. Arch will be required to grant warrants (the "Bridge Warrants") to the
Bridge Lenders for the purchase of 5.0% of the Arch Common Stock on a fully
diluted basis if the Bridge Loan has not been repaid prior to the Bridge Loan
maturity date. Upon notice from the Bridge Lenders given (a) prior to the
Merger but subsequent to the earlier to occur of (i) January 29, 1999 and (ii)
the 30th day prior to the targeted date of the Merger or (b) at any time after
the funding of the Bridge Loan and prior to the Bridge Loan maturity date, ACI
will issue and sell Planned ACI Notes in an amount at least sufficient to
substitute for or refinance the Bridge Loans on such terms and conditions as
may be specified by the Bridge Lenders, provided however that the interest
rate on the Planned ACI Notes shall be determined by the Bridge Lenders in
light of the then prevailing market conditions, but in no event shall the
yield on the Planned ACI Notes exceed a rate equal to an agreed upon margin
over the yield to worst on the ACI 12 3/4% Notes. In the event that Planned
ACI Notes are issued after the Merger, the Bridge Lenders may direct Arch to
issue all or a portion of the Bridge Warrants to the purchasers of the Planned
ACI Notes rather than the Bridge Lenders. The Bridge Facility requires payment
of certain fees to the Bridge Lenders. The fees will vary based on the amount
and timing of the Bridge Facility and the Bridge Loan. The Bridge Lenders have
agreed to refund a portion of the fees if the Bridge Loan is repaid prior to
maturity. In addition, ACI has agreed to permit the Bridge Lenders to act as
placement agents for the conversion of the Bridge Loan into the Term Loan or
the issuance of the Planned ACI Notes for a fee equal to 3.0% of the principal
amount so converted or issued.
The Bridge Facility contains restrictions that are substantially similar to
those contained in the API Credit Facility, including without limitation
restrictions that, among other things, limit 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 and mergers; and transactions with affiliates or between Arch and
its subsidiaries. In addition, the Bridge Facility requires ACI and its
subsidiaries to meet certain financial covenants, including covenants with
respect to ratios of EBITDA to fixed charges, EBITDA to debt service, EBITDA
to interest expense and total indebtedness to EBITDA.
ACI 9 1/2% NOTES
ACI has outstanding $125.0 million in aggregate principal amount of ACI 9
1/2% Notes. The ACI 9 1/2% Notes accrue interest at the rate of 9.5% per
annum, payable semi-annually on February 1 and August 1. The ACI 9 1/2% Notes
are scheduled to mature on February 1, 2004.
ACI, at its option, may redeem the ACI 9 1/2% Notes as a whole, or from time
to time in part, on or after February 1, 1999 at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period beginning February 1 of the years indicated
below (in each case together with accrued and unpaid interest to the
redemption date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999................................ 104.750%
2000................................ 103.167%
2001................................ 101.583%
2002 and thereafter................. 100.000%
</TABLE>
The covenants in the indenture under which the ACI 9 1/2% Notes are
outstanding (the "ACI 9 1/2% Notes Indenture") limit the ability of ACI's
subsidiaries to pay dividends to ACI. Additionally, the ACI 9 1/2% Notes
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Indenture imposes limitations on the incurrence of indebtedness, whether
secured or unsecured, by ACI and its subsidiaries, on the disposition of
assets, on transactions with affiliates, on guarantees of the obligations of
ACI by any of its subsidiaries, on the sale or issuance of stock by the
subsidiaries of ACI and on the merger, consolidation or sale of substantially
all of the assets of ACI.
Upon the occurrence of a "Change of Control", as defined in the ACI 9 1/2%
Notes Indenture, each holder of ACI 9 1/2% Notes has the right to require that
ACI repurchase such holder's ACI 9 1/2% Notes at a repurchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase. The following constitute a Change
of Control under the ACI 9 1/2% Notes Indenture: (i) the acquisition by a
person or group of beneficial ownership of the majority of the securities of
ACI or Arch having the right to vote in the election of directors; (ii)
certain changes in the boards of directors of ACI or Arch; (iii) the sale or
transfer of all or substantially all of the assets of ACI or (iv) the merger
or consolidation of ACI or Arch with or into another corporation with the
effect that a person or group shall have become the beneficial owner of the
majority of the securities of the surviving corporation having the right to
vote in the election of directors.
The following constitute "Events of Default" under the ACI 9 1/2% Notes
Indenture: (i) a default in the payment of any installment of interest upon
any of the ACI 9 1/2% Notes as and when the same shall become due and payable,
and continuance of such default for a period of 30 days; (ii) a default in the
payment of all or any part of the principal of, or premium, if any, on any of
the ACI 9 1/2% Notes as and when the same shall become due and payable either
at maturity, upon redemption or repurchase, by declaration or otherwise; (iii)
the failure on the part of ACI duly to observe or perform any other of the
covenants or agreements on the part of ACI in the ACI 9 1/2% Notes or in the
ACI 9 1/2% Notes Indenture for a period or 60 days after the date on which
written notice specifying such failure, stating that such notice is a "Notice
of Default" and demanding that ACI remedy the same, shall have been given by
registered or certified mail, return receipt requested, to ACI by the Trustee,
or to ACI and the Trustee by the holders of at least 25% in aggregate
principal amount of the ACI 9 1/2% Notes at the time outstanding; (iv) certain
events of bankruptcy, insolvency or reorganization in respect of ACI or any of
its restricted subsidiaries; (v) (A) a default in payment of the principal of,
premium, if any, or interest on any indebtedness for borrowed money of ACI or
any restricted subsidiary in principal amount aggregating $5.0 million or
more, whether such indebtedness now exists or is hereafter created, when the
same shall become due and payable and continuation of such default after any
applicable period of grace or (B) an event of default as defined in any
indenture or instrument evidencing or under which ACI or any restricted
subsidiary has at the date of the indenture or shall thereafter have
outstanding at least $5.0 million aggregate principal amount of indebtedness
for borrowed money shall happen and be continuing and such indebtedness shall
have been accelerated so that the same shall be or become due and payable, and
in any case referred to in the foregoing clause (A) or (B) such non-payment or
acceleration shall not be rescinded or annulled within 10 days after notice of
such default in payment or event of default shall have been given to ACI by
the Trustee (if such event is known to it), or to ACI and the Trustee by the
holders of at least 25% in aggregate principal amount of the ACI 9 1/2% Notes
at the time outstanding; (vi) one or more judgments, orders or decrees for the
payment of money (provided that the amount of such money judgment shall be
calculated net of any insurance coverage that the insurer has irrevocably
acknowledged to ACI as covering such money judgment in whole or in part) in
excess of $5.0 million, whether individually or in an aggregate amount, shall
be entered against ACI or any restricted subsidiary of ACI or any of their
respective properties and shall not be discharged and there shall have been a
period of 60 days during which a stay of enforcement of such judgment or
order, by reason of pending appeal or otherwise, shall not be in effect; or
(vii) the holder of any indebtedness of ACI or any restricted subsidiary
aggregating at least $5.0 million in principal amount that is secured by a
lien on the property or assets of ACI or any restricted subsidiary (or any
agent of such holder of such debt or the trustee or other representative then
acting under any indenture or other instrument under which such debt is
outstanding) shall commence any proceeding, or take any action (including by
way of set-off) to retain in satisfaction of such debt or to collect on,
seize, dispose of or apply in satisfaction of such debt, property or assets of
ACI or any of its restricted subsidiaries having a fair market value in excess
of $5.0 million individually or in the aggregate (including funds on deposit
or held pursuant to lock-box or other similar arrangements).
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ACI 14% NOTES
ACI has outstanding $100.0 million in aggregate principal amount of ACI 14%
Notes. The ACI 14% Notes accrue interest at the rate of ACI 14% per annum,
payable semi-annually on May 1 and November. The ACI 14% Notes are scheduled
to mature on November 1, 2004.
ACI may, at its option, redeem the ACI 14% Notes as a whole, or from time to
time in part, at the redemption prices (expressed as percentages of the
principal amount thereof) if redeemed during the twelve-month period beginning
November 1 of the years indicated below (in each case together with accrued
and unpaid interest to the redemption date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999.............................. 107.000%
2000.............................. 104.625%
2001.............................. 102.375%
2002 and thereafter............... 100.000%
</TABLE>
The covenants in the indenture under which the ACI 14% Notes are outstanding
(the "ACI 14% Notes Indenture") limit the ability of ACI and its subsidiaries
to pay dividends to Arch. Additionally, the ACI 14% Notes Indenture imposes
limitations on the incurrence of indebtedness, whether secured or unsecured,
by ACI and its subsidiaries, on the disposition of assets, on transactions
with affiliates, on guarantees of the obligations of ACI by any of its
subsidiaries, on the sale or issuance of stock by the subsidiaries of ACI and
on the merger, consolidation or sale of substantially all of the assets of
ACI.
Upon the occurrence of a "Change of Control", as defined in the ACI 14%
Notes Indenture, each holder of ACI 14% Notes has the right to require that
ACI repurchase such holder's ACI 14% Notes at a repurchase price in cash equal
to 102% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase. The following constitute a Change of Control
under the ACI 14% Notes Indenture: (i) the acquisition by a person or group of
beneficial ownership of the majority of the securities of ACI or Arch having
the right to vote in the election of directors; (ii) certain changes in the
boards of directors of ACI or Arch; (iii) the sale or transfer of all or
substantially all of the assets of ACI or (iv) the merger or consolidation of
ACI or Arch with or into another corporation or the merger of another
corporation with or into ACI or Arch with the effect that (A) a person or
group shall have become the beneficial owner of the majority securities of the
surviving corporation having the right to vote in the election of directors or
(B) the securities of ACI or Arch outstanding immediately prior to such
transaction and which represent 100% of the voting securities having the right
to vote in the election of directors are exchanged for cash, securities or
property unless such securities are changed into or exchanged for securities
of the surviving corporation representing a majority of the voting securities
having the right to vote in the election of directors.
The following constitute "Events of Default" under the ACI 14% Notes
Indenture: (i) a default in the payment of any installment of interest upon
any of the ACI 14% Notes as and when the same shall become due and payable,
and continuance of such default for a period of 30 days; (ii) a default in the
payment of all or any part of the principal of, or premium, if any, on any of
the ACI 14% Notes as and when the same shall become due and payable either at
maturity, upon any redemption or repurchase, by declaration or otherwise;
(iii) the failure of ACI to comply with the covenants limiting mergers and
sales of assets; (iv) the failure of ACI to comply with certain other
covenants limiting its ability to incur debt, make restricted payments, impose
dividend restrictions on its subsidiaries, dispose of assets, transact with
affiliates, grant liens, obtain guarantees from its subsidiaries, permit its
subsidiaries to issue stock or suffer a change of control, for a period of 30
days after notice; (v) the failure on the part of ACI duly to observe or
perform any other of the covenants or agreements on the part of ACI in the ACI
14% Notes or in the ACI 14% Notes Indenture for a period of 60 days after the
date on which written notice specifying such failure, stating that such notice
is a "Notice of Default" and demanding that ACI remedy the same, shall have
been given by registered or certified mail, return receipt requested, to ACI
by the Trustee, or ACI and the Trustee by the holders of at least 25% in
aggregate principal amount of the ACI 14% Notes at the time outstanding; (vi)
certain events of bankruptcy, insolvency or reorganization in respect of
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ACI or any of its restricted subsidiaries; (vii) (A) a default in payment of
the principal of, premium if any, or interest on any indebtedness for borrowed
money of ACI or any restricted subsidiary in principal amount aggregating $5.0
million or more, whether such indebtedness now exists or is hereafter created,
when the same shall become due and payable and continuation of such default
after any applicable period of grace or (B) an event of default as defined in
any indenture or instrument evidencing or under which ACI or any restricted
subsidiary has at the date of the indenture of shall thereafter have
outstanding at least $5.0 million aggregate principal amount of indebtedness
for borrowed money shall happen and be continuing and such indebtedness shall
have been accelerated so that the same shall be or become due and payable, and
in any case referred to in the foregoing clause (A) or (B) such non-payment or
acceleration shall not be rescinded or annulled within 10 days after notice of
such default in payment or event of default shall have been given to ACI by
the Trustee (if such event is known to it), or to ACI and the Trustee by the
holders of at least 25% in aggregate principal amount of the ACI 14% Notes at
the time outstanding; (viii) one or more judgments, orders or decrees for the
payment of money (provided that the amount of such money judgment shall be
calculated net of any insurance coverage that the insurer has irrevocably
acknowledged to ACI as covering such money judgment in whole or in part) in
excess of $5.0 million, whether individually or in an aggregate amount, shall
be entered against ACI or any restricted subsidiary of ACI or any of their
respective properties and shall not be discharged and there shall have been a
period of 60 days during which a stay of enforcement of such judgment or
order, by reason of pending appeal or otherwise, shall not be in effect; or
(ix) the holder of any indebtedness of ACI or any restricted subsidiary
aggregating at least $5.0 million in principal amount that is secured by a
lien on the property or assets of ACI or any restricted subsidiary (or any
agent of such holder of such debt or the trustee or other representative then
acting under any indenture or other instrument under which such debt is
outstanding) shall commence any proceeding, or take any action (including by
way of set-off) to retain in satisfaction of such debt or to collect on,
seize, dispose of or apply in satisfaction of such debt, property or assets of
ACI or any of its restricted subsidiaries having a fair market value in excess
of $5.0 million individually or in the aggregate (including funds on deposit
or held pursuant to lock-box or other similar arrangements).
ACI 12 3/4% NOTES
ACI has outstanding $127.5 million in aggregate principal amount of ACI 12
3/4% Notes. The ACI 12 3/4% Notes accrue interest at the rate of 12.75% per
annum, payable semi-annually on January 1 and July 1. The ACI 12 3/4% Notes
are scheduled to mature on July 1, 2007.
ACI, at its option, may redeem the ACI 12 3/4% Notes as a whole, or from
time to time in part, on or after July 1, 2003 at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period beginning July 1 of the years indicated below
(in each case together with accrued and unpaid interest to the redemption
date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003........................ 106.375%
2004........................ 104.250%
2005........................ 102.125%
2006 and thereafter......... 100.000%
</TABLE>
In addition, on or prior to July 1, 2001, ACI, at its option, may redeem up
to 35% of the original aggregate principal amount of the 12 3/4% Notes, with
the proceeds of a qualifying equity offering at a redemption price equal to
112.75% of the principal amount thereof, to the date of redemption provided
that, immediately after giving effect to such redemption, 12 3/4% Notes with
an aggregate principal amount of at least $84,500,000 remain outstanding. ACI
shall not, however, be obligated to redeem any 12 3/4% Notes with the proceeds
of any equity offering.
The covenants in the indenture under which the 12 3/4% Notes were issued
(the "12 3/4% Notes Indenture") limit the ability of ACI and its subsidiaries
to pay dividends. Additionally, the 12 3/4% Notes Indenture imposes
limitations on the incurrence of indebtedness, whether secured or unsecured,
by ACI and its subsidiaries, on the
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occurrence of liens, on the disposition of assets, on transactions with
affiliates, on the sale or issuance of stock by the subsidiaries of ACI and on
the merger or consolidation of Arch and its subsidiaries or sale of
substantially all of the assets of Arch.
Upon the occurrence of a "Change of Control", as defined in the 12 3/4%
Notes Indenture, each holder of 12 3/4% Notes has the right to require Arch to
repurchase such holder's 12 3/4% Notes at a repurchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
and Liquidated Damages (as defined therein), if any, to the date of
repurchase. The following constitute a Change of Control under the 12 3/4%
Notes Indenture: (i) the acquisition by a person or group of beneficial
ownership of the majority of the voting power of all classes of voting stock
of ACI or Arch; (ii) the sale or transfer of all or substantially all of the
assets of Arch or ACI or the merger or consolidation of Arch or ACI with or
into another corporation with the effect that the outstanding voting stock of
Arch or ACI is converted into or exchanged for cash, securities or other
property other than certain transactions in which (A) the voting stock of Arch
or ACI is exchanged for or converted into either capital stock of the
transferee or survivor entity or, under limited circumstances, cash,
securities or other property and (B) no person or group shall have become the
beneficial owner of the majority of the securities of the surviving
corporation having the right to vote in the election of directors; (iii)
certain changes in the Arch Board; or (iv) Arch is liquidated or dissolved.
The following constitute "Events of Default" under the 12 3/4% Notes
Indenture: (i) a default in the payment of any installment of interest upon
any of the 12 3/4% Notes as and when the same shall become due and payable,
and continuance of such default for a period of 30 days; (ii) a default in the
payment of all or any part of the principal of, or premium, if any, on any of
the 12 3/4% Notes as and when the same shall become due and payable either at
maturity, upon any redemption or repurchase, by declaration or otherwise;
(iii) the failure of ACI to comply with the covenants limiting mergers and
sales of assets; (iv) the failure of the part of ACI duly to observe or
perform any other of the covenants or agreements on the part of ACI in the 12
3/4% Notes or in the 12 3/4% Notes Indenture for a period of 60 days after the
date on which written notice specifying such failure shall have been given by
registered or certified mail, return receipt requested, to ACI by the Trustee,
or ACI and the Trustee by the holders of at least 25% in aggregate principal
amount of the Arch Discount Notes at the time outstanding; (vi) (A) a default
in any payment when due at final maturity on any indebtedness for borrowed
money of ACI or any restricted subsidiary in principal amount aggregating $5.0
million or (B) an event of default as defined in any indenture or instrument
evidencing or under which Arch or any restricted subsidiary has outstanding at
least $5.0 million aggregate principal amount of indebtedness for borrowed
money shall happen and such indebtedness shall have been accelerated so that
the same shall be or become due and payable prior to the date on which it
would otherwise become due and payable; (vii) one or more judgments, orders or
decrees for the payment of money in excess of $5.0 million, whether
individually or in an aggregate amount, shall be entered against ACI or any
restricted subsidiary of Arch and shall not be discharged and there shall have
been a period of 60 days during which a stay of enforcement of such judgment
or order, by reason of pending appeal or otherwise, shall not be in effect;
(viii) the holder of any indebtedness of Arch or any restricted subsidiary
aggregating at least $5.0 million in principal amount that is secured by a
lien on the property or assets of ACI or any restricted subsidiary shall
notify the Trustee of the intended sale or disposition of any assets of ACI of
any restricted subsidiary that have been pledged to or for the benefit of such
holder or shall commence any proceeding, or take any action to retain in
satisfaction of such debt or to collect on, seize, dispose of or apply in
satisfaction of such debt, property or assets of Arch or any of its restricted
subsidiaries pursuant to the terms of any agreement or instrument evidencing
any such debt of Arch or any restricted subsidiary or in accordance with
applicable law; or (ix) certain events of bankruptcy, insolvency or
reorganization in respect of ACI or any of its restricted subsidiaries.
ARCH DISCOUNT NOTES
In March 1996, Arch issued $467.4 million in aggregate principal amount at
maturity of Arch Discount Notes. The Arch Discount Notes are scheduled to
mature on March 15, 2008. The Arch Discount Notes were issued at a substantial
discount from the principal amount due at maturity. Interest does not accrue
on the Arch
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Discount Notes prior to March 15, 2001. Thereafter, interest on the Arch
Discount Notes will accrue at the rate of 10 7/8% per annum, payable semi-
annually on March 15 and September 15, commencing September 15, 2001.
Arch, at its option, may redeem the Arch Discount Notes as a whole or from
time to time in part at any time on or after March 15, 2001 at the following
redemption prices (expressed as percentages of principal amount) if redeemed
during the twelve month period beginning on March 15 of the years indicated
below (in each case together with accrued and unpaid interest to the
redemption date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2001........................ 104.078%
2002........................ 102.719%
2003........................ 101.359%
2004 and thereafter......... 100.000%
</TABLE>
In addition, on or prior to March 15, 1999, Arch, at its option, may redeem
the Arch Discount Notes, in part, with the proceeds of a qualifying equity
offering at a redemption price equal to 110.875% of the accreted value (as
defined therein) to the date of redemption provided that, immediately after
giving effect to such redemption, Arch Discount Notes with an aggregate
principal amount at maturity at least equal to 66 2/3% of the original
principal amount at maturity of the Arch Discount Notes remain outstanding.
Arch shall not, however, be obligated to redeem any Arch Discount Notes with
the proceeds of any equity offering.
The covenants in the indenture under which the Arch Discount Notes were
issued (the "Arch Discount Notes Indenture") limit the ability of Arch to pay
dividends to its stockholders. Additionally, the Arch Discount Notes Indenture
imposes limitations on the incurrence of indebtedness, whether secured or
unsecured, by Arch and its subsidiaries, on the disposition of assets, on the
occurrence of liens, on transactions with affiliates, on the sale or issuance
of stock by the subsidiaries of Arch and on the merger or consolidation of
Arch and its subsidiaries or sale of substantially all of the assets of Arch.
Upon the occurrence of a "Change of Control", as defined in the Arch
Discount Notes Indenture, each holder of Arch Discount Notes has the right to
require Arch to repurchase such holder's Arch Discount Notes at a repurchase
price in cash equal to 101% of the accrued principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase. The following
constitute a Change of Control under the Arch Discount Notes Indenture: (i)
the acquisition by a person or group of beneficial ownership of the majority
of the securities of Arch having the right to vote in the election of
directors; (ii) certain changes in the Arch Board; (iii) the sale or transfer
of all or substantially all of the assets of Arch or the merger or
consolidation of Arch with or into another corporation with the effect that
the outstanding voting stock of Arch is converted into or exchanged for cash,
securities or other property other than certain transactions in which (i) the
voting stock of Arch is exchanged for or converted into either capital stock
of the transferee or survivor entity or, under limited circumstances, cash,
securities or other property and (ii) no person or group shall have become the
beneficial owner of the majority of the securities of the surviving
corporation having the right to vote in the election of directors.
The following constitute "Events of Default" under the Arch Discount Notes
Indenture: (i) a default in the payment of any installment of interest upon
any of the Arch Discount Notes as and when the same shall become due and
payable, and continuance of such default for a period of 30 days; (ii) a
default in the payment of all or any part of the principal of, or premium, if
any, on any of the Arch Discount Notes as and when the same shall become due
and payable either at maturity, upon any redemption or repurchase, by
declaration or otherwise; (iii) the failure of Arch to comply with the
covenants limiting mergers and sales of assets; (iv) the failure on the part
of Arch duly to observe or perform any other of the covenants or agreements on
the part of Arch in the Arch Discount Notes or in the Arch Discount Notes
Indenture for a period of 60 days after the date on which written notice
specifying such failure shall have been given by registered or certified mail,
return receipt requested, to Arch by the Trustee, or Arch and the Trustee by
the holders of at least 25% in aggregate principal amount of the Arch Discount
Notes at the time outstanding; (v) certain events of bankruptcy, insolvency or
reorganization in
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respect of Arch or any of its restricted subsidiaries; (vii) (A) a default in
any payment when due at final maturity on any indebtedness for borrowed money
of Arch or any restricted subsidiary in principal amount aggregating $5.0
million or (B) an event of default as defined in any indenture or instrument
evidencing or under which Arch or any restricted subsidiary has outstanding at
least $5.0 million aggregate principal amount of indebtedness for borrowed
money shall happen and such indebtedness shall have been accelerated so that
the same shall be or become due and payable prior to the date on which it
would otherwise become due and payable; (viii) one or more judgments, orders
or decrees for the payment of money in excess of $5.0 million, whether
individually or in an aggregate amount, shall be entered against Arch or any
restricted subsidiary of Arch and shall not be discharged and there shall have
been a period of 60 days during which a stay of enforcement of such judgment
or order, by reason of pending appeal or otherwise, shall not be in effect; or
(ix) the holder of any indebtedness of Arch or any restricted subsidiary
aggregating at least $5.0 million in principal amount that is secured by a
lien on the property or assets of Arch or any restricted subsidiary shall
notify the Trustee of the intended sale or disposition of any assets of Arch
of any restricted subsidiary that have been pledged to or for the benefit of
such holder or shall commence any proceeding, or take any action to retain in
satisfaction of such debt or to collect on, seize, dispose of or apply in
satisfaction of such debt, property or assets of Arch or any of its restricted
subsidiaries pursuant to the terms of any agreement or instrument evidencing
any such debt of Arch or any restricted subsidiary or in accordance with
applicable law.
ARCH CONVERTIBLE DEBENTURES
Arch has outstanding $13.4 million in principal amount of 6 3/4% Convertible
Subordinated Debentures due 2003 (the "Arch Convertible Debentures"). The Arch
Convertible Debentures accrue interest at the rate of 6.75% per annum, payable
semi-annually on June 1 and December 1. The Arch Convertible Debentures are
scheduled to mature on December 1, 2003. The principal amount of the Arch
Convertible Debentures is convertible into Common Stock at a conversion price
of $16.75 per share at any time prior to redemption or maturity.
The Arch Convertible Debentures may be redeemed at any time at the option of
Arch, in whole or from time to time in part, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period beginning December 1 of the years indicated
below (in each case together with accrued and unpaid interest to the
redemption date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1997........................ 104.050%
1998........................ 103.375%
1999........................ 102.700%
2000........................ 102.025%
2001........................ 101.350%
2002........................ 100.675%
2003 and thereafter......... 100.000%
</TABLE>
Upon the occurrence of a "Fundamental Change", as defined in the indenture
under which the Arch Convertible Debentures were issued (the "Arch Debenture
Indenture"), each holder of Arch Convertible Debentures has the right, at the
holder's option, to require Arch to repurchase all of such holder's Arch
Convertible Debentures, or any portion thereof, at a price equal to 100% of
the principal amount of the Arch Convertible Debentures, plus accrued interest
to the repurchase date. The following constitute a Fundamental Change under
the Arch Debenture Indenture: (i) the acquisition by a person or group of
beneficial ownership of capital stock of Arch entitled to exercise more than
50% of the total voting power of all capital stock (unless such beneficial
ownership is approved by the board of directors of Arch prior to such person
or group acquiring such beneficial ownership); (ii) certain changes in the
Arch Board; (iii) a share exchange of Arch with, or the merger of Arch into,
any other person, any merger of another person into Arch, or any sale or
transfer of all or substantially all of the assets of Arch to another person
(subject in each case to certain exceptions); (iv) the purchase by Arch of
beneficial ownership in shares of its Common Stock if such purchase would
result in a
147
<PAGE>
default under any senior debt agreements to which Arch is a party; or (v)
certain distributions by Arch of Arch Common Stock.
The Arch Convertible Debentures represent senior unsecured obligations of
Arch and are subordinated to "Senior Indebtedness" of Arch, as defined in the
Arch Debenture Indenture. The Arch Debenture Indenture does not contain any
limitation or restriction on the incurrence of Senior Indebtedness or other
indebtedness or securities of Arch or its subsidiaries.
The following constitute "Events of Default" under the Arch Debenture
Indenture: (i) a default in the payment of any interest on the Arch
Convertible Debentures that continues for 30 days after the date when due;
(ii) a default in the payment of principal of or premium, if any, on any Arch
Convertible Debenture when due and payable, whether at maturity, upon
redemption or otherwise; (iii) a default in the performance of any other
covenant or agreement of Arch that continues for 30 days after written notice
of such default, requiring Arch to remedy the same; (iv) a default under any
indebtedness for money borrowed by Arch, which default results in such
indebtedness in an amount exceeding $5.0 million becoming or being declared
due and payable prior to the date on which it would otherwise have become due
and payable, if such indebtedness is not discharged, or such acceleration is
not annulled, within 30 days after written notice of such default, requiring
Arch to remedy the same; or (v) the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to Arch.
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<PAGE>
ITEM 2 -- AMENDMENT TO THE ARCH RESTATED CERTIFICATE OF INCORPORATION
At the Special Meeting, Arch stockholders will consider and vote upon a
proposal to amend the Arch Certificate to increase the number of authorized
shares of Arch Common Stock from 75,000,000 to 150,000,000 shares and
designate 20,000,000 of such additional shares as "Class B Common Stock".
Arch currently is authorized to issue 75,000,000 shares of Arch Common Stock
and 10,000,000 shares of Preferred Stock. As of June 30, 1998, there were
21,067,110 shares of Arch Common Stock outstanding, 2,740,381 shares of Arch
Common Stock reserved for issuance under stock and option plans of Arch and
250,000 shares of Series C Preferred Stock outstanding. It is anticipated that
approximately shares of Arch Common Stock and shares of Arch Class B
Common Stock will be issued in connection with the Merger (after giving effect
to the exercise of the Arch Rights and the Arch Warrants). Therefore, the
amendment to the Arch Certificate is required to authorize sufficient capital
stock to effectuate the Merger. Based on the number of shares outstanding or
reserved for issuance as of June 30, 1998 and after giving effect to the
issuance of shares of Arch Common Stock and shares of Arch Class B Common
Stock in the Merger (after giving effect to the exercise of the Arch Rights
and the Arch Warrants), a total of approximately shares of Arch Common Stock
will be unissued and reserved for issuance.
The additional shares of Arch Common Stock to be authorized would be
available for possible future financing and acquisition transactions, stock
dividends or splits and other corporate purposes. Having such shares available
for issuance in the future would give Arch greater flexibility and allow
shares of Arch Common Stock to be issued without the expense and delay of a
stockholders' meeting. The additional shares of Arch Common Stock would be
available for issuance without further action by the stockholders except as
required by applicable law or the rules of any stock exchange on which Arch
securities may be listed. The Nasdaq National Market, on which the Arch Common
Stock is quoted, currently requires stockholder approval for the issuance of
additional shares in certain instances, including in connection with
acquisition transactions where the issuance of shares could result in an
increase in the number of shares of Common Stock outstanding by 20% or more.
The stockholders of Arch do not have preemptive rights under the Arch
Certificate and the stockholders of Arch will not have such rights with
respect to the additional authorized shares of Arch Common Stock.
At the present time, Arch has no plans to issue shares of Arch Common Stock
for which authorization is being sought other than as contemplated by the
Merger Agreement, the Amended Plan and under Arch's existing stock and option
plan (and contemplated amendments thereto in connection with the Merger).
ARCH BOARD RECOMMENDATION
The Arch Board believes that the Charter Amendment Proposal is in the best
interests of Arch and its stockholders and therefore recommends a vote FOR
this proposal.
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<PAGE>
ITEM 3 -- APPROVAL OF AN AMENDMENT TO ARCH'S 1997 STOCK OPTION PLAN
The Arch Board believes that the future growth and success of Arch depends,
in large part, on its ability to attract, retain and motivate key employees,
consultants and advisors and that stock option grants under Arch's 1997 Stock
Option Plan (the "1997 Option Plan") have provided and will continue to
provide an important compensation element in attracting, retaining and
motivating such persons. In connection with the consummation of the Merger,
the number of employees of Arch will increase from approximately 2,800 to
approximately 5,900. In order to have a sufficient number of shares of Common
Stock available for future issuance under the 1997 Stock Option Plan, the
Board of Directors of Arch has adopted, subject to stockholder approval, an
amendment to the 1997 Option Plan that increased the number of shares of
Common Stock available for issuance under such Plan from 1,500,000 to
6,000,000. The Board of Directors of Arch believes that the amendment to the
1997 Option Plan is in the best interests of Arch and its stockholders and
recommends that the stockholders vote FOR this proposal. The following is a
summary of the 1997 Option Plan.
SUMMARY OF THE PLAN
The 1997 Option Plan provides for the granting of incentive stock options
(within the meaning of the Tax Code) to Arch's employees (including officers)
and for the granting of non-statutory stock options to Arch's employees,
officers, directors, consultants and advisors. The 1997 Option Plan, as
amended, authorizes the issuance of up to an aggregate of 6,000,000 shares of
Common Stock, and no employee may be granted options for more than 500,000
shares in any calendar year. No options may be granted under the 1997 Option
Plan with an exercise price below the fair market value of the Common Stock on
the date of grant. No options may be granted under the 1997 Option Plan after
February 10, 2007, but options previously granted may extend beyond that date.
The 1997 Option Plan is administered by the Arch Board. The Arch Board has
the authority to select the optionees and determine (i) the number of shares
subject to each option, (ii) when the option becomes exercisable (generally at
the rate of 20% of the shares subject to the option on the first anniversary
of the date of grant and 5% of the shares subject to the option per calendar
quarter thereafter), (iii) the exercise price, which cannot be less than 100%
of the fair market value of the Common Stock on the date of grant, and (iv)
the duration of the option, which cannot exceed ten years in the case of
incentive stock options. The Arch Board may amend, modify or terminate any
outstanding option under the 1997 Option Plan, subject to the consent of the
option holder if such action materially and adversely affects the option
holder. The Arch Board may delegate its authority under the 1997 Option Plan
to one or more committees of the Arch Board or, subject to certain
limitations, to one or more executive officers.
The 1997 Option Plan provides that all options granted thereunder will
become immediately exercisable upon the occurrence of any of the following
events: (i) any merger or consolidation which results in the voting securities
of Arch outstanding immediately prior thereto continuing to represent less
than 50% of the combined voting power of the voting securities of Arch or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (ii) any sale of all or substantially all of the assets of
Arch; (iii) the complete liquidation of Arch; or (iv) with certain exceptions,
the acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities of Arch representing 50% or more of the combined
voting power of Arch's then outstanding securities by any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act).
Options may be granted under the 1997 Option Plan in substitution for
options and other stock based awards held by employees of another corporation
who become employees of Arch as a result of a merger or consolidation of the
employing corporation with Arch or the acquisition by Arch of property or
stock of the employing corporation. The substitute options shall be granted on
such terms and conditions as the Board considers appropriate in the
circumstances.
Except as otherwise provided with respect to an option, options granted
under the 1997 Option Plan are not transferable by the option holder except by
will or the laws of descent and distribution. Vested options are
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<PAGE>
generally exercisable during the lifetime of the optionee only by such
optionee while such optionee is employed by Arch or within three months
following termination of employment. In the event that termination is due to
death or disability, or if death occurs within 90 days after termination, the
vested option is exercisable for a maximum of one year thereafter.
As of July 31, 1998, all Arch employees were eligible for option grants
under the 1997 Option Plan, including the Named Executive Officers. As of July
31, 1998, options for 1,144,427 shares were outstanding under the 1997 Option
Plan at exercise prices ranging from $3.5625 to $6.8750 per share, including
(i) options to purchase 239,636, 140,000, 90,000, 15,905, and 16,887 shares
held by Messrs. Baker, Daniels, Pottle, Saynor and Kuzia, respectively, (ii)
options to purchase 502,428 shares held by all current executive officers as a
group and (iii) options to purchase 641,999 shares held by all employees
(including current officers who are not executive officers) as a group. As of
July 31, 1998, no options had been exercised under the 1997 Option Plan. The
granting of options is discretionary, and Arch cannot now determine the number
of additional options to be granted to any particular Named Executive Officers
or to all Named Executive Officers as a group under the 1997 Option Plan.
On August 19, 1998, the closing sale price of Arch Common Stock on the
Nasdaq National Market was $3.875 per share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to stock options granted
under the Plan and with respect to the sale of Common Stock acquired under the
Plan. It does not address the tax consequences that may arise with respect to
any gift or disposition other than by sale of Common Stock acquired under the
Plan. For precise advice as to any specific transaction or set of
circumstances, participants should consult with their own tax advisors.
Participants should also consult with their own tax advisors regarding the
application of any state, local, and foreign taxes and any federal gift,
estate, and inheritance taxes. The Plan is not a qualified plan under Section
401(a) of the Tax Code.
INCENTIVE STOCK OPTIONS
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will
recognize taxable income with respect to an incentive stock option only upon
the sale of Common Stock acquired through the exercise of the option ("ISO
Stock"). Nevertheless, in the case of a participant who has not been an
employee of the Company at all times commencing on the date on which a
particular option was granted (the "Grant Date") and ending on the date that
is three months before the date on which the option is exercised (the
"Exercise Date"), an option generally will be treated as though it were a non-
statutory option and taxed as described below under "Non-Statutory Options".
Similarly, options will be treated as non-statutory options for purposes of
the alternative minimum tax. While a participant will pay alternative minimum
tax only to the extent of the excess of that tax over the participant's
regular tax, the treatment of an option as a non-statutory option for purposes
of the alternative minimum tax could create such an excess.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the Grant Date and one year from the Exercise Date, then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock prior to having owned it for at least two
years from the Grant Date and one year from the Exercise Date (a
"Disqualifying Disposition"), then the participant generally will recognize
ordinary compensation income in an amount equal to the lesser of:
(i) the excess of the fair market value of the ISO Stock on the Exercise
Date over the exercise price; and
(ii) the excess of the sale price of the ISO Stock over the exercise
price.
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A participant making a Disqualifying Disposition will also recognize capital
gain in an amount equal to any excess of the sale price of the ISO Stock over
the fair market value of the ISO Stock on the Exercise Date. This capital gain
will be a long-term capital gain if the participant has held the ISO Stock for
more than one year prior to the date of the sale and will be a short-term
capital gain if the participant has held the ISO Stock for a shorter period.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a long-
term capital loss if the participant has held the ISO Stock for more than one
year prior to the date of the sale and will be a short-term capital loss if
the participant has held the ISO Stock for a shorter period.
NON-STATUTORY OPTIONS
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a non-statutory option. However, a
participant generally will recognize ordinary compensation income upon the
exercise of a non-statutory option in an amount equal to the excess of the
fair market value of the Common Stock acquired through the exercise of the
option (the "NSO Stock") on the Exercise Date over the exercise price.
A participant will have a tax basis for any NSO Stock equal to the exercise
price plus any income recognized upon the exercise of the option. Upon selling
NSO Stock, a participant generally will recognize capital gain or loss in an
amount equal to the difference between the sale price of the NSO Stock and the
participant's tax basis in the NSO Stock. This capital gain or loss will be a
long-term capital gain or loss if the participant has held the NSO Stock for
more than one year prior to the date of the sale and will be a short-term
capital gain or loss if the participant has held the NSO Stock for a shorter
period.
DELIVERY OF COMMON STOCK UPON EXERCISE OF STOCK OPTIONS
Under certain circumstances, the Plan permits a participant to exercise a
stock option by delivering to Arch Common Stock having a fair market value
equal in amount to the exercise price. The use of this method of exercise
generally will not alter the tax consequences described above, and it may
enable a participant to dispose of appreciated Common Stock without
immediately recognizing capital gain on the disposition. The participant's tax
basis in any shares of Common Stock delivered to Arch to exercise an option
generally will be carried over to an equal number of shares of Common Stock
acquired upon exercising the option. Nevertheless, participants should
consider that the delivery to Arch of ISO Stock or stock acquired pursuant to
the Company's employee stock purchase plan will constitute a Disqualifying
Disposition, having all of the adverse tax consequences described above, if
the holding period requirements described above are not satisfied with respect
to that stock.
MAXIMUM INCOME TAX RATES ON CAPITAL GAIN AND ORDINARY INCOME
Long-term capital gain will be taxable at a maximum rate of 20%. Short-term
capital gain and ordinary income will be taxable at a maximum rate of 39.6%.
Phaseouts of personal exemptions and reductions of allowable itemized
deductions at higher levels of income may result in slightly higher marginal
tax rates. Ordinary compensation income will also be subject to a medicare tax
and, under certain circumstances, a social security tax.
TAX CONSEQUENCES TO THE COMPANY
The grant of a stock option under the Plan will have no tax consequences to
Arch. Moreover, in general, neither the exercise of an incentive stock option
acquired under the 1997 Option Plan nor the sale of any Common Stock acquired
under the 1997 Option Plan will have any tax consequences to Arch. However,
Arch generally will be entitled to a business-expense deduction with respect
to any ordinary compensation income recognized by a participant under the 1997
Option Plan. Any such deduction will be subject to the limitations of Section
162(m) of the Tax Code.
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<PAGE>
WITHHOLDING
Although a participant's Disqualifying Disposition of ISO Stock will result
in the recognition of ordinary compensation income, Arch will have no
withholding obligation with respect to that income. In contrast, Arch will
have a withholding obligation with respect to ordinary compensation income
recognized with respect to a non-statutory option by a participant who has
been employed by Arch. Arch will require any such participant to make
arrangements to satisfy this withholding obligation.
ARCH BOARD RECOMMENDATION
The Arch Board believes that the amendment to the 1997 Option Plan is in the
best interests of Arch and its stockholders and therefore recommends that the
stockholders vote FOR this proposal.
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<PAGE>
EXPERTS
The financial statements of Arch included in this Proxy Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in accounting and auditing in
giving said reports. A representative of Arthur Andersen LLP is expected to be
at the Special Meeting to answer appropriate questions by stockholders and
will have the opportunity to make a statement if so desired.
The consolidated financial statements of MobileMedia at December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, appearing in this Proxy Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon (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 of MobileMedia's Notes to Consolidated Financial Statements)
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
With the exception of matters unique to MobileMedia, the descriptions of the
regulatory requirements under the Communications Act and the regulations
thereunder set forth under "Risk Factors--Risks Common to Arch and
MobileMedia--Government Regulation, Foreign Ownership and Possible Redemption"
and "Industry Overview--Regulation" have been included under the authority of
Wilkinson, Barker, Knauer & Quinn, LLP, as experts in telecommunications law.
FCC matters unique to MobileMedia included in the description of the
regulatory requirements under the Communications Act and the regulations
thereunder set forth under "Risk Factors--Risks Common to Arch and
MobileMedia--Government Regulation, Foreign Ownership and Possible Redemption"
and "Industry Overview--Regulation" have been included under the authority of
Wiley, Rein & Fielding as experts in telecommunication law. Stockholders of
Arch should not rely on Wilkinson, Barker, Knauer & Quinn, LLP or Wiley, Rein
& Fielding with respect to any other matters.
STOCKHOLDER PROPOSALS
Arch expects to hold a 1999 Annual Meeting of Stockholders in May 1999. Any
proposal that an Arch stockholder intends to present at the 1999 Annual
Meeting of Stockholders must be submitted to the Secretary of Arch at its
offices, 1800 West Park Drive, Westborough, Massachusetts 01581, no later than
December 19, 1998 in order to be considered for inclusion in the Proxy
Statement relating to that meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Arch Board does not know of any
other matters to be presented for action by the stockholders at the Special
Meeting. If, however, any other matters not now known are properly brought
before the Special Meeting, the Arch proxy holders will vote upon the same
according to their discretion and best judgment.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Arch Communications Group, Inc.
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June
30, 1998 (unaudited)................................................... F-3
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 1997 and for the Six Months Ended June 30,
1997 and 1998 (unaudited).............................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for Each of
the Three Years in the Period Ended December 31, 1997 and for the Six
Months Ended June 30, 1998 (unaudited)................................. F-5
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 1997 and for the Six Months Ended June 30,
1997 and 1998 (unaudited).............................................. F-6
Notes to Consolidated Financial Statements.............................. F-7
MobileMedia Communications, Inc. and Subsidiaries
Report of Independent Public Auditors................................... F-22
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June
30, 1998 (unaudited)................................................... F-23
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 1997 and for the Six Months Ended June 30,
1997 and 1998 (unaudited).............................................. F-24
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for
Each of the Three Years in the Period Ended December 31, 1997 and for
the Six Months Ended June 30, 1998 (unaudited)......................... F-25
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 1997 and for the Six Months Ended June 30,
1997 and 1998 (unaudited).............................................. F-26
Notes to Consolidated Financial Statements.............................. F-27
</TABLE>
F-1
<PAGE>
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, 1996 and 1997, 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, 1997. 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 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 consolidated financial position of Arch
Communications Group, Inc. and subsidiaries as of December 31, 1996 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 9, 1998 (except with respect to
the matters discussed in Notes 3, 4 and 8,
as to which the date is June 29, 1998)
F-2
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 3,497 $ 3,328 $ 4,913
Accounts receivable (less reserves of
$4,111, $5,744 and $6,182 in 1996, 1997
and 1998, respectively) 25,344 30,147 32,483
Inventories.............................. 10,239 12,633 13,278
Prepaid expenses and other............... 4,531 4,917 3,582
---------- ---------- ---------
Total current assets................... 43,611 51,025 54,256
---------- ---------- ---------
Property and equipment, at cost:
Land, buildings and improvements......... 8,780 10,089 10,297
Paging and computer equipment............ 339,391 361,713 382,053
Furniture, fixtures and vehicles......... 9,921 16,233 16,990
---------- ---------- ---------
358,092 388,035 409,340
Less accumulated depreciation and
amortization............................ 96,448 146,542 179,478
---------- ---------- ---------
Property and equipment, net.............. 261,644 241,493 229,862
---------- ---------- ---------
Intangible and other assets (less
accumulated amortization of $141,710,
$260,932 and $311,160 in 1996, 1997 and
1998, respectively)....................... 841,501 728,202 687,431
---------- ---------- ---------
$1,146,756 $1,020,720 $ 971,549
========== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current maturities of long-term debt..... $ 46 $ 24,513 $ --
Accounts payable......................... 17,395 22,486 22,951
Accrued restructuring charge............. -- -- 15,846
Accrued expenses......................... 14,287 11,894 12,850
Accrued interest......................... 10,264 11,249 7,453
Customer deposits........................ 6,698 6,150 5,585
Deferred revenue......................... 7,181 8,787 10,696
---------- ---------- ---------
Total current liabilities.............. 55,871 85,079 75,381
---------- ---------- ---------
Long-term debt, less current maturities.... 918,150 968,896 1,003,357
---------- ---------- ---------
Other long-term liabilities................ 21,172 -- 10,240
---------- ---------- ---------
Commitments and contingencies
Redeemable preferred stock................. 3,712 -- --
---------- ---------- ---------
Stockholders' equity (deficit):
Preferred stock--$.01 par value,
authorized 10,000,000 shares, 250,000
shares issued ($25,011 aggregate
liquidation preference)................. -- -- 3
Common stock--$.01 par value, authorized
75,000,000 shares, issued and
outstanding: 20,712,220, 20,863,563 and
21,067,110 shares in 1996, 1997 and
1998, respectively...................... 207 209 211
Additional paid-in capital............... 350,444 351,210 376,867
Accumulated deficit...................... (202,800) (384,674) (494,510)
---------- ---------- ---------
Total stockholders' equity (deficit)... 147,851 (33,255) (117,429)
---------- ---------- ---------
$1,146,756 $1,020,720 $ 971,549
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service, rental and
maintenance revenues... $ 138,466 $ 291,399 $ 351,944 $ 171,978 $ 184,280
Product sales........... 24,132 39,971 44,897 22,290 21,305
---------- ---------- ---------- ---------- ----------
Total revenues...... 162,598 331,370 396,841 194,268 205,585
Cost of products sold... (20,789) (27,469) (29,158) (14,291) (14,690)
---------- ---------- ---------- ---------- ----------
141,809 303,901 367,683 179,977 190,895
---------- ---------- ---------- ---------- ----------
Operating expenses:
Service, rental and
maintenance.......... 29,673 64,957 79,836 38,111 40,409
Selling............... 24,502 46,962 51,474 26,632 24,244
General and
administrative....... 40,448 86,181 106,041 51,345 56,516
Depreciation and
amortization......... 60,205 191,871 232,347 120,167 108,400
Restructuring charge.. -- -- -- -- 16,100
---------- ---------- ---------- ---------- ----------
Total operating
expenses........... 154,828 389,971 469,698 236,255 245,669
---------- ---------- ---------- ---------- ----------
Operating income (loss). (13,019) (86,070) (102,015) (56,278) (54,774)
Interest expense........ (22,560) (77,353) (98,063) (48,126) (51,903)
Interest income......... 38 1,426 904 411 780
Equity in loss of
affiliate.............. (3,977) (1,968) (3,872) (1,812) (2,219)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income tax benefit and
extraordinary item..... (39,518) (163,965) (203,046) (105,805) (108,116)
Benefit from income tax-
es..................... 4,600 51,207 21,172 10,600 --
---------- ---------- ---------- ---------- ----------
Income (loss) before ex-
traordinary item....... (34,918) (112,758) (181,874) (95,205) (108,116)
Extraordinary charge
from early
extinguishment of debt. (1,684) (1,904) -- -- (1,720)
---------- ---------- ---------- ---------- ----------
Net income (loss)....... (36,602) (114,662) (181,874) (95,205) (109,836)
Accretion of redeemable
preferred stock........ (102) (336) (32) (32) --
---------- ---------- ---------- ---------- ----------
Net income (loss) to
common stockholders.... $ (36,704) $ (114,998) $ (181,906) $ (95,237) $ (109,836)
========== ========== ========== ========== ==========
Basic income (loss) per
common share before
extraordinary item..... $ (2.60) $ (5.53) $ (8.77) $ (4.60) $ (5.17)
Extraordinary charge
from early
extinguishment of debt
per basic common share. $ (.12) $ (.09) $ -- $ -- $ (.08)
---------- ---------- ---------- ---------- ----------
Basic net income (loss)
per common share....... $ (2.72) $ (5.62) $ (8.77) $ (4.60) $ (5.25)
========== ========== ========== ========== ==========
Basic weighted average
number of common shares
outstanding............ 13,497,734 20,445,943 20,746,240 20,713,578 20,918,048
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
PREFERRED COMMON PAID-IN ACCUMULATED EQUITY
STOCK STOCK CAPITAL DEFICIT (DEFICIT)
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994.................... $-- $ 81 $ 60,823 $ (51,536) $ 9,368
Exercise of options to
purchase 475,903
shares of common
stock................. -- 5 5,137 -- 5,142
Issuance of 7,994,493
shares of common stock
to acquire stock of
paging companies...... -- 80 215,819 -- 215,899
Issuance of 2,706,659
shares of common stock
(net of issuance costs
of $3,016)............ -- 27 46,354 -- 46,381
Issuance of 417,311
shares of common stock
upon conversion of
convertible
subordinated
debentures (net of
costs of conversion of
$192)................. -- 4 6,794 -- 6,798
Accretion of redeemable
preferred stock....... -- -- (102) -- (102)
Net loss............... -- -- -- (36,602) (36,602)
---- ---- -------- --------- ---------
Balance, December 31,
1995.................... -- 197 334,825 (88,138) 246,884
Exercise of options to
purchase 169,308
shares of common
stock................. -- 2 1,469 -- 1,471
Issuance of 46,842
shares of common stock
under Arch's Employee
Stock Purchase Plan... -- -- 373 -- 373
Issuance of 843,039
shares of common stock
upon conversion of
convertible
subordinated
debentures............ -- 8 14,113 -- 14,121
Accretion of redeemable
preferred stock....... -- -- (336) -- (336)
Net loss............... -- -- -- (114,662) (114,662)
---- ---- -------- --------- ---------
Balance, December 31,
1996.................... -- 207 350,444 (202,800) 147,851
Issuance of 151,343
shares of common stock
under Arch's Employee
Stock Purchase Plan... -- 2 798 -- 800
Accretion of redeemable
preferred stock....... -- -- (32) -- (32)
Net loss............... -- -- -- (181,874) (181,874)
---- ---- -------- --------- ---------
Balance, December 31,
1997.................... -- 209 351,210 (384,674) (33,255)
Exercise of options to
purchase 94,032 shares
of common stock
(unaudited)........... -- 1 293 -- 294
Issuance of 250,000
shares of preferred
stock (unaudited)..... 3 -- 24,997 -- 25,000
Issuance of 109,515
shares of common stock
under Arch's Employee
Stock Purchase Plan
(unaudited)........... -- 1 367 -- 368
Net loss (unaudited)... -- -- -- (109,836) (109,836)
---- ---- -------- --------- ---------
Balance, June 30, 1998
(unaudited)............. $ 3 $211 $376,867 $(494,510) $(117,429)
==== ==== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- --------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)....... $(36,602) $(114,662) $(181,874) $(95,205) $(109,836)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization........... 60,205 191,871 232,347 120,167 108,400
Deferred income tax
benefit................ (4,600) (51,207) (21,172) (10,600) --
Extraordinary charge
from early
extinguishment of debt. 1,684 1,904 -- -- 1,720
Equity in loss of
affiliate.............. 3,977 1,968 3,872 1,812 2,219
Accretion of discount on
senior notes........... -- 24,273 33,259 16,189 17,997
Accounts receivable loss
provision.............. 3,915 8,198 7,181 3,783 3,873
Changes in assets and
liabilities, net of
effect from
acquisitions of paging
companies:
Accounts receivable.... (9,582) (15,513) (11,984) (7,390) (6,209)
Inventories............ (3,176) 1,845 (2,394) (3,674) (645)
Prepaid expenses and
other................. (511) 89 (386) 817 1,335
Accounts payable and
accrued expenses...... (551) (12,520) 3,683 7,155 13,471
Customer deposits and
deferred revenue...... (10) 1,556 1,058 2,443 1,344
Other long-term
liabilities........... -- -- -- -- 10,240
-------- --------- --------- -------- ---------
Net cash provided by
operating activities.... 14,749 37,802 63,590 35,497 43,909
-------- --------- --------- -------- ---------
Cash flows from investing
activities:
Additions to property
and equipment, net..... (45,331) (138,899) (87,868) (48,720) (38,353)
Additions to intangible
and other assets....... (15,137) (26,307) (14,901) (7,724) (21,584)
Acquisition of paging
companies, net of cash
acquired............... (132,081) (325,420) -- -- --
-------- --------- --------- -------- ---------
Net cash used for
investing activities.... (192,549) (490,626) (102,769) (56,444) (59,937)
-------- --------- --------- -------- ---------
Cash flows from financing
activities:
Issuance of long-term
debt................... 191,617 676,000 91,000 82,000 450,964
Repayment of long-term
debt................... (63,705) (225,166) (49,046) (56,024) (459,013)
Repayment of redeemable
preferred stock........ -- -- (3,744) (3,744) --
Net proceeds from sale
of preferred stock..... -- -- -- -- 25,000
Net proceeds from sale
of common stock........ 51,180 1,844 800 418 662
-------- --------- --------- -------- ---------
Net cash provided by
financing activities.... 179,092 452,678 39,010 22,650 17,613
-------- --------- --------- -------- ---------
Net increase (decrease)
in cash and cash
equivalents............. 1,292 (146) (169) 1,703 1,585
Cash and cash
equivalents, beginning
of period............... 2,351 3,643 3,497 3,497 3,328
-------- --------- --------- -------- ---------
Cash and cash
equivalents, end of
period.................. $ 3,643 $ 3,497 $ 3,328 $ 5,200 $ 4,913
======== ========= ========= ======== =========
Supplemental disclosure:
Interest paid........... $ 20,933 $ 48,905 $ 62,231 $ 30,119 $ 36,372
======== ========= ========= ======== =========
Issuance of common stock
for acquisition of
paging companies....... $215,899 $ -- $ -- $ -- $ --
======== ========= ========= ======== =========
Issuance of common stock
for convertible
debentures............. $ 6,990 $ 14,121 $ -- $ -- $ --
======== ========= ========= ======== =========
Accretion of redeemable
preferred stock........ $ 102 $ 336 $ 32 $ 32 $ --
======== ========= ========= ======== =========
Liabilities assumed in
acquisition of paging
companies.............. $314,139 $ 58,233 $ -- $ -- $ --
======== ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
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, primarily paging services,
and is the second largest paging company in the United States (based on
EBITDA). The Company had 4.1 million pagers in service at June 30, 1998.
Unaudited Interim Consolidated Financial Statements--The consolidated
balance sheet as of June 30, 1998, the consolidated statements of operations
and cash flows for the six months ended June 30, 1997 and 1998 and the
consolidated statement of stockholders' equity (deficit) for the six months
ended June 30, 1998 are unaudited and, in the opinion of the Company's
management, include all adjustments and accruals, consisting only of normal
recurring accrual adjustments, which are necessary for a fair presentation of
the Company's consolidated financial position, results of operations and cash
flows. The results of operations for the six months ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the full
year.
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.
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.
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 pagers 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.
Property and Equipment--Pagers 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
USEFUL
ASSET CLASSIFICATION LIFE
-------------------- ----------
<S> <C>
Buildings and improvements.................................... 20 Years
Leasehold improvements........................................ Lease Term
Pagers........................................................ 3 Years
Paging and computer equipment................................. 5-8 Years
Furniture and fixtures........................................ 5-8 Years
Vehicles...................................................... 3 Years
</TABLE>
Effective October 1, 1995, Arch changed its estimate of the useful life of
pagers from four years to three years. This change was made to better reflect
the estimated period during which pagers will produce equipment rental
revenue. The change did not have a material effect on depreciation expense or
net loss in the quarter ended December 31, 1995.
F-7
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and amortization expense related to property and equipment
totaled $25.0 million, $87.5 million and $108.0 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
Intangible and Other Assets--Intangible and other assets, net of accumulated
amortization, are composed of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill..................................... $351,969 $312,017 $291,898
Purchased FCC licenses....................... 330,483 293,922 275,224
Purchased subscriber lists................... 120,981 87,281 71,933
Deferred financing costs..................... 12,449 8,752 20,813
Investment in CONXUS Communications, Inc..... 6,500 6,500 6,500
Investment in Benbow PCS Ventures, Inc....... 3,642 6,189 9,942
Non-competition agreements................... 3,594 2,783 2,268
Other........................................ 11,883 10,758 8,853
-------- -------- --------
$841,501 $728,202 $687,431
======== ======== ========
</TABLE>
Amortization expense related to intangible and other assets totaled $35.2
million, $104.4 million and $124.3 million for the years ended December 31,
1995, 1996 and 1997, respectively.
Subscriber lists, Federal Communications Commission ("FCC") 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 FCC application
and development costs which are amortized using the straight-line method over
their estimated useful lives not exceeding ten years. Development and start up
costs include nonrecurring, direct costs incurred in the development and
expansion of paging systems, and are amortized over a two-year period.
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 or
renegotiated, unamortized deferred financing costs are written-off as an
extraordinary charge. During 1995, 1996 and the six months ended June 30,
1998, charges of $1.7 million, $1.9 million and $1.7 million, respectively,
were recognized in connection with the closing of new credit facilities.
On November 8, 1994, CONXUS Communications, Inc. ("CONXUS"), formerly PCS
Development Corporation, was successful in acquiring the rights to a two-way
paging license in five designated regions in the United States in the FCC
narrowband wireless spectrum auction. As of December 31, 1997, Arch's
investment in CONXUS totaled $6.5 million representing an equity interest of
10.5% accounted for under the cost method.
In connection with Arch's May 1996 acquisition of Westlink Holdings, Inc.
("Westlink") (see Note 2), Arch acquired Westlink's 49.9% share of the capital
stock of Benbow PCS Ventures, Inc. ("Benbow"). Benbow has exclusive rights to
a 50kHz outbound/12.5kHz inbound narrowband personal communications license in
each of the central and western regions of the United States. Arch is
obligated, to the extent such funds are not available to Benbow from other
sources and subject to the approval of Arch's designee on Benbow's Board of
Directors, 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 the build out of a regional narrowband PCS system.
Arch's investment in Benbow is accounted for under the equity method 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.
F-8
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 as
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.
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, 1996 and 1997.
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. 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, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
DESCRIPTION VALUE VALUE VALUE VALUE
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
10 7/8% Senior Discount Notes due
2008................................. $299,273 $265,236 $332,532 $288,418
9 1/2% Senior Notes due 2004.......... 125,000 117,500 125,000 122,488
14% Senior Notes due 2004............. 100,000 115,000 100,000 112,540
6 3/4% Convertible Subordinated Deben-
tures due 2003....................... 13,364 12,211 13,364 7,968
</TABLE>
Arch had off balance sheet interest rate protection agreements consisting of
interest rate swaps and interest rate caps with notional amounts of $165.0
million and $55.0 million, respectively, at December 31, 1996 and $140.0
million and $80.0 million, respectively, at December 31, 1997. The fair values
of the interest rate swaps and interest rate caps were $361,000 and $10,000,
respectively, at December 31, 1996 and $47,000 and $9,000, respectively, at
December 31, 1997.
Basic Net Income (Loss) Per Common Share -- 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.
Reclassifications--Certain amounts of prior periods were reclassified to
conform with the 1997 presentation.
2. ACQUISITIONS
In May 1996, Arch completed its acquisition of all the outstanding capital
stock of Westlink for $325.4 million in cash, including direct transaction
costs. The purchase price was allocated based on the fair values of assets
acquired and liabilities assumed (including deferred income taxes arising in
purchase accounting), which amounted to $383.6 million and $58.2 million,
respectively.
F-9
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 7, 1995, Arch completed its acquisition of USA Mobile
Communications Holdings, Inc. ("USA Mobile"). The acquisition was completed in
two steps. First, in May 1995, Arch acquired approximately 37%, or 5,450,000
shares, of USA Mobile's then outstanding common stock for $83.9 million in
cash, funded by borrowings under the Arch Enterprises Credit Facility (see
Note 3). Accordingly, Arch accounted for its investment in USA Mobile under
the equity method of accounting. Arch recorded a charge of $4.0 million for
the year ended December 31, 1995 representing its pro rata share of USA
Mobile's net loss from May until the acquisition was completed. Second, on
September 7, 1995, the acquisition was completed through the merger of Arch
with and into USA Mobile ("the USAM Merger"). Upon consummation of the USAM
Merger, USA Mobile was renamed Arch Communications Group, Inc. In the USAM
Merger, each share of USA Mobile's outstanding common stock was exchanged for
Arch common stock on a .8020-for-one basis (an aggregate of 7,599,493 shares
of Arch common stock) and the 5,450,000 USA Mobile shares purchased by Arch in
May 1995 were retired. Outstanding shares of USA Mobile's Series A Redeemable
Preferred Stock were not affected by the USAM Merger (see Note 4). Arch is
treated as the acquirer in the USAM Merger for accounting and financial
reporting purposes and the purchase price was allocated based upon the fair
market values of assets acquired and liabilities assumed. The aggregate
consideration paid or exchanged in the USAM Merger was $582.2 million,
consisting of cash paid of $88.9 million, including direct transaction costs,
7,599,493 shares of Arch common stock valued at $209.0 million and the
assumption of liabilities of $284.3 million, including $241.2 million of long-
term debt.
During the year ended December 31, 1995, Arch completed five acquisitions of
paging companies, in addition to the USAM Merger, for purchase prices
aggregating approximately $43.0 million, consisting of cash of $36.1 million
and 395,000 shares of Arch common stock valued at $6.9 million. Goodwill
resulting from the acquisitions and the USAM Merger is being amortized over a
ten-year period using the straight-line method.
These acquisitions (including the USAM Merger) have been accounted for as
purchases, and the results of their operations have been included in the
consolidated financial statements from the dates of the respective
acquisitions. The following unaudited pro forma summary presents the
consolidated results of operations as if the acquisitions had occurred at the
beginning of the periods 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 acquisitions been made at the beginning of
the period presented, or of results that may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996
-------- ---------
(UNAUDITED AND IN
THOUSANDS EXCEPT
FOR PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues............................................ $321,963 $ 358,900
Income (loss) before extraordinary item............. (92,395) (128,444)
Net income (loss)................................... (94,079) (130,348)
Basic net income (loss) per common share............ (6.97) (6.39)
</TABLE>
F-10
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Senior Bank Debt............................. $380,500 $422,500 $ 287,000
10 7/8% Senior Discount Notes due 2008....... 299,273 332,532 350,529
9 1/2% Senior Notes due 2004................. 125,000 125,000 125,000
14% Senior Notes due 2004.................... 100,000 100,000 100,000
12 3/4% Senior Notes due 2007................ -- -- 127,464
Convertible Subordinated Debentures.......... 13,364 13,364 13,364
Other........................................ 59 13 --
-------- -------- ----------
918,196 993,409 1,003,357
Less-current maturities...................... 46 24,513 --
-------- -------- ----------
Long-term debt............................... $918,150 $968,896 $1,003,357
======== ======== ==========
</TABLE>
Senior Bank Debt--The Company, through its operating subsidiaries, entered
into two credit agreements. Arch Communications Enterprise, Inc. ("ACE")
entered into a credit facility dated May 5, 1995, as amended, with a group of
banks and financial institutions who agreed, subject to certain terms and
conditions, to provide (i) a $250 million, seven-year reducing revolver
facility (the "ACE Revolver"), (ii) a $150 million, seven-year term loan (the
"Tranche A Term Loan"), and (iii) a $100 million, eight-year term loan (the
"Tranche B Term Loan"). The ACE Revolver, which was available for working
capital and other purposes, the Tranche A Term Loan and the Tranche B Term
Loan are collectively referred to as the ACE Credit Facility. The ACE Credit
Facility is secured by all assets of the operating subsidiaries of ACE and a
pledge of all the stock of Arch's direct and indirect subsidiaries. In
addition, Arch and the operating subsidiaries of ACE guaranteed all
obligations under the ACE Credit Facility.
The ACE Revolver was subject to scheduled mandatory reductions commencing on
December 31, 1999. The Tranche A Term Loan and Tranche B Term Loan were to be
amortized in quarterly installments commencing on March 31, 1998.
Except for the Tranche B Term Loan, borrowings under the ACE Credit Facility
bear interest based on a reference rate equal to either (i) the agent bank's
Alternate Base Rate, or (ii) the agent bank's LIBOR rate, in each case plus a
margin which is based on the ratio of total debt to annualized operating cash
flow. Borrowings under the Tranche B Term Loan bear interest at either the
agent bank's Alternate Base Rate or LIBOR rate, in each case plus a margin
based on the ratio of total debt to annualized EBITDA. Interest is payable
quarterly in arrears. In addition, an annual commitment fee is payable based
on the average daily unused portion of the ACE Revolver.
ACE is also required to maintain interest rate protection on at least 50% of
outstanding borrowings under the ACE Credit Facility, and has therefore
entered into interest rate swap and interest rate cap agreements. Entering
into interest rate cap and swap 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 non-performance by the
counterparty to these interest rate protection agreements, ACE would be
subject to the prevailing interest rates specified in the ACE Credit Facility.
F-11
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. The notional principal amount of the
interest rate swaps outstanding was $140 million at December 31, 1997. The
weighted average fixed payment rate was 5.818% while the weighted average rate
of variable interest payments under the ACE Credit Facility was 5.872% at
December 31, 1997. At December 31, 1996 and 1997, the Company had a net
payable of $124,000 and a net receivable of $18,000, respectively, 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 $80 million with cap levels between 7.5% and 8% at December 31,
1997. The transaction fees for these instruments are being amortized over the
terms of the agreements.
The ACE Credit Facility contains restrictive and financial covenants which,
among other things, limit the ability of ACE to: incur additional
indebtedness, advance funds to Benbow (see Note 1), pay dividends, grant liens
on its assets, merge, sell or acquire assets; repurchase or redeem capital
stock; incur capital expenditures; and prepay indebtedness other than
indebtedness under the ACE Credit Facility. As of December 31, 1997, ACE and
its operating subsidiaries were in compliance with the covenants of the ACE
Credit Facility.
As of December 31, 1997, $359.5 million was outstanding and $28.7 million
was available under the ACE Credit Facility. At December 31, 1997, such
advances bore interest at an average annual rate of 8.76%.
USA Mobile Communications, Inc. II ("USAM") and the direct subsidiaries of
USAM (the "USAM Borrowing Subsidiaries") are parties to a $110 million
reducing revolving credit facility dated March 19, 1997, as amended, with a
group of banks pursuant to which the banks have agreed to make advances for
working capital and other purposes (the "USAM Credit Facility").
Upon the closing of the USAM Credit Facility, the banks did not require the
contemporaneous grant of a security interest in the assets of USAM and its
subsidiaries but they have reserved the right to require such a security
interest upon the occurrence of certain triggering events. Arch and USAM have
guaranteed the obligations of the USAM Borrowing Subsidiaries under the USAM
Credit Facility. Arch's guarantee is secured by the pledge of the stock of ACE
and USAM.
Obligations under the USAM Credit Facility bear interest based on a
reference rate equal to either (i) the agent bank's Alternate Base Rate or
(ii) the agent bank's LIBOR rate, in each case plus a margin based on the
ratio of USAM's total indebtedness to annualized operating cash flow. The
annual commitment fee is payable based on the average daily unused portion of
the USAM Credit Facility.
The USAM Credit Facility contains restrictive and financial covenants which,
among other things, limit the ability of USAM to: incur additional
indebtedness, pay dividends, grant liens on its assets, merge, sell or acquire
assets; repurchase or redeem capital stock; incur capital expenditures; and
prepay indebtedness other than indebtedness under the USAM Credit Facility. As
of December 31, 1997, USAM and the USAM Borrowing Subsidiaries were in
compliance with the covenants of the USAM Credit Facility.
As of December 31, 1997, $63.0 million was outstanding and $4.6 million was
available under the USAM Credit Facility. At December 31, 1997, such advances
bore interest at an average annual rate of 8.55%.
F-12
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On June 29, 1998, ACE was merged (the "ACI Merger") into a subsidiary of
USAM named Arch Paging, Inc. ("API"). In connection with the Merger, USAM
changed its name to Arch Communications, Inc. ("ACI"). Contemporaneously with
the ACI Merger, ACE's existing credit facility was amended and restated to
establish senior secured revolving credit and term loan facilities with API,
as borrower, in the aggregate amount of $400.0 million (collectively, the "API
Credit Facility") consisting of (i) a $175.0 million reducing revolving credit
facility (the "Tranche A Facility"), (ii) a $100.0 million 364-day revolving
credit facility under which the principal amount outstanding on the 364th day
following the closing will convert to a term loan (the "Tranche B Facility")
and (iii) a $125.0 million term loan which was available in a single drawing
on the closing date (the "Tranche C Facility").
The Tranche A Facility will be subject to scheduled quarterly reductions
commencing on September 30, 2000 and will mature on June 30, 2005. The term
loan portion of the Tranche B Facility will be amortized in quarterly
installments commencing September 30, 2000, with an ultimate maturity date of
June 30, 2005. The Tranche C Facility will be amortized in annual installments
commencing December 31, 1999, with an ultimate maturity date of June 30, 2006.
API's obligations under the API Credit Facility are secured by its pledge of
the capital stock of the former ACE operating subsidiaries. The API Credit
Facility is guaranteed by Arch, ACI and the former ACE operating subsidiaries.
Arch's guarantee is secured by a pledge of Arch's stock and notes in ACI, and
the guarantees of the former ACE operating subsidiaries are secured by a
security interest in those assets of such subsidiaries which were pledged
under ACE's former credit facility.
Borrowings under the API Credit Facility bear interest based on a reference
rate equal to either the Bank's Alternate Base Rate or LIBOR rate, in each
case plus a margin based on ACI's or API's ratio of total debt to annualized
EBITDA.
The API Credit Facility requires payment of fees on the daily average amount
available to be borrowed under the Tranche A Facility and the Tranche B
Facility, which fees vary depending on ACI's or API's ratio of total debt to
annualized EBITDA.
The API 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 API Credit Facility. In
addition, the API Credit Facility requires API and its subsidiaries to meet
certain financial covenants, including covenants with respect to ratios of
EBITDA to fixed charges, EBITDA to debt service, EBITDA to interest service
and total indebtedness to EBITDA.
Senior Notes--On March 12, 1996, Arch completed a public offering of 10 7/8%
Senior Discount Notes due 2008 (the "Senior Discount Notes") in the aggregate
principal amount at maturity of $467.4 million ($275.0 million initial
accreted value). Interest does not accrue on the Senior Discount Notes 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
$266.1 million net proceeds from the issuance of the Senior Discount Notes,
after deducting underwriting discounts and commissions and offering expenses,
were used principally to fund a portion of the purchase price of Arch's
acquisition of Westlink (see Note 2).
Interest on the ACI 14% Notes and the ACI 9 1/2% Notes (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;
F-13
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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; and make certain investments.
On June 29, 1998, ACI issued and sold $130.0 million principal amount of 12
3/4% Senior Notes due 2007 (the "Notes") for net proceeds of $122.6 million
(after deducting the discount to the Initial Purchasers and estimated offering
expenses payable by ACI) in a private placement (the "Note Offering") under
Rule 144A under the Securities Act of 1933. The Notes were sold at an initial
price to investors of 98.049%. The Notes mature on July 1, 2007 and bear
interest at a rate of 12 3/4% per annum, payable semi-annually in arrears on
January 1 and July 1 of each year, commencing January 1, 1999.
The covenants in the indenture under which the 12 3/4% Notes were issued
("the Indenture") contain certain covenants that, among other things, limit
the ability of ACI to incur additional indebtedness, issue preferred stock,
pay dividends or make other distributions, repurchase Capital Stock (as
defined in the Indenture), repay subordinated indebtedness or make other
Restricted Payments (as defined in the Indenture), create certain liens, enter
into certain transactions with affiliates, sell assets, issue or sell Capital
Stock of ACI's Restricted Subsidiaries (as defined in the Indenture) or enter
into certain mergers and consolidations.
Convertible Subordinated Debentures--On March 6, 1996, the holders of $14.1
million principal amount of Arch's 6 3/4% Convertible Subordinated Debentures
due 2003 ("Arch Convertible Debentures") elected to convert their Arch
Convertible Debentures into Arch common stock at a conversion price of $16.75
per share and received approximately 843,000 shares of Arch common stock
together with a $1.6 million cash premium.
Interest on the remaining outstanding Arch Convertible Debentures is payable
semiannually on June 1 and December 1. The Arch Convertible Debentures are
unsecured and are subordinated to all existing indebtedness of Arch.
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 are convertible at their principal amount
into shares of Arch's common stock at any time prior to redemption or maturity
at an initial conversion price of $16.75 per share, subject to adjustment.
Maturities of Debt--Scheduled long-term debt maturities at December 31, 1997
and at June 30, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
YEAR ENDING DECEMBER 31, 1997 1998
------------------------ ------------ -----------
(UNAUDITED)
<S> <C> <C>
1998........................... $ 24,513 $ --
1999........................... 37,750 --
2000........................... 83,000 1,250
2001........................... 74,750 23,250
2002........................... 122,500 41,250
Thereafter..................... 650,896 937,607
-------- ----------
$993,409 $1,003,357
======== ==========
</TABLE>
F-14
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable Preferred Stock--In connection with the USAM Merger (see Note 2),
Arch assumed the obligations associated with 22,530 outstanding shares of
Series A Redeemable Preferred Stock issued by USA Mobile. The preferred stock
is 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 ("Sandler"), 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 ("Series C Preferred Stock"). The
Series C Preferred Stock: (i) is convertible into Common Stock of Arch at an
initial conversion price of $5.50 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's 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's Common Stock
valued at 95% of the then prevailing market price of Arch's Common Stock; (iv)
is subject to redemption for cash or conversion into Arch's Common Stock at
Arch's option in certain circumstances; (v) in the event of a "Change of
Control" as defined in the indenture governing Arch's 10 7/8% Senior Discount
Notes due 2008 (the "Arch Discount Notes Indenture"), requires Arch, at its
option, to redeem the Series C Preferred Stock for cash or convert such shares
into Arch's Common Stock valued at 95% of the then prevailing market price of
Arch's 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 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 Arch 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.
Stock Options--Arch has a 1989 Stock Option Plan (the "1989 Plan") and a
1997 Stock Option Plan (the "1997 Plan") which provide for the grant of
incentive and nonqualified stock options to key employees, directors and
consultants to purchase Arch's 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
with the first such vesting (20% of granted options) occurring one year from
the date of grant and continuing ratably at 5% on a quarterly basis
thereafter. However, in certain circumstances, options may be immediately
exercised in full. Options generally have a duration of 10 years. The 1989
Plan provides for the granting of options to purchase a total of 1,128,944
shares of common stock. All outstanding options on September 7, 1995, under
the 1989 Plan, became fully exercisable and vested as a result of the USAM
Merger. The 1997 Plan provides for the granting of options to purchase a total
of 1,500,000 shares of common stock.
Effective October 23, 1996, the Compensation Committee of the Board of
Directors of Arch authorized the grant of new options to each employee who had
an outstanding option at a price greater than $12.50 (the fair market value of
Arch's common stock on October 23, 1996). The new option would be for the
total number of shares (both vested and unvested) subject to each employee's
outstanding stock option agreement(s). As a result of this action 424,206
options were terminated and regranted at a price of $12.50. The Company
treated this as a cancellation and reissuance under APB opinion No. 25
"Accounting for Stock Issued to Employees".
As a result of the USAM Merger, Arch assumed a stock option plan originally
adopted by USA Mobile in 1994 and amended and restated on January 26, 1995
(the "1994 Plan"), which provides for the grant of up to 601,500 options to
purchase Arch's common stock. Under the 1994 Plan, incentive stock options may
be granted
F-15
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to employees and nonqualified stock options may be granted to employees,
directors and consultants. Incentive stock options are granted at exercise
prices not less than the fair market value on the date of grant. Option
duration and vesting provisions are similar to the 1989 Plan. All outstanding
options under the 1994 Plan became fully exercisable and vested as a result of
the USAM Merger.
In January 1995, Arch adopted a 1995 Outside Directors' Stock Option Plan
(the "1995 Directors' Plan"), which terminated upon completion of the USAM
Merger. Prior to termination of the 1995 Directors' Plan, 15,000 options were
granted at an exercise price of $18.50 per share. Options have a duration of
ten years and vest over a five-year period from the date of grant with the
first such vesting (20% of granted options) occurring one year from the date
of grant and continuing ratably at 5% on a quarterly basis thereafter.
As a result of the USAM Merger, Arch assumed from USA Mobile the Non-
Employee Directors' Stock Option Plan (the "Outside Directors Plan"), which
provides for the grant of up to 80,200 options to purchase Arch's common stock
to non-employee directors of Arch. Outside directors receive a grant of 3,000
options annually under the Outside Directors Plan, and newly elected or
appointed outside directors receive options to purchase 3,000 shares of common
stock as of the date of their initial election or appointment. Options are
granted at fair market value of Arch's common stock on the date of grant.
Options have a duration of ten years and vest over a three-year period from
the date of grant with the first such vesting (25% of granted options)
occurring on the date of grant and future vesting of 25% of granted options
occurring on each of the first three anniversaries of the date of grant.
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 $5.06 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 1,083,216 options
with exercise prices ranging from $5.94 to $20.63 and granted the same number
of new options with an exercise price of $5.06 per share, the fair market
value of the stock on December 16, 1997.
On December 29, 1997, Arch adopted a Deferred Compensation Plan for
Nonemployee Directors. Under this plan, 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. 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's 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 the
Company's common stock on the date of distribution.
F-16
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 August 31, 1994................ 602,744 $ 7.19
Granted............................................. 41,740 18.58
Exercised........................................... (2,000) 5.94
Terminated.......................................... -- --
--------- ------
Options Outstanding at December 31, 1994.............. 642,484 7.95
Granted............................................. 278,750 23.46
Assumed in USAM Merger.............................. 571,024 11.59
Exercised........................................... (475,903) 10.80
Terminated.......................................... (10,600) 17.57
--------- ------
Options Outstanding at December 31, 1995.............. 1,005,755 13.02
Granted............................................. 695,206 15.46
Exercised........................................... (169,308) 8.69
Terminated.......................................... (484,456) 21.60
--------- ------
Options Outstanding at December 31, 1996.............. 1,047,197 11.37
Granted............................................. 500,394 6.68
Exercised........................................... -- --
Terminated.......................................... (190,636) 10.58
--------- ------
Options Outstanding at December 31, 1997.............. 1,356,955 $ 9.75
========= ======
Options Exercisable at December 31, 1997.............. 639,439 $ 9.64
========= ======
</TABLE>
The following table summarizes the options outstanding and options
exercisable by price range at December 31, 1997:
<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>
$ 3.13 - $ 5.94 186,284 1.58 $ 4.39 169,784 $ 4.36
6.25 - 8.25 617,654 7.45 7.09 195,010 7.77
10.29 - 14.10 410,377 8.08 12.34 209,853 12.19
15.85 - 20.63 124,640 8.10 20.12 51,292 19.66
23.50 - 27.56 18,000 7.84 25.53 13,500 25.53
--------------- --------- ---- ------ ------- ------
$ 3.13 - $27.56 1,356,955 6.90 $ 9.75 639,439 $ 9.64
=============== ========= ==== ====== ======= ======
</TABLE>
Employee Stock Purchase Plan--On May 28, 1996, the stockholders approved the
1996 Employee Stock Purchase Plan (ESPP). The ESPP allows 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 1996 and 1997,
46,842 and 151,343 shares were issued at an average price per share of $7.97
and $5.29, respectively. At December 31, 1997, 51,815 shares are available for
future issuance. On May 19, 1998, the stockholders approved an amendment to
the plan to increase the number of shares available for future issuance by
250,000.
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
F-17
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a grant price equal to fair market value, no compensation cost has been
recognized in the Statement 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>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss): As reported $(36,602) $(114,662) $(181,874)
Pro forma (36,740) (115,786) (183,470)
Basic net income (loss) per
common share: As reported (2.72) (5.62) (8.77)
Pro forma (2.73) (5.68) (8.85)
</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 a risk-free interest rate of 6%, an expected life of 5 years, an
expected dividend yield of zero and an expected volatility of 50% - 60%.
The weighted average fair values (computed consistent with SFAS No. 123) of
options granted under all plans in 1995, 1996 and 1997 were $11.89, $4.95 and
$3.37, respectively. The weighted average fair value of shares sold under the
ESPP in 1996 and 1997 was $5.46 and $2.83, respectively.
Stockholders Rights Plan--Upon completion of the USAM Merger, Arch's
existing stockholders rights plan was terminated. In October 1995, Arch's
Board of Directors adopted a new stockholders rights plan (the "Rights") and
declared a dividend of one preferred stock purchase right (a "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, 1996 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets.................................. $ 94,597 $134,944
Deferred tax liabilities............................. (115,769) (90,122)
-------- --------
(21,172) 44,822
Valuation allowance.................................. -- (44,822)
-------- --------
$(21,172) $ --
======== ========
</TABLE>
F-18
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The approximate effect of each type of temporary difference and carryforward
at December 31, 1996 and 1997 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Net operating losses................................ $ 89,764 $106,214
Intangibles and other assets........................ (115,769) (87,444)
Depreciation of property & equipment................ 3,692 24,388
Accruals and reserves............................... 1,141 1,664
--------- --------
(21,172) 44,822
Valuation allowance................................. -- (44,822)
--------- --------
$(21,172) $ --
========= ========
</TABLE>
The effective income tax rate differs from the statutory federal tax rate
primarily due to the nondeductibility of goodwill amortization. The net
operating loss (NOL) carryforwards expire at various dates through 2012. 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.
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.
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 of the Company.
Arch has operating leases for office and transmitting sites with lease terms
ranging from one month to approximately ten 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, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998............................. $16,909
1999............................. 7,706
2000............................. 4,546
2001............................. 2,689
2002............................. 950
Thereafter....................... 1,680
-------
Total.......................... $34,480
=======
</TABLE>
Total rent expense under operating leases for the years ended December 31,
1995, 1996 and 1997 approximated $6.4 million, $14.7 million, and $19.8
million, respectively.
F-19
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS
Retirement Savings Plan--Arch has a retirement savings plan, qualifying
under Section 401(k) of the Internal Revenue Code covering eligible employees,
as defined. Under the plan, 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 plan provides for employer
matching contributions. Matching contributions for the years ended December
31, 1995, 1996 and 1997 approximated $124,000, $217,000 and $302,000,
respectively.
8. TOWER SITE SALE
In April 1998, Arch announced an agreement to sell certain of its tower site
assets (the "Tower Site Sale") for approximately $38.0 million in cash
(subject to adjustment), of which $1.3 million will be paid to a subsidiary of
Benbow in payment for certain assets owned by such subsidiary and included in
the Tower Site Sale. In the Tower Site Sale, Arch is selling communications
towers, real estate, site management contracts and/or leasehold interests
involving 134 sites in 22 states and leasing back space on the towers on which
it currently operates communications equipment to service its own paging
network. Arch will use its net proceeds from the Tower Site Sale (estimated to
be $36.0 million) to repay indebtedness under the API Credit Facility. Arch
held the initial closing of the Tower Site Sale on June 26, 1998 with gross
proceeds to Arch of approximately $12.0 million (excluding $1.3 million which
was paid to Benbow for certain assets which it sold as part of this
transaction) and currently expects to hold the final closing for the balance
of the transaction in the third quarter of 1998, although no assurance can be
given that the final closing will be held as expected.
9. DIVISIONAL REORGANIZATION (UNAUDITED)
In June 1998, Arch's Board of Directors approved a reorganization of Arch's
operations (the "Divisional Reorganization"). As part of the Divisional
Reorganization, which will be implemented over a period of 18 to 24 months,
Arch plans to consolidate its seven operating divisions into four operating
divisions and consolidate certain regional administrative support functions,
resulting in various operating efficiencies. In connection with the Divisional
Reorganization, Arch (i) anticipates a net reduction of approximately 10% of
its workforce, (ii) plans to close certain office locations and redeploy other
real estate assets and (iii) has recorded a restructuring charge of $16.1
million, or $0.77 per share (basic and diluted) in the second quarter of 1998.
The restructuring charge consists of approximately (i) $9.7 million for
employee severance and benefits, (ii) $3.5 million for lease obligations and
terminations and, (iii) $2.9 million for the writedown of related assets.
The write-down of fixed assets relates to a non-cash charge which will
reduce the carrying amount of certain leasehold improvements and other fixed
assets that the Company will not continue to utilize following the Divisional
Reorganization, to their estimated net realizable value as of the date such
assets are projected to be disposed of or abandoned by the Company. The net
realizable value of these assets was determined based on management's
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. Such estimates are subject to change.
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 the Divisional 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.
F-20
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, the Company will involuntarily terminate an estimated 900
personnel. The majority of the positions to be eliminated are in the local and
regional offices which will be closed as a result of the Divisional
Reorganization. The majority of the severance and benefits costs to be paid by
the Company will be paid during the remainder of 1998 and in 1999.
The Company's restructuring activity as of June 30, 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
RESERVE UTILIZATION OF RESERVE
INITIALLY ------------------------- REMAINING
ESTABLISHED CASH NON-CASH RESERVE
----------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Severance costs........... $ 9,700 $ 205 $ -- $ 9,495
Lease obligation costs.... 3,500 20 -- 3,480
Write-down of related as-
sets..................... 2,900 29 -- 2,871
------- ----------- ----------- -------
Total................... $16,100 $ 254 $ -- $15,846
======= =========== =========== =======
</TABLE>
10. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial information for the years ended December 31, 1996 and
1997 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, 1996:
Revenues............................ $ 67,171 $ 78,983 $ 90,886 $ 94,330
Operating income (loss)............. (12,949) (18,821) (23,647) (30,653)
Income (loss) before extraordinary
item............................... (19,377) (25,678) (32,178) (35,525)
Extraordinary charge................ -- (1,904) -- --
Net income (loss)................... (19,377) (27,582) (32,178) (35,525)
Basic net income (loss) per common
share:
Income (loss) before extraordinary
item............................. (.98) (1.26) (1.56) (1.72)
Extraordinary charge.............. -- (.09) -- --
Net income (loss)................. (.98) (1.35) (1.56) (1.72)
YEAR ENDED DECEMBER 31, 1997:
Revenues............................ $ 95,539 $ 98,729 $101,331 $101,242
Operating income (loss)............. (26,632) (29,646) (27,208) (18,529)
Net income (loss)................... (45,815) (49,390) (47,645) (39,024)
Basic net income (loss) per common
share:
Net income (loss)................. (2.21) (2.38) (2.29) (1.88)
</TABLE>
F-21
<PAGE>
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, 1996
and 1997, 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, 1997. 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, 1996 and
1997 and the consolidated results of their operations and cash flows for each
of the three years in the period ended December 31, 1997 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 12, 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, which hearing has been
stayed by the FCC until October 6, 1998. 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 debtors-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) formulate a plan of reorganization which will gain approval of
the creditors and confirmation by the Bankruptcy Court, (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.
Ernst & Young LLP
MetroPark, New Jersey
July 31, 1998
except for the third paragraph of Note 15, as to which the date is
August 20, 1998
F-22
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............. $ 23,160 $ 10,920 $ 11,559
Accounts receivable (less allowance
for uncollectible accounts of
$56,189, $26,497 and $20,166 in 1996,
1997 and 1998, respectively).......... 66,709 55,432 39,890
Inventories............................ 13,382 868 916
Prepaid expense........................ 1,118 5,108 5,837
Other.................................. 1,583 2,783 5,117
----------- ----------- -----------
Total current assets................. 105,952 75,111 63,319
----------- ----------- -----------
Investment in net assets of equity
affiliate.............................. 1,857 1,788 1,734
Property and equipment, net............. 327,757 257,937 227,699
Intangible assets, net.................. 325,753 295,358 280,666
Other assets............................ 28,911 24,940 22,945
----------- ----------- -----------
Total assets......................... $ 790,230 $ 655,134 $ 596,363
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Liabilities not subject to compromise
Debtor-In-Possession (DIP) credit
facility.............................. $ -- $ 10,000 $ --
Accrued restructuring costs............ -- 4,897 5,041
Accrued wages, benefits and payroll.... -- 11,894 7,614
Accounts payable--post petition........ -- 2,362 3,815
Accrued interest....................... -- 4,777 5,436
Accrued expenses and other current
liabilities........................... 6,703 35,959 32,736
Advance billing and customer deposits.. 37,022 34,252 32,446
----------- ----------- -----------
Total liabilities not subject to
compromise.......................... 43,725 104,141 87,088
----------- ----------- -----------
Liabilities subject to compromise
Accrued wages, benefits and payroll
taxes................................. 9,443 562 562
Accrued interest....................... 31,443 18,450 17,601
Accounts payable--pre petition......... 45,484 19,646 16,124
Accrued expenses and other current
liabilities........................... 48,215 20,663 20,658
Debt................................... 1,074,196 1,075,681 1,075,681
Other.................................. 3,460 2,915 2,842
----------- ----------- -----------
Total liabilities subject to
compromise.......................... 1,212,241 1,137,917 1,133,468
----------- ----------- -----------
Deferred tax liabilities............... 2,655 2,655 2,655
Stockholders' equity (deficit)
Common stock (1 share, no par value,
issued and outstanding at December
31, 1996 and 1997 and June 30, 1998).. -- -- --
Additional paid-in-capital............. 672,629 676,025 676,025
Accumulated deficit--pre petition...... (1,141,020) (1,154,420) (1,154,420)
Accumulated deficit--post petition..... -- (111,184) (148,453)
----------- ----------- -----------
Total stockholders' equity (deficit). (468,391) (589,579) (626,848)
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit).................... $ 790,230 $ 655,134 $ 596,363
=========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- --------------------
1995 1996 1997 1997 1998
--------- ------------ ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Services, rents and
maintenance.......... $ 220,745 $ 568,892 $ 491,174 $ 257,420 $ 215,109
Product sales......... 32,251 71,818 36,218 18,048 13,794
--------- ------------ ---------- --------- ---------
Total revenues...... 252,996 640,710 527,392 275,468 228,903
Cost of products sold... (26,885) (72,595) (35,843) (16,948) (10,774)
--------- ------------ ---------- --------- ---------
226,111 568,115 491,549 258,520 218,129
Operating expenses
Services, rents and
maintenance.......... 59,800 144,050 139,333 74,009 56,028
Selling............... 45,203 96,817 69,544 37,201 31,460
General and
administrative....... 59,034 218,607 179,599 101,115 68,752
Impairment of long-
lived assets......... -- 792,478 -- -- --
Restructuring costs... -- 4,256 19,811 10,952 9,250
Depreciation.......... 50,399 136,434 110,376 56,275 45,807
Amortization.......... 21,009 212,264 29,862 14,893 14,941
--------- ------------ ---------- --------- ---------
Total operating
expenses........... 235,445 1,604,906 548,525 294,445 226,238
--------- ------------ ---------- --------- ---------
Operating (loss)........ (9,334) (1,036,791) (56,976) (35,925) (8,109)
Other income (expense)
Interest expense, net
..................... (31,745) (92,663) (67,611) (35,467) (29,113)
Gain (loss) on sale of
assets............... -- 68 3 -- (47)
--------- ------------ ---------- --------- ---------
Total other expense. (31,745) (92,595) (67,608) (35,467) (29,160)
--------- ------------ ---------- --------- ---------
Loss before income taxes
(benefit).............. (41,079) (1,129,386) (124,584) (71,392) (37,269)
Income taxes (benefit).. -- (69,442) -- -- --
--------- ------------ ---------- --------- ---------
Net loss................ $ (41,079) $ (1,059,944) $ (124,584) $ (71,392) $ (37,269)
========= ============ ========== ========= =========
</TABLE>
See accompanying notes.
F-24
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
ADDITIONAL DEFICIT DEFICIT
PAID IN PRE- POST-
CAPITAL PETITION PETITION TOTAL
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994.. $141,497 $ (39,997) $ 0 $ 101,500
Capital contribution from
MobileMedia.................. 518,332 518,332
Net loss...................... (41,079) (41,079)
-------- ----------- --------- -----------
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 loss (unaudited).......... (37,269) (37,269)
-------- ----------- --------- -----------
Balance at June 30, 1998
(unaudited).................. $676,025 $(1,154,420) $(148,453) $ (626,848)
======== =========== ========= ===========
</TABLE>
See accompanying notes.
F-25
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------
1995 1996 1997 1997 1998
----------- ----------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss............... $ (41,079) $(1,059,944) $(124,584) $(71,392) $(37,269)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... 71,408 348,698 140,238 71,168 60,748
Income tax benefit..... (69,442)
Accretion of note
payable discount...... 15,159 16,792 1,485 1,486
Provision for
uncollectible
accounts.............. 4,259 56,556 65,181 40,616 9,671
Write-off of
unamortized debt
issuance costs........ 5,391
Impairment of long-
lived assets.......... 792,478
Undistributed earnings
of affiliate, net..... (303) 160 69 (144) 54
Change in operating
assets and liabilities:
Accounts receivable.... (17,595) (55,965) (53,904) (42,371) 5,871
Inventories............ (3,353) 2,433 12,514 6,806 (48)
Prepaid expenses and
other assets.......... 133 12,145 (686) (1,149) (1,317)
Accounts payable,
accrued expenses and
other liabilities..... 9,829 13,283 (25,393) (18,761) (11,502)
----------- ----------- --------- -------- --------
Net cash provided by
(used in) operating
activities............ 43,849 57,194 14,920 (13,741) 26,208
----------- ----------- --------- -------- --------
Investing activities:
Construction and
capital expenditures,
including net changes
in pager assets....... (86,163) (161,861) (40,556) (23,756) (15,569)
Investment in net
assets of equity
affiliates............ (1,641)
Acquisition of
businesses............ (171,223) (866,460)
MAP Mobile channel
exchange agreement.... (10,175)
Cash paid to FCC for
PCS license........... (42,935)
Other.................. (561)
----------- ----------- --------- -------- --------
Net cash used in
investing activities... (312,698) (1,028,321) (40,556) (23,756) (15,569)
----------- ----------- --------- -------- --------
Financing activities:
Capital contribution by
MobileMedia
Corporation........... 518,332 12,800 3,396 3,396
Proceeds from sale of
notes, net............ 245,863
Repayment of Dial Page. (83,430)
Payment of debt issue
costs................. (22,721) (6,939)
Borrowing from
revolving credit
facilities............ 1,071,000 580,250
Repayments on revolving
credit facilities..... (1,057,250)
Borrowing from DIP
credit facilities..... 47,000 15,000
Repayments on DIP
credit facilities..... (37,000) (10,000)
----------- ----------- --------- -------- --------
Net cash provided by
(used in) financing
activities............. 671,794 586,111 13,396 18,396 (10,000)
----------- ----------- --------- -------- --------
Net (decrease) increase
in cash, cash
equivalents designated
and cash designated for
the MobileComm
acquisition............ 402,945 (385,016) (12,240) (19,101) 639
Cash and cash
equivalents at
beginning of period.... 5,231 408,176 23,160 23,160 10,920
----------- ----------- --------- -------- --------
Cash and cash
equivalents at end of
period................. $ 408,176 $ 23,160 $ 10,920 $ 4,059 $ 11,559
=========== =========== ========= ======== ========
</TABLE>
See accompanying notes.
F-26
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Communication's Inc.'s subsidiaries
("MobileMedia") (collectively with Parent and MobileMedia, 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 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 million 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 which 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 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").
Approximately 2,400 proofs of claim have 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 June 30, 1998,
the Debtors had secured orders of the Bankruptcy Court reducing approximately
1,260 claims filed in an aggregate amount of approximately $91.4 million to an
allowed amount of $3.65 million. The Debtors expect the objection process to
continue.
F-27
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Confirmation and consummation of a plan of reorganization are the principal
objectives of a Chapter 11 reorganization case. A plan of reorganization sets
forth the means for satisfying claims against, and interests in, a debtor.
Confirmation of a plan requires, among other things, the affirmative vote of
creditors holding at least two-thirds in total dollar amount and more than
one-half in number of the allowed claims in each impaired class of claims that
have voted on the plan, and two-thirds in amount of equity interests in each
impaired class of interests that voted on the plan. Section 1129(b) of the
Bankruptcy Code--commonly referred to as the "cramdown" provision--permits
confirmation of a plan over the objection of an impaired class under certain
circumstances. Confirmation of a plan of reorganization by a bankruptcy court
makes the plan binding upon the debtor, any issuer of securities under the
plan, any person acquiring property under the plan and any creditor or equity
security holder of the debtor. Subject to certain limited exceptions, the
confirmation order discharges the debtor from any debt that arose prior to the
date of confirmation of the plan and substitutes therefore the obligations
specified under the confirmed plan.
MobileMedia filed a Joint Plan of Reorganization with the Bankruptcy Court
on January 27, 1998, and its related Disclosure Statement on February 2, 1998.
This Plan was filed with the support of the Steering Committee for
MobileMedia's secured creditors (the "Secured Creditors Committee"), but
without the support of the Official Committee of Unsecured Creditors (the
"Unsecured Creditors Committee").
As addressed below in Footnote 15, "Subsequent Events", the Debtors filed a
First Amended Joint Plan of Reorganization (the "Plan"). The Plan contemplates
a merger of the Debtors with Arch Communications Group, Inc.
The consolidated financial statements at December 31, 1996 and 1997 and June
30, 1998 (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. 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 it's wholly-owned subsidiaries (MobileMedia Communications of California,
Inc., MobileMedia Paging, Inc., MobileMedia DP Properties, Inc., Dial Page
Southeast, Inc., RadioCall Company of Virginia, 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.
F-28
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 temporary cash investments with high-
quality institutions and, by policy, limits its credit exposure to any one
institution. Although MobileMedia faces significant credit risk from its
customers, which has been aggravated due to MobileMedia's operating problems,
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.
Reclassifications
Certain 1995 financial statement items have been reclassified to conform to
the 1996 and 1997 presentation.
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.
While several companies manufacture pagers, 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.
F-29
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, FCC licenses, a non-
competition agreement, software and the excess of consideration paid over fair
values of net assets acquired and are being amortized principally using the
straight-line method over periods ranging from 1 to 40 years. In connection
with the impairment writedown discussed below, MobileMedia revised the 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 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 $26,582 at December 31, 1996, $22,939 at December 31, 1997 and
$21,117 at June 30, 1998 (unaudited) and are being amortized on a straight
line basis over the term of the related debt.
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".
F-30
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Interim Financial Statements
The interim financial information as of June 30, 1998 and the six months
ended June 30, 1997 and 1998 contained herein is unaudited but, in the opinion
of management, includes all adjustments of a normal recurring nature that are
necessary for a fair presentation of the financial position, results of
operations, and cash flows for the periods presented. Results of operations
for the interim periods presented are not necessarily indicative of results of
operations for the entire year.
New Authoritative Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS
No. 130), which is effective for years beginning after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. SFAS No.
130 is effective for financial statements for fiscal years beginning after
December 15, 1997, and therefore MobileMedia will adopt the new requirements
retroactively in 1998. Management does not anticipate that the adoption of
SFAS No. 130 will have a significant effect on MobileMedia's reporting.
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. Management has not completed its review of SFAS No. 131, but does
not anticipate that the adoption of this statement will have any effect on
MobileMedia's 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 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 intends to adopt SOP 98-5 effective
January 1, 1999. The adoption of SOP 98-5 is not expected to have a material
effect on MobileMedia's financial position or results of operations.
3. ACQUISITIONS AND DIVESTITURES
On January 4, 1996, MobileMedia completed its acquisition of MobileComm,
BellSouth's paging and wireless messaging unit, and an associated nationwide
two-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
F-31
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
<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>
On August 31, 1995, MobileMedia purchased the paging assets and messaging
services business (the "Paging Business") of Dial Page, Inc. ("Dial Page"),
including the capital stock of two wholly-owned Dial Page subsidiaries, and
assumed certain liabilities of the Paging Business (the "Dial Page
Acquisition"). The purchase price for the Paging Business was $187,396,
comprised of cash and the assumption by MobileMedia of the aggregate principal
amount of and accrued interest on certain indebtedness of Dial Page.
The Dial Page 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 August 31,
1995 reflect the purchase price, including bond tender premium and consent,
and fees of $7,444 and transaction costs of $5,339, allocated to tangible and
intangible assets acquired and liabilities assumed based on their estimated
fair values as of August 31, 1995.
The allocation of the purchase price is summarized as follows:
<TABLE>
<S> <C>
Current assets..................................................... $ 3,441
Property and equipment............................................. 37,406
Intangible assets.................................................. 167,101
Other assets....................................................... 74
Liabilities assumed................................................ (7,843)
--------
$200,179
========
</TABLE>
Results of operations for the year ended December 31, 1995 include results
of Dial Page subsequent to August 31, 1995. The following unaudited pro forma
information reflects the results of operations of MobileMedia assuming the
Dial Page and MobileComm acquisitions had occurred as of January 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Net revenue................................................ $ 559,236
Net loss................................................... $(213,173)
</TABLE>
On October 23, 1995, MobileMedia completed the purchase of additional
capacity for its nationwide Private Carrier Paging channel for $10,175 from
MAP Mobile Communications, Inc.
F-32
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Pagers............................................ $228,924 $196,791 $179,154
Radio transmission equipment...................... 191,952 202,296 204,940
Computer equipment................................ 25,641 30,896 31,884
Furniture and fixtures............................ 19,435 20,918 21,544
Leasehold improvements............................ 14,943 14,652 15,730
Construction in progress.......................... 1,494 1,128 2,905
Land, buildings and other......................... 12,947 7,911 8,351
-------- -------- --------
495,336 474,592 464,508
Accumulated depreciation.......................... 167,579 216,655 236,809
-------- -------- --------
Property and equipment, net....................... $327,757 $257,937 $227,699
======== ======== ========
</TABLE>
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 JUNE 30, 1998 (UNAUDITED)
-------------------------------------------- ------------------------------ ------------------------------
FAS 121
ACCUMULATED IMPAIRMENT ADJUSTED ACCUMULATED ADJUSTED ACCUMULATED
COST AMORTIZATION CHARGE NET COST AMORTIZATION NET COST AMORTIZATION NET
---------- ------------ ---------- -------- -------- ------------ -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FCC Licenses.... $ 774,731 $ (22,757) $(490,651) $261,323 $261,323 $ (8,918) $252,405 $261,323 $(12,872) $248,451
Customer lists.. 288,137 (102,735) (120,972) 64,430 64,430 (21,477) 42,953 64,430 (32,215) 32,215
Software........ 3,500 (1,167) (2,333) -- -- -- -- -- -- --
Non-competition
agreement...... 125,999 (114,029) (11,970) -- -- -- -- -- -- --
Excess of
consideration
paid over fair
value of net
assets
acquired....... 176,646 (10,094) (166,552) -- -- -- -- -- -- --
---------- --------- --------- -------- -------- -------- -------- -------- -------- --------
$1,369,013 $(250,782) $(792,478) $325,753 $325,753 $(30,395) $295,358 $325,753 $(45,087) $280,666
========== ========= ========= ======== ======== ======== ======== ======== ======== ========
</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, since the
construction of paging networks related to such licenses has not been
completed.
F-33
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
DIP credit facility.......................... $ -- $ 10,000 $ --
Revolving loan............................... 99,000 99,000 99,000
Term loan.................................... 550,000 550,000 550,000
10 1/2% Senior Subordinated Deferred Coupon
Notes due December 1, 2003.................. 172,628 174,125 174,125
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................................. 998 986 986
---------- ---------- ----------
Total debt................................. $1,074,196 $1,085,681 $1,075,681
========== ========== ==========
</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 June 30, 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. 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 million of borrowings and repaid $37
million under the DIP Facility. During January and February, 1998 the
Debtors repaid an additional $10 million. As of June 30, 1998 there were no
borrowings under the DIP Facility and a $0.5 million letter of credit
issued in 1997 remained a contingent obligation of the Debtors under the
DIP Facility. On January 27, 1998, the DIP Facility was amended and reduced
from $200,000 to $100,000. On July 28, 1998, the Company received interim
approval from the Bankruptcy Court to extend the DIP Facility to March 31,
1999 and further reduce it from $100,000 to $75,000. This approval is
expected to become final on August 12, 1998.
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 June 30, 1998 there was $649,000
outstanding under this facility consisting of term loans of $137,500 and
$412,500 and loans under a revolving credit facility totaling $99,000. 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.
3) $250,000 Senior Subordinated Notes due November 1, 2007 (the "9 3/8%
Notes") issued in November 1995, concurrent with MobileMedia's second
offering of Class A Common Stock (See Note 11). These notes bear interest
at a rate of 9 3/8% payable semiannually 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 such
F-34
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 semiannually, 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 semiannually.
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, 1995, 1996 and 1997, and
the six months ended June 30, 1997 and 1998 (unaudited) was $9,828, $65,978,
$76,624, $41,279 and $27,540, respectively. Total interest cost incurred for
the years ended December 31, 1995, 1996 and 1997 was $31,952, $94,231 and
$68,409, respectively of which $1,249, $1,292 and $176 was capitalized. Total
interest cost incurred for the six months ended June 30, 1997 and 1998 was
$36,017 and $29,517, respectively of which $88 and $59 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 the six months ended
June 30, 1997 and 1998 (unaudited) would have been approximately $98,775,
$49,386 and $48,514, respectively.
7. RELATED PARTY TRANSACTIONS
On February 8, 1995 Parent called upon certain investors for an additional
$25,000 of capital which was required to be contributed to MobileMedia in
exchange for 137,095 shares of Class A and 2,362,900 shares of Class B common
stock at $10 per share and warrants to purchase 51,014 shares of Class A
Common Stock. On June 13, 1995, MobileMedia received the $25,000 from the
exercise of such call.
8. INCOME TAXES
The components of income tax benefit (expense) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- --------- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ -- $ --
State and local.................................. -- -- --
------- --------- -------
Deferred:
Federal.......................................... -- 52,081 --
State and local.................................. -- 17,361 --
------- --------- -------
Total.......................................... $ -- $ 69,442 $ --
======= ========= =======
</TABLE>
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.
F-35
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of income tax benefit 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,
-----------------------------
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
Tax benefit at federal statutory rate........ $ 14,377 $ 395,285 $ 43,604
Goodwill and intangible amortization and
writedown................................... -- (95,362) --
Valuation allowance on federal deferred tax
assets...................................... (14,377) (230,481) (43,604)
-------- --------- --------
Total...................................... $ -- $ 69,442 $ --
======== ========= ========
</TABLE>
The effect of the valuation allowance shown above represents federal tax
effects on income from continuing operations.
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,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Difference in book and tax basis of fixed assets.... $ -- $ 10,206
Other............................................... -- 68
--------- ---------
Net deferred tax liabilities...................... -- 10,274
Deferred tax assets:
Accounts receivable reserves........................ 22,476 10,578
Differences between the book and tax basis of
intangible assets.................................. 136,492 128,462
Difference between book and tax basis of accrued
liabilities........................................ 3,425 5,089
Net operating loss carryforward..................... 80,440 161,840
Difference between book and tax basis of fixed
assets............................................. 2,208 --
Other............................................... 1,357 --
--------- ---------
Total deferred assets............................. 246,398 305,969
Valuation allowances for deferred tax assets...... (249,053) (298,350)
--------- ---------
Net deferred tax assets........................... (2,655) 7,619
========= =========
Net deferred tax liabilities...................... $ 2,655 $ 2,655
========= =========
</TABLE>
As of December 31, 1997, MobileMedia has available net operating loss
carryforwards for tax purposes of approximately $400,000 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 Class A Common Stock on November 7, 1995 caused an ownership change
for MobileMedia for purposes of 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 $40.0 million. If a second ownership change occurred subsequent
to November 7, 1995, which has not been determined, use of MobileMedia's net
operating losses would be severely limited. It is also anticipated that the
net operating loss carryforwards and possibly other tax attributes will be
substantially reduced as a result of consummation of the Plan.
F-36
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LEASES
Certain facilities and equipment used in operations are held under operating
leases. In accordance with the Bankruptcy Code, all lease contracts will be
reviewed, and subject to Court approval, are subject to rejection. Rental
expenses under operating leases were $14,983, $44,574, $43,453, $22,436, and
$20,794 for the years ended December 31, 1995, 1996 and 1997 and the six
months ended June 30, 1997 and 1998 (unaudited), respectively. At December 31,
1997, the aggregate minimum rental commitments under leases were as follows:
<TABLE>
<S> <C>
1998................................................................ $ 23,566
1999................................................................ 18,953
2000................................................................ 14,037
2001................................................................ 7,625
2002................................................................ 4,788
Thereafter.......................................................... 7,707
--------
$ 76,676
========
</TABLE>
On March 23, 1998, MobileMedia moved into a new headquarters facility
pursuant to a lease with Miller Freeman, Inc. entered into with Bankruptcy
Court approval. On April 1, 1998, MobileMedia, with Bankruptcy Court approval,
assigned its prior lease of rental property used for its Headquarters office
to Southwestern Bell Yellow Pages, Inc. The lease expires in June, 2001. The
estimated annual savings related to this lease assignment and the lease with
Miller Freeman, Inc. is approximately $1,400. The cost savings is not
reflected in the above minimum rental commitments.
10. 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 $386 and $327 for the six months ended June 30, 1997 and 1998
(unaudited), respectively.
Employees of MobileComm and Dial Page who were hired by MobileMedia were
eligible to participate in MobileMedia's retirement savings plan based on
their recognized MobileComm and Dial Page service date. As of the date of the
MobileComm and Dial Page Acquisitions employees with one year and at least
1,000 hours of credited service were eligible to participate.
11. COMMON STOCK, STOCK OPTION PLANS AND STOCK WARRANTS
On July 6, 1995, Parent issued an aggregate of 8,000,000 shares of Class A
Common Stock in a public offering at a price of $18.50 per share. Parent
received net proceeds from the sale of approximately $137,975. In addition, on
July 25, 1995, the underwriters exercised their over-allotment option to
purchase an additional 800,000 shares of Class A Common Stock at the initial
public offering price. Accordingly, Parent received additional net proceeds of
$13,910 for the over-allotment shares. On November 13, 1995, Parent issued an
aggregate of 13,500,000 shares of Class A Common Stock at a public offering
price of $23.75 resulting in net proceeds of approximately $308,755. In
addition, the underwriters exercised their over-allotment option to purchase
an additional 2,025,000 shares of Class A Common Stock at the public offering
price resulting in additional net proceeds of approximately $46,170.
F-37
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Non-Employee Directors
MobileMedia adopted a stock option plan under which options to purchase
MobileMedia's Class A Common Stock would be granted to the Company's non-
employee directors. Options for a total of 121,800 shares of Class A Common
Stock were issued under the Plan since the beginning of the Plan. All exercise
prices per share were considered to be the fair market value at the date of
grant. The plan was amended in 1997 to provide that no additional options may
be granted. Accordingly, no additional options were granted after 1996 under
the Plan. At December 31, 1996, options for a total of 92,040 shares of Class
A Common Stock, at exercise prices ranging from $10.00 to $26.38, were
outstanding. At December 31, 1997, options for a total of 90,290 shares of
Class A Common Stock were outstanding.
Employees
MobileMedia has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for Stock-
Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of MobileMedia's employee stock option equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. In light of MobileMedia's current circumstances, the pro forma
effect of stock compensation expense pursuant to SFAS No. 123 has not been
calculated. MobileMedia adopted the 1993 MobileMedia Corporation Stock Option
Plan (the "Option Plan") under which options to purchase shares of
MobileMedia's Class A Common Stock may be granted to officers and key
employees of MobileMedia.
Two types of options may be granted under the Option Plan: options intended
to qualify as incentive stock options under Section 422 of the Code, and "non-
qualified" stock options not specifically authorized or qualified for
favorable federal income tax treatment under the Code. The option exercise
price for incentive stock options granted under the Option Plan may not be
less than the fair market value (as defined in the Option Plan) of Parent's
Class A Common Stock on the date the option is granted. The exercise price of
non-qualified stock options may be set by the Board of Directors at a discount
from fair market value. Prior to the Petition date, qualified and non-
qualified options issued to certain current and former officers and key
employees of MobileMedia to purchase up to 1,618,740, 1,414,893 and 1,240,518,
shares of Class A Common Stock at December 31, 1996 and 1997 and June 30,
1998, respectively, at exercise prices ranging from $6.81 to $10.00 per share,
were outstanding.
12. 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
discovered misrepresentations and other violations that 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. In cooperation with the FCC, outside counsel's investigation was
expanded to examine all MobileMedia's paging licenses, and the results of that
investigation were submitted to the FCC on November 8, 1996.
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 approximately 94 applications for fill-in sites
F-38
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
around existing paging stations (which had been filed under the so-called "40-
mile rule") as defective 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. With respect to the
approximately 99 authorizations where the underlying station was untimely
constructed, the FCC granted MobileMedia interim operating authority 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 for
ten months 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 order, which is based
on an FCC doctrine known as Second Thursday, provides that if there is a
change of control that meets the conditions of Second Thursday, 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. MobileMedia believes that a reorganization plan that
provides for either a conversion of certain existing debt to equity, in which
case existing MobileMedia shares will be eliminated, or a sale or merger of
MobileMedia will result in a change of control that will satisfy the Second
Thursday doctrine. MobileMedia has requested, and the FCC granted, an
extension of the order staying the hearing for an additional six months to
October 6, 1998. If MobileMedia is unable to present the FCC with a plan of
reorganization that satisfies the conditions of Second Thursday prior to the
expiration of the stay of the hearing, MobileMedia may be required to proceed
with the hearing, which, if adversely determined, could result in the loss of
MobileMedia's licenses or substantial monetary fines, or both. Such an outcome
would have a material adverse effect on MobileMedia's financial condition and
results of operations.
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. 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 may conduct only limited discovery in
connection with the New Jersey Actions and may not file any pleadings, except
responses to motions to dismiss, until the earlier of September 30, 1998 and
the effective date pursuant to a plan of reorganization.
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,
F-39
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
Three former employees have pre-petition agreements which provide an
incentive payment of up to $300 to each of them if MobileMedia's EBITDA for
1996, excluding operations of businesses acquired after Metromedia Paging
Services ("AMPS"), equals or exceeds $82,200, subject to certain adjustments
(the "1996 Target"), and of up to $1,000 to each of them if MobileMedia's
EBITDA for 1998, (excluding operations of businesses acquired after MPS),
equals or exceeds $125,100, subject to certain adjustments (the "1998
Target"). One current and four former employees have pre-petition agreements
which provide for incentive payments of up to $150 to each of them if
MobileMedia meets the 1996 Target and of up to $300 to each of them if
MobileMedia meets the 1998 Target. Several former employees have submitted
proofs of claim with the Bankruptcy Court with respect to these incentive
payments. MobileMedia intends to object to these unsecured claims.
13. OTHER INVESTMENTS
On March 21, 1995, MobileMedia purchased a 33% interest in Abacus
Communications Partners, L.P., 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,
1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998
(unaudited), was $(303), $162, $69, $(144) and $54, respectively.
14. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. 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.
While MobileMedia is aware that certain of its software and paging systems
require modification, it is in the process of determining the full extent to
which it will be required to modify or replace significant portions of its
software and paging systems so that its systems function properly with respect
to dates in the year 2000 and thereafter. At present, MobileMedia does not yet
have an estimate of the cost that may be incurred to comply with the Year 2000
issue. If such modifications and conversions are not made, or are not
completed on a timely basis, the Year 2000 issue could have a material adverse
effect on the operations of MobileMedia.
15. SUBSEQUENT EVENTS
On July 7, 1998, MobileMedia entered into an agreement to sell 163
transmission towers and 49 parcels of land related thereto to Pinnacle Towers
Inc. ("Pinnacle") for proceeds of $170 million. The transaction also includes
the assignment of leases related to towers included in the sale. It is
anticipated that such transaction will close by December 31, 1998, subject to
the approval of the Bankruptcy Court.
F-40
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the transaction, MobileMedia will enter into a lease
agreement with Pinnacle under which MobileMedia will lease space on towers for
683 transmitters for a period of fifteen years at a cost of approximately
$10.7 million per year.
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. Concurrently, the
Debtors filed a First Amended Joint Plan of Reorganization (the "Plan") that
reflects the proposed merger with Arch. The Plan has the support of both the
Secured Creditors Committee and the Unsecured Creditors Committee. Under the
Plan, most creditors of the Debtors 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.
F-41
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ARCH COMMUNICATIONS GROUP, INC.,
FARM TEAM CORP.,
MOBILEMEDIA CORPORATION
AND
MOBILEMEDIA COMMUNICATIONS, INC.
DATED AS OF AUGUST 18, 1998
<PAGE>
<TABLE>
<S> <C>
LIST OF EXHIBITS
EXHIBIT A.......................... First Amended Joint Plan of Reorganization
EXHIBIT B.......................... Buyer Warrant Agreement
EXHIBIT C.......................... Registration Rights Agreement
EXHIBIT D.......................... Amendment to Buyer's Rights Agreement
EXHIBIT E.......................... Opinion of Buyer's Financial Advisor
EXHIBIT F.......................... Buyer Charter Amendment
EXHIBITS G, H, I, J, K & L......... Standby Purchase Commitments
LIST OF SCHEDULES
SCHEDULE........................... Subsidiaries of the Company
SCHEDULE II........................ Pricing Mechanism
SCHEDULE III....................... Terms of Rights
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
The Merger
<C> <S> <C>
1.1 The Merger; Effective Time......................................... 2
1.2 The Closing........................................................ 2
1.3 Actions at the Closing............................................. 2
1.4 Additional Action.................................................. 3
1.5 Conversion of Securities........................................... 3
1.6 Appointment of Exchange Agent; Distributions in Accordance with
Amended Plan....................................................... 3
1.7 Distribution to Holders of Buyer Common Stock...................... 3
1.8 Certificate of Incorporation....................................... 3
1.9 By-laws............................................................ 4
1.10 Directors and Officers............................................. 4
1.11 Payment of Administrative Claims and Expenses...................... 4
ARTICLE II
Representations and Warranties of the Parent and the Company
2.1 Organization, Qualification, Corporate Power and Authority......... 4
2.2 Capitalization..................................................... 5
2.3 Noncontravention................................................... 5
2.4 Business Entities.................................................. 6
2.5 Financial Statements; Accounts Receivable; Inventory............... 6
2.6 Absence of Certain Changes......................................... 7
2.7 Undisclosed Liabilities............................................ 7
2.8 Tax Matters........................................................ 7
2.9 Tangible Assets.................................................... 9
2.10 Owned Real Property................................................ 9
2.11 Intellectual Property.............................................. 9
2.12 Real Property Leases............................................... 10
2.13 Contracts.......................................................... 10
2.14 Licenses and Authorizations........................................ 11
2.15 Litigation......................................................... 12
2.16 Employees.......................................................... 12
2.17 Employee Benefits.................................................. 13
2.18 Environmental Matters.............................................. 14
2.19 Legal Compliance................................................... 15
2.20 Subscriber Cancellations; Suppliers................................ 15
2.21 Capital Expenditures............................................... 16
2.22 Brokers' Fees...................................................... 16
2.23 Certain Information................................................ 16
2.24 Disclosure......................................................... 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE III
Representations and Warranties of the Buyer
<C> <S> <C>
3.1 Organization Qualification, Corporate Power and Authority........... 16
3.2 Capitalization...................................................... 17
3.3 Noncontravention.................................................... 18
3.4 Business Entities................................................... 18
3.5 Reports and Financial Statements.................................... 19
3.6 Absence of Certain Changes.......................................... 19
3.7 Undisclosed Liabilities............................................. 19
3.8 Tax Matters......................................................... 20
3.9 Tangible Assets..................................................... 21
3.10 Owned Real Property................................................. 21
3.11 Intellectual Property............................................... 21
3.12 Real Property Leases................................................ 22
3.13 Contracts........................................................... 22
3.14 Licenses and Authorizations......................................... 23
3.15 Litigation.......................................................... 24
3.16 Employees........................................................... 24
3.17 Employee Benefits................................................... 24
3.18 Environmental Matters............................................... 25
3.19 Legal Compliance.................................................... 26
3.20 Merger Subsidiary................................................... 26
3.21 Capital Expenditures; Suppliers..................................... 26
3.22 Brokers' Fees....................................................... 27
3.23 Rights Agreement; Section 203....................................... 27
3.24 Opinion of Financial Advisor........................................ 27
3.25 Required Vote of the Buyer's Stockholders........................... 27
3.26 Certain Information................................................. 27
3.27 Disclosure.......................................................... 27
ARTICLE IV
Covenants
4.1 Best Efforts........................................................ 28
4.2 Approvals; Consents................................................. 28
4.3 Buyer Not To Control................................................ 29
4.4 Bankruptcy Covenants................................................ 29
4.5 Operation of Business............................................... 29
4.6 Notice of Breaches.................................................. 32
4.7 Exclusivity......................................................... 32
4.8 Breakup Fee Provisions.............................................. 34
4.9 Nasdaq National Market Quotation.................................... 35
4.10 Delivery of Financial Statements.................................... 35
4.11 Full Access......................................................... 35
4.12 Stockholders Approval; Meeting...................................... 35
4.13 Proxy Statement, Disclosure Statement, Etc.......................... 36
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
4.14 Application of Pinnacle Proceeds.................................... 36
4.15 FCC Filing.......................................................... 36
4.16 Indemnification; Director and Officers Insurance.................... 37
4.17 State Takeover Laws................................................. 37
4.18 Employees........................................................... 38
4.19 Rights Agreement.................................................... 38
4.20 Buyer Rights Offering; Registration Statement....................... 38
4.21 Reimbursement of Buyer's Expenses................................... 39
ARTICLE V
Conditions to Closing
5.1 Conditions to Obligations of Each Party............................. 39
5.2 Conditions to Obligations of the Buyer.............................. 41
5.3 Conditions to Obligations of the Company............................ 42
ARTICLE VI
Termination
6.1 Termination of Agreement............................................ 42
6.2 Effect of Termination............................................... 43
ARTICLE VII
Definitions
ARTICLE VIII
General Provisions
8.1 Press Releases and Announcements.................................... 47
8.2 No Third Party Beneficiaries........................................ 47
8.3 Entire Agreement.................................................... 47
8.4 Succession and Assignment........................................... 47
8.5 Counterparts........................................................ 47
8.6 Headings............................................................ 47
8.7 Notices............................................................. 47
8.8 Governing Law....................................................... 48
8.9 Amendments and Waivers.............................................. 48
8.10 Severability........................................................ 48
8.11 Expenses............................................................ 48
8.12 Specific Performance................................................ 48
8.13 Construction........................................................ 48
8.14 Incorporation of Exhibits and Schedules............................. 48
8.15 Knowledge........................................................... 48
8.16 Survival of Representations......................................... 48
8.17 Bankruptcy Process.................................................. 49
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") entered into as of
August [ ], 1998 (the date of this Agreement or the "Agreement Date") by and
among Arch Communications Group, Inc., a Delaware corporation (the "Buyer"),
Farm Team Corp., a Delaware corporation and a wholly-owned subsidiary of Buyer
(the "Merger Subsidiary"), MobileMedia Corporation, a Delaware corporation
(the "Parent"), and MobileMedia Communications, Inc., a Delaware corporation
and a wholly-owned subsidiary of the Parent (the "Company" and, together with
the Buyer, the Merger Subsidiary and the Parent, the "Parties").
Preliminary Statement
A. The Parent, the Company and those subsidiaries of the Company set forth
in Schedule I attached hereto (collectively, the "Debtors" and each,
individually, a "Debtor") are debtors in possession in Chapter 11 cases (Case
Nos. 97-174 (PJW) through and including 97-192 (PJW)) (collectively the
"Chapter 11 Proceeding") pending before the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court"). The Debtors have previously
filed a proposed Joint Plan of Reorganization dated January 27, 1998 (the
"Prior Plan") with the Bankruptcy Court.
B. This Agreement contemplates a merger of the Company into the Merger
Subsidiary. As a result of such merger, the separate corporate existence of
the Company shall cease and the Merger Subsidiary shall continue as the
Surviving Corporation (as defined in Section 1.1). For federal income tax
purposes, it is intended that such merger will qualify as a reorganization
under the provisions of Section 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended (the "Code").
C. The merger contemplated by this Agreement shall constitute the basis for
the Debtor's First Amended Joint Plan of Reorganization in the form attached
hereto as Exhibit A, as amended from time to time as permitted hereby and
thereby (the "Amended Plan"). Pursuant to the Amended Plan, which shall be
filed with the Bankruptcy Court as soon as practicable after the date of this
Agreement (but not later than August 20, 1998 in any event): (i) all the
outstanding equity interests in the Company and the Parent shall be canceled
without consideration, and the Parent shall be dissolved; (ii) all allowed
prepetition claims against, and prepetition obligations and indebtedness of,
the Debtors (the "Allowed Claims") shall be (a) satisfied by the distribution
of cash, shares of capital stock of the Buyer, Rights (as defined in paragraph
(E) below) and/or certain other consideration to the holders of the Allowed
Claims or (b) otherwise discharged; (iii) the commitments under the DIP Loan
Agreement (as defined in Section 1.11) shall be terminated and all amounts
owed under or in respect of the DIP Loan Agreement shall be paid in full in
cash; and (iv) the Merger Subsidiary shall remain a wholly owned subsidiary of
the Buyer.
D. This Agreement contemplates that the Buyer shall cause the Surviving
Corporation (as defined in Section 1.1) to pay or assume all allowed
administrative and priority claims and expenses of the Debtors and shall make
available to the Surviving Corporation the monies necessary for the timely
payment thereof.
E. In connection with the Merger (as defined in Section 1.1) and as part of
the Amended Plan, the Buyer intends to conduct the Rights Offering (as defined
in Section 4.20), in which it will issue to holders of certain Allowed Claims
transferable Rights to purchase (i) shares of Common Stock, $0.01 par value
per share, of the Buyer ("Buyer Common Stock") or shares of Buyer Class B
Common Stock, if applicable, and (ii) warrants to purchase shares of Buyer
Common Stock ("Buyer Warrants"), such Buyer Warrants to be issued pursuant to
a warrant agreement in the form attached hereto as Exhibit B (the "Buyer
Warrant Agreement"). Contemporaneously with the execution and delivery of this
Agreement, certain holders of Allowed Claims (the "Standby Purchasers") are
making certain commitments in connection with the Rights Offering (the
"Standby Purchase Commitments"), copies of which are attached as Exhibits G,
H, I, J, K & L hereto. In partial consideration for the Standby Purchase
Commitments, the Buyer will issue to the Standby Purchasers certain Buyer
Warrants, and in connection with the Standby Purchase Commitments the Buyer
and the Standby Purchasers will enter into a registration rights agreement in
the form attached hereto as Exhibit C (the "Registration Rights Agreement").
<PAGE>
F. Immediately following the Merger, the Buyer will issue additional Buyer
Warrants to the stockholders of the Buyer that were holders of record
immediately prior to such Merger.
G. The transactions contemplated by this Agreement, including the Merger,
shall be consummated pursuant to the Amended Plan as confirmed by an order of
the Bankruptcy Court entered pursuant to Section 1129 of the Bankruptcy Code
(as defined in Section 2.1(a)) (the "Confirmation Order"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
to them in the Amended Plan.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties further
agree as follows:
ARTICLE I
The Merger
1.1 The Merger; Effective Time. Upon the terms and subject to the conditions
of this Agreement and in accordance with the Delaware General Corporation Law
(the "DGCL"), the Company shall merge with and into the Merger Subsidiary
(such merger being referred to herein as the "Merger") at the Effective Time
(as defined below in this Section 1.1). The Merger shall have the effects set
forth in Section 259 of the DGCL. At the Effective Time, the separate
corporate existence of the Company shall cease and thereafter the Merger
Subsidiary shall continue as the surviving corporation in the Merger (the
"Surviving Corporation"), and all the rights, privileges, immunities, powers
and franchises (of a public as well as of a private nature) of the Company and
the Merger Subsidiary and all property (real, personal and mixed) of the
Company and the Merger Subsidiary shall vest in the Surviving Corporation. The
"Effective Time" shall be the time at which the Company and the Merger
Subsidiary file a certificate of merger or other appropriate documents
prepared and executed in accordance with the relevant provisions of the DGCL
(the "Certificate of Merger") with the Secretary of State of the State of
Delaware or such later time as may be specified in the Certificate of Merger.
1.2 The Closing. Unless this Agreement shall have been terminated pursuant
to Article VI hereof, the closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109, commencing at 10:00 a.m.,
local time, on a date to be mutually agreed by the Company and the Buyer,
which date shall be at least seven, but no more than ten, business days after
the date upon which all the conditions to the obligations of the Parties to
consummate the transactions contemplated hereby set forth in Section 5.1
(other than Section 5.1(j)) have first been satisfied or waived, which date
shall be the same date as the Effective Date under the Amended Plan (the
"Closing Date"); provided that the Closing shall not occur until the condition
set forth in Section 5.1(j) shall have been satisfied and the conditions set
forth in Sections 5.2 and 5.3 shall have been satisfied or waived.
1.3 Actions at the Closing. At the Closing, (a) the Parent and the Company
shall deliver to the Buyer and the Merger Subsidiary the various certificates,
instruments and documents referred to in Section 5.2, (b) the Buyer and the
Merger Subsidiary shall deliver to the Company the various certificates,
instruments and documents referred to in Section 5.3, (c) the Buyer shall file
with the Secretary of State of the State of Delaware the Buyer Charter
Amendment (as defined in Section 4.12), (d) the Company and the Merger
Subsidiary shall immediately thereafter file with the Secretary of State of
the State of Delaware the Certificate of Merger, and (e) the Buyer shall
deliver (x) to the Pre-Petition Agent, for the benefit of the Pre-Petition
Lenders, immediately available funds equal to the excess of (i) $649,000,000
over (ii) the Company Tower Sale Proceeds (as defined in Section 5.2(f)), (y)
to the Company immediately available funds when and as required in amounts
sufficient to pay allowed administrative and priority claims and expenses of
the Debtors, whether allowed prior to or after the Effective Time, as set
forth in the Amended Plan (collectively, the "Plan Cash") and (z) to a bank
trust company or other entity reasonably satisfactory to the Company and the
Buyer appointed by the Buyer to act as the exchange agent (the "Exchange
Agent") pursuant to Section 1.6(a) certificates representing an aggregate
number
2
<PAGE>
of shares of Buyer Common Stock determined in accordance with the pricing
mechanism set forth in Schedule II attached hereto (the "Plan Shares") to be
distributed as contemplated by Section 1.6(b), and the Buyer shall issue Buyer
Common Stock (and Buyer Class B Common Stock, if applicable) and Buyer
Warrants (x) purchased through the exercise of Rights or (y) purchased by or
otherwise issued to the Standby Purchasers in connection with the Standby
Purchase Commitments.
1.4 Additional Action. The Surviving Corporation may, at any time after the
Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Merger
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Securities. At the Effective Time, by virtue of the Merger
and the Amended Plan and without any further action on the part of any person
or entity:
(a) Each share of common stock, $0.01 par value per share, of the Merger
Subsidiary issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding and shall evidence one share of common
stock, $0.01 par value per share, of the Surviving Corporation.
(b) Each share of capital stock of the Parent (collectively, the "Company
Stock") that is either outstanding or held in the treasury of the Parent
immediately prior to the Effective Time, each share of capital stock of the
Company, each share of capital stock of each of the other Debtors held by
any person or entity other than the Debtors, and each option, warrant or
other right issued by any of the Debtors to acquire any such capital stock
and outstanding immediately prior to the Effective Time shall be canceled
without payment of any consideration therefor and shall cease to exist.
Pursuant to Section 303 of the DGCL and the Amended Plan, holders of the
Company Stock shall have no statutory right of appraisal in connection with
the Merger, and such holders shall have no right to approve or disapprove
the Merger or this Agreement.
1.6 Appointment of Exchange Agent; Distributions in Accordance with Amended
Plan.
(a) Prior to the Effective Time, the Buyer shall appoint the Exchange Agent
to effect, pursuant to and in accordance with the Amended Plan, the
distribution of Plan Shares in exchange for, and in satisfaction of, certain
Allowed Class 6 Claims.
(b) The Buyer and the Surviving Corporation shall cause the Exchange Agent,
promptly after the Effective Time, to commence the distribution of Plan Shares
(which Plan Shares are defined in the Amended Plan as the "Creditor Stock
Pool") to holders of Allowed Class 6 Claims in exchange for, and in
satisfaction of, such Allowed Class 6 Claims, all as provided in the Amended
Plan.
1.7 Distribution to Holders of Buyer Common Stock.
(a) The Buyer shall, as soon as practicable after the receipt of the
Confirmation Order, declare, subject to and effective immediately after the
occurrence of the Effective Time, a distribution of a number of Buyer Warrants
determined in accordance with the Amended Plan on each share of Buyer Common
Stock and the Buyer's Series C Convertible Preferred Stock, $.01 par value per
share (the "Buyer Preferred Stock" and, together with the Buyer Common Stock,
the "Buyer Stock"), outstanding immediately prior to the Effective Time (the
"Buyer Distribution"). The Buyer Distribution shall be made as promptly as
practicable following the Effective Time.
(b) Notwithstanding the foregoing, no fractional Buyer Warrants shall be
issued in the Buyer Distribution. In lieu thereof, fractional Buyer Warrants
that would otherwise be issued in the Buyer Distribution will be rounded up to
the nearest whole number of Buyer Warrants.
1.8 Certificate of Incorporation. From and after the Effective Time, the
Certificate of Incorporation of the Merger Subsidiary, as in effect
immediately prior to the Effective Time (except that the name of the
corporation set forth therein shall be changed to the name of the Company) and
as amended by the Certificate of Merger, shall be the Certificate of
Incorporation of the Surviving Corporation, until thereafter further amended
as provided by law and such Certificate of Incorporation.
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1.9 By-laws. From and after the Effective Time, the By-laws of the Merger
Subsidiary, as in effect immediately prior to the Effective Time (except that
the name of the corporation set forth therein shall be changed to the name of
the Company), shall be the By-Laws of the Surviving Corporation, until
thereafter further amended as provided by law, the Certificate of
Incorporation of the Surviving Corporation and such By-laws.
1.10 Directors and Officers. From and after the Effective Time, the
directors and officers of the Merger Subsidiary immediately prior to the
Effective Time shall be and continue as directors and officers, respectively,
of the Surviving Corporation as of the Effective Time, until thereafter
changed in accordance with the Certificate of Incorporation and the By-Laws of
the Surviving Corporation.
1.11 Payment of Administrative Claims and Expenses. At the Effective Time,
the Buyer shall cause the Surviving Corporation to pay or assume the allowed
administrative and priority claims and expenses of the Debtors, whether
allowed prior to or after the Effective Time (including, without limitation,
(a) the payment of obligations under the existing debtor-in-possession
financing facility (the "DIP Loan Agreement") and (b) the assumption of post-
petition trade payables arising in the Ordinary Course of Business (as defined
in Section 2.3)), as specified in the Amended Plan. The Buyer shall make
available to the Surviving Corporation any monies necessary for the Surviving
Corporation to make timely payment of such claims and expenses.
ARTICLE II
Representations and Warranties of the Parent and the Company
Each of the Parent and the Company represents and warrants to the Buyer that
the statements contained in this Article II are true and complete, except as
set forth in the disclosure schedule of the Company delivered to the Buyer
simultaneously with the execution and delivery hereof (the "Company Disclosure
Schedule"). The Company Disclosure Schedule shall be arranged in sections and
paragraphs corresponding to the numbered and lettered sections and paragraphs
contained in this Article II, and the disclosures in any section or paragraph
of the Company Disclosure Schedule shall qualify other sections or paragraphs
in this Article II only to the extent that it is reasonably clear from a
reading of the disclosure that such disclosure is applicable to such other
sections or paragraphs. For purposes of this Agreement, a "Debtor Material
Adverse Effect" shall mean a material adverse effect on the businesses, assets
(including licenses, franchises and other intangible assets), financial
condition, operating income and prospects of the Debtors, taken as a whole,
excluding any effect generally applicable to the economy or the industry in
which the Company conducts its business.
2.1 Organization, Qualification, Corporate Power and Authority.
(a) Each of the Debtors is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation. Each
of the Debtors is duly qualified to conduct business and is in good standing
under the laws of each jurisdiction (each such jurisdiction being set forth in
Section 2.1(a) of the Company Disclosure Schedule) in which the nature of its
businesses or the ownership or leasing of its properties requires such
qualification, other than where the failure to be so qualified would not in
the aggregate have a Debtor Material Adverse Effect. Subject to supervision by
the Bankruptcy Court in accordance with Title 11 of the United States Code
(the "Bankruptcy Code"), each of the Debtors has all requisite corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. Each of the Debtors has furnished to
the Buyer true and complete copies of its charter and by-laws, each as amended
and as in effect on the date hereof. Each of the Debtors has at all times
complied with, and is not in default under or in violation of, any provision
of its charter or by-laws, other than where the failure to so comply and such
defaults and violations would not in the aggregate have a Debtor Material
Adverse Effect.
(b) Subject to the entry of the Initial Merger Order (as defined in Section
4.4(a)), with respect to the Company Breakup Fee, the Buyer Breakup Fee and
the Buyer Reimbursement (each as defined in Article 4), and subject to the
entry of the Confirmation Order, with respect to the remaining terms and
conditions of this Agreement, each of the Parent and the Company has all
requisite power and authority to execute and deliver this Agreement.
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Subject to the entry of the Initial Merger Order, with respect to the Company
Breakup Fee, the Buyer Breakup Fee and the Buyer Reimbursement, and subject to
the entry of the Confirmation Order, with respect to the remaining terms and
conditions of this Agreement, this Agreement has been (i) duly and validly
executed and delivered by the Parent and the Company and (ii) duly and validly
authorized by all necessary corporate action on the part of the Parent and the
Company. Subject to the entry of the Initial Merger Order, with respect to the
Company Breakup Fee, the Buyer Breakup Fee and the Buyer Reimbursement, and
subject to the entry of the Confirmation Order, with respect to the remaining
terms and conditions of this Agreement, this Agreement constitutes a valid and
binding obligation of the Parent and the Company enforceable against the
Parent and the Company in accordance with its terms.
(c) Each of the Debtors has the requisite power and authority to execute and
file with the Bankruptcy Court the Amended Plan. The Amended Plan has been (i)
duly and validly executed by each Debtor and (ii) duly and validly authorized
by all necessary corporate action on the part of each Debtor. Upon the entry
of the Confirmation Order, the Amended Plan will constitute a valid and
binding obligation of each Debtor enforceable against each Debtor in
accordance with its terms.
2.2 Capitalization. On the Closing Date, after giving effect to the Amended
Plan (but immediately prior to the Merger), the authorized capital stock of
each Debtor will be as set forth in Section 2.2 of the Company Disclosure
Schedule. On the Closing Date, after giving effect to the Amended Plan, there
will be no outstanding Company Stock and no outstanding or authorized options,
warrants, rights, calls, convertible instruments, agreements or commitments to
which any of the Debtors is a party or which are binding upon any of the
Debtors providing for the issuance, disposition or acquisition of any of its
capital stock or stock appreciation, phantom stock or similar rights.
2.3 Noncontravention. Except for the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), any applicable state
and foreign securities laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the Communications Act of 1934, as
amended (the "Communications Act"), and the regulations of the Federal
Communications Commission (the "FCC"), state public utility, telecommunication
or public service laws, and the Bankruptcy Code, the Confirmation Order and
the Amended Plan, none of the execution and delivery of this Agreement by the
Parent and the Company, the execution and filing with the Bankruptcy Court of
the Amended Plan by the Debtors or the consummation of the transactions
contemplated hereby or thereby will (a) conflict with or violate any provision
of the charter or by-laws of any Debtor; (b) require on the part of any Debtor
any filing with, or any permit, authorization, consent or approval of, any
court, arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (a "Governmental Entity"),
other than where the failure to make or obtain such filings, permits,
authorizations, consents or approvals would not in the aggregate have a Debtor
Material Adverse Effect or materially adversely affect the ability of the
Reorganized Debtors (which, for purposes of this Agreement, shall mean the
"Reorganized Debtors" as defined in the Amended Plan, together with "License
Co. L.L.C." as defined in the Amended Plan) to operate the business of the
Debtors following the Effective Time; (c) conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any post-petition contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest (as defined below in this
Section 2.3) or other arrangement to which any Debtor is a party or by which
any Debtor is bound or to which any of their respective assets is subject or
any judgment, order, writ, injunction, decree, statute, rule or regulation
applicable to any Debtor or any of their respective properties or assets,
other than such conflicts, violations, breaches, defaults, accelerations,
terminations, modifications, cancellations or notices, consents or waivers as
would not in the aggregate have a Debtor Material Adverse Effect; or (d)
result in the imposition of any Security Interest upon any assets of any
Debtor. For purposes of this Agreement, "Security Interest" means any
mortgage, pledge, security interest, encumbrance, charge or other lien
(whether arising by contract or by operation of law), other than liens arising
in the ordinary course of business consistent with past custom and practice,
including with respect to frequency and amount (the "Ordinary Course of
Business").
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2.4 Business Entities.
(a) Section 2.4(a) of the Company Disclosure Schedule sets forth a true and
complete list of each corporation, partnership, limited liability company or
other form of business association (a "Business Entity") in which any Debtor,
directly or indirectly, owns any equity interest or any security convertible
into or exchangeable for an equity interest (each a "Debtor Business Entity")
which is material to the Parent and the Company.
(b) The Debtor Business Entities listed in Section 2.4(b) of the Company
Disclosure Schedule are the only Debtor Business Entities which have conducted
any operations, trade or businesses of the Debtors since January 30, 1997,
hold any Debtor Authorizations (as defined in Section 2.14(a)) or own any
assets necessary for the conduct of the businesses of the Debtors as currently
conducted.
(c) The Debtors own all the outstanding equity interests in each Debtor
Business Entity.
(d) No Debtor is in default under or in violation of any provision of its
organizational documents. To the knowledge of the Parent or the Company, all
the issued and outstanding equity interests of each Debtor Business Entity are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. On the Closing Date, after giving effect to the
effectiveness of the Amended Plan, all equity interests of each Debtor
Business Entity that are held of record or owned beneficially by the Parent,
the Company or another Debtor immediately prior to the Effective Time will be
held or owned by the respective Reorganized Debtors free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state or foreign securities laws), claims, Security Interests, options,
warrants, rights, contracts, calls, commitments, equities and demands.
(e) There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any equity interests of any
Debtor Business Entity to which any Debtor is a party or by which it is bound,
or, to the Parent's or the Company's knowledge, any other such trusts,
proxies, agreements or understandings.
2.5 Financial Statements; Accounts Receivable; Inventory.
(a) The Debtors have previously provided to the Buyer (i) the audited
consolidated balance sheets and statements of operations and changes in
stockholders' equity and cash flows of the Company as of December 31, 1996 and
1997 and for the years ended December 31, 1995, 1996 and 1997 (the "Audited
Company Financial Statements") and (ii) the unaudited consolidated balance
sheet (which indicates separately liabilities arising on or after January 30,
1997 (the "Filing Date")) (the "June 30 Unaudited Company Balance Sheet") and
the unaudited consolidated statements of operations and changes in
stockholders' equity and cash flows of the Company as of and for the six-month
period ended June 30, 1998 (the "Company Balance Sheet Date"). Such financial
statements (collectively, the "Company Financial Statements"), (i) comply as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the U. S. Securities and Exchange
Commission (the "SEC") with respect thereto; (ii) have been prepared in
accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods covered thereby
(except as may be indicated therein or in the notes thereto and, in the case
of interim financial statements, as permitted by Form 10-Q under the Exchange
Act); (iii) fairly present the consolidated financial condition, results of
operations and cash flows of the Company as of the respective dates thereof
and for the periods referred to therein; and (iv) are consistent with the
books and records of the Company subject, in the case of clauses (i), (ii) and
(iii), (a) to the paragraph in the report of independent auditors on the
Audited Company Financial Statements describing conditions that raise
substantial doubt about the Company's ability to continue as a going concern,
and (b) to the Company Financial Statements not including 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.
(b) The accounts receivable of the Debtors reflected on the June 30
Unaudited Company Balance Sheet, and those arising since the date of the June
30 Unaudited Company Balance Sheet, are valid receivables subject
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to no set-offs or counterclaims, net of a reserve for bad debts, which reserve
is reflected on the June 30 Unaudited Company Balance Sheet. The inventories
of the Debtors reflected on the June 30 Unaudited Company Balance Sheet are of
a quality and quantity useable and/or saleable in the Ordinary Course of
Business, except as written down to net realizable value on the June 30
Unaudited Company Balance Sheet. All inventory shown on the June 30 Unaudited
Company Balance Sheet has been priced at the lower of cost or net realizable
value.
2.6 Absence of Certain Changes. Since the Company Balance Sheet Date, (a)
there has not been any Debtor Material Adverse Effect, nor has there occurred
any event or development that would have a Debtor Material Adverse Effect, and
(b) no Debtor has taken any action that would be prohibited by subsection (a)
of Section 4.5 below if taken from and after the date of this Agreement.
Except as set forth in amendments thereto currently being prepared that
decrease the Debtors' liabilities thereunder, the Statement of Affairs and
Schedules of Assets and Liabilities and Executory Contracts of the Debtors
filed with the Bankruptcy Court in the Chapter 11 Proceeding, as amended,
includes a list which is true and complete in all material respects of all the
material creditors, whether secured or unsecured, of the Debtors at the Filing
Date.
2.7 Undisclosed Liabilities. None of the Debtors has any liability (whether
known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, whether due or to become due and whether arising prior to or
subsequent to the Filing Date), except for (a) liabilities that will be fully
discharged in the Chapter 11 Proceeding at the Effective Time, paid from the
Plan Cash and the Plan Shares in accordance with the terms of the Amended Plan
or, with respect to obligations arising under the DIP Loan Agreement,
otherwise paid in full in cash; (b) liabilities arising after the Filing Date
separately shown or expressly reserved for separately on the June 30 Unaudited
Company Balance Sheet; (c) liabilities that have arisen since the Company
Balance Sheet Date in the Ordinary Course of Business of the Debtors and that
are similar in nature and amount to the liabilities that arose during the
comparable period of time in the immediately preceding fiscal period; and (d)
liabilities incurred in the Ordinary Course of Business of the Debtors that
are not required by GAAP to be reflected on the June 30 Unaudited Company
Balance Sheet and that are not in the aggregate material. Section 2.7 of the
Company Disclosure Statement sets forth all amounts due under the Dial Page
Indenture at June 30, 1998.
2.8 Tax Matters.
(a) (i) Each of the Debtors has filed all Tax Returns (as defined below in
this Section 2.8(a)) that it was required to file, and all such Tax Returns
were true and complete in all material respects. (ii) No Debtor is or has ever
been a member of a group of corporations with which it has filed (or been
required to file) consolidated, combined or unitary Tax Returns, other than a
group of which only the Debtors are or were members. (iii) The Debtors have
paid all Taxes (as defined below in this Section 2.8(a)) of the Debtors that
were due and payable prior to the date hereof. (iv) All Taxes that any Debtor
is or was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper
Governmental Entity. For purposes of this Agreement, "Taxes" means all taxes,
charges, fees, levies or other similar assessments or liabilities, including,
without limitation, income, gross receipts, ad valorem, premium, value-added,
excise, real property, personal property, sales, use, transfer, withholding,
employment, payroll and franchise taxes imposed by the United States of
America or any state, local or foreign government, or any agency thereof, or
other political subdivision of the United States or any such government, and
any interest, fines, penalties, assessments or additions to tax resulting
from, attributable to or incurred in connection with any tax or any contest or
dispute thereof. For purposes of this Agreement, "Tax Returns" means all
reports, returns, declarations, statements or other information required to be
supplied to a taxing authority in connection with Taxes.
(b) (i) The Debtors have delivered or otherwise made available to the Buyer
true and complete copies of all federal income Tax Returns for the "affiliated
group" (as defined in Section 1504(a) of the Code) of which the Parent is the
common parent and the Debtors are members (the "Company Group"), together with
all related examination reports and statements of deficiency, for all periods
commencing on or after December 1, 1993 and, to the extent in the possession
of the Debtors, true and complete copies of the portion of the federal income
Tax Returns of any member of a Debtor Affiliated Group (as defined below),
together with all related examination
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reports and statements of deficiency, relating to the activities of any Debtor
for all Debtor Affiliated Periods (as defined below). For purposes of this
Section 2.8, "Debtor Affiliated Group" means each group of corporations with
which any Debtor has filed (or was required to file) consolidated, combined,
unitary or similar Tax Returns and "Debtor Affiliated Period" means a period
in which a Debtor was a member of a Debtor Affiliated Group. (ii) The federal
income Tax Returns of the Company Group have been audited by the Internal
Revenue Service or are closed by the applicable statute of limitations for all
taxable years through the taxable year specified in Section 2.8(b) of the
Company Disclosure Schedule. (iii) The Debtors have made available to the
Buyer true and complete copies of all other Tax Returns of the Debtors in the
possession of the Debtors, together with all related examination reports and
statements of deficiency, and, to the extent in the possession of the Debtors,
true and complete copies of the portion of all other Tax Returns of any member
of a Debtor Affiliated Group, together with all related examination reports
and statements of deficiency, relating to the activities of any Debtor for all
Debtor Affiliated Periods. (iv) No examination or audit of any Tax Return of
any Debtor by any Governmental Entity is currently in progress, threatened or
contemplated. (v) No Debtor has been informed by any jurisdiction that the
jurisdiction believes that the Debtor was required to file any Tax Return that
has not since been timely filed or, if not timely filed, with respect to which
an assessed amount has not since been paid. (vi) No Debtor has waived any
statute of limitations with respect to Taxes or agreed to an extension of time
with respect to a Tax assessment or deficiency which waiver or extension of
time is still in effect.
(c) No Debtor (i) is a "consenting corporation" within the meaning of
Section 341(f) of the Code and none of the assets of the Debtors is subject to
an election under Section 341(f) of the Code; (ii) has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that may be treated as an "excess parachute
payment" under Section 280G of the Code; (iii) has any actual or potential
liability for any Taxes of any person (other than the Debtors) under Treasury
Regulation Section 1.1502-6 (or any similar provision of federal, state,
local, or foreign law), or as a transferee or successor, by contract, or
otherwise; or (iv) is or has been required to make a basis reduction pursuant
to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation Section
1.337(d)-2(b) other than a reduction required by reason of the transactions
contemplated by this Agreement, if any.
(d) None of the assets of any Debtor: (i) is property that is required to be
treated as being owned by any other person pursuant to the provisions of
former Section 168(f)(8) of the Code; (ii) is "tax-exempt use property" within
the meaning of Section 168(h) of the Code; or (iii) directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of
the Code.
(e) No Debtor will have undergone a change in its method of accounting
requiring an inclusion in its taxable income of an adjustment pursuant to
Section 481(c) of the Code for any taxable period beginning on or after the
Closing Date other than a change occurring by reason of the transactions
contemplated by this Agreement, if any.
(f) No state or federal "net operating loss" of the Debtors determined as of
the Closing Date is subject to limitation on its use pursuant to Section 382
of the Code or comparable provisions of state law as a result of any
"ownership change" within the meaning of Section 382(g) of the Code occurring
prior to the Closing Date.
(g) Section 2.8(g) of the Company Disclosure Schedule sets forth in
reasonable detail the following information with respect to the Debtors as of
the most recent practicable date: (i) the basis of the Debtors in their
assets; (ii) the basis of the stockholder(s) of the Debtors (other than the
Company) in its stock (or the amount of any "excess loss account"); (iii) the
amount of any net operating loss, net capital loss, unused investment or other
credit, unused foreign tax, or excess charitable contribution allocable to the
Debtors; and (iv) the amount of any deferred gain or loss allocable to the
Debtors arising out of any "deferred intercompany transaction."
(h) Neither the Parent nor the Company has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
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2.9 Tangible Assets. The Debtors own or lease all tangible assets necessary
for the conduct of their respective businesses as presently conducted. Each
such tangible asset is free from material defects, has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear) and is suitable for the purposes for
which it is presently used, other than where the failures or defects would not
in the aggregate have a Debtor Material Adverse Effect.
2.10 Owned Real Property. The Company has previously made available to the
Buyer a true and complete listing of all material real property that has been
owned by the Debtors at any time on or after January 30, 1997 (other than the
real property that the Debtors have agreed to sell pursuant to the Purchase
Agreement dated as of July 7, 1998 among the Debtors and Pinnacle Towers Inc.
("Pinnacle") (as approved by order of the Bankruptcy Court entered on August
10, 1998, and as such agreement may be amended in accordance with the terms
hereof and thereof and in accordance with the terms of such order of the
Bankruptcy Court, the "Debtor Tower Agreement"). With respect to each such
parcel of real property which is currently owned by the Debtors, the
identified owner has good record and marketable title to such parcel, free and
clear of any Security Interest, easement, covenant or other restriction,
except for Security Interests in favor of the lenders under the DIP Loan
Agreement, and Security Interests, easements, covenants and other restrictions
which do not materially impair the use, occupancy or value of such parcel as
presently used in the Debtors' businesses.
2.11 Intellectual Property.
(a) The Debtors own, license or otherwise have the legally enforceable right
to use all patents, trademarks, trade names, service marks, copyrights, and
any applications for such patents, trademarks, trade names, service marks and
copyrights, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material
used in the operation of the businesses of the Debtors or necessary for the
operation of the businesses of the Debtors as presently conducted by the
Debtors (collectively, "Debtors' Intellectual Property"). Each such item of
Debtors' Intellectual Property owned or available for use by the Debtors
immediately prior to Closing will be owned or available for use by the
Reorganized Debtors and the Buyer on substantially similar terms and
conditions immediately following the Closing. No other person or entity has
any rights to any of the Debtors' Intellectual Property, and no other person
or entity is infringing, violating or misappropriating any of the Debtors'
Intellectual Property used in the businesses of the Debtors, other than such
infringements, violations or misappropriations as would not in the aggregate
have a Debtor Material Adverse Effect.
(b) The business, operations and activities of each Debtor as presently
conducted or as conducted at any time within the two years prior to the date
of this Agreement have not materially infringed or violated, or constituted a
material misappropriation of, and do not now materially infringe or violate,
or constitute a material misappropriation of, any intellectual property rights
of any other person or entity. Since January 30, 1997, no Debtor has received
any written, or to its knowledge, verbal, complaint, claim or notice alleging
any such infringement, violation or misappropriation which has not been
disposed of through a settlement agreement described in Section 2.11(b) of the
Company Disclosure Schedule.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth each
patent or trademark registration which has been issued to or is owned by any
Debtor with respect to any Debtors' Intellectual Property, identifies each
pending patent or trademark application or application for registration which
any Debtor has made or which any Debtor owns with respect to any Debtors'
Intellectual Property, identifies, with respect to each such patent or
trademark registration or application: (i) the jurisdiction or jurisdictions
where such filings have been made; and (ii) an estimate of the aggregate
application, renewal, continuation or other fees payable with respect to such
patent or trademark registrations and applications within six months of the
date of this Agreement, and identifies each license or other agreement
pursuant to which any Debtor has granted (other than in the Ordinary Course of
Business) any rights to any third party with respect to any Debtors'
Intellectual Property. The Debtors have delivered or otherwise made available
to the Buyer true and complete copies of all such licenses and agreements
(each as amended to date) and have made available to the Buyer true and
complete copies of all other written documentation evidencing ownership of,
and any claims or disputes relating to, each such item, as well as all patents
and trademark registrations and applications.
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(d) Section 2.11(d) of the Company Disclosure Schedule sets forth each item
of Debtors' Intellectual Property (other than commercially available software
generally available to the public at a license fee of less than $10,000) used
by any Debtor in the operation of its business that is owned by a party other
than the party using it. The Debtors have delivered or otherwise made
available to the Buyer true and complete copies of all licenses, sublicenses
or other agreements (each as amended to date) pursuant to which any Debtor
uses such Debtors' Intellectual Property, all of which are set forth in
Section 2.11(d) of the Company Disclosure Schedule.
(e) The Debtors have previously delivered or otherwise made available to the
Buyer true and complete copies of all internal reports, investigations,
analyses or other documents concerning the Debtors' Year 2000 compliance.
2.12 Real Property Leases. Section 2.12 of the Company Disclosure Schedule
lists all real property (other than tower sites) leased or subleased to the
Debtors, indicating, in each case, the term of the lease and any extension and
expansion options and the rent payable under such lease. The Debtors have made
available to the Buyer true and complete copies of all such leases and
subleases (each as amended to date), together with true and complete lists of
the tower sites omitted from Section 2.12 of the Company Disclosure Schedule.
With respect to each such lease and sublease:
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect, subject to the effect of the Chapter 11 Proceeding
and bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and except as the availability
of equitable remedies may be limited by general principles of equity;
(b) if assumed pursuant to the Amended Plan, the lease or sublease will
continue to be legal, valid, binding, enforceable and in full force and
effect immediately following the Closing with the same terms as in effect
immediately prior to the Closing, subject to the effect of bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except as the availability of equitable
remedies may be limited by general principles of equity;
(c) none of the Debtors, nor, to the Parent's or the Company's knowledge,
any other party to the lease or sublease, is in material breach or default,
and no event (other than (i) the nonpayment of rent or other charges by the
Debtors with respect to periods prior to the Filing Date or (ii) the
commencement of the Chapter 11 Proceeding) has occurred which, with notice
or lapse of time, would constitute a material breach or default by the
Debtors or, to the Parent's or the Company's knowledge, by any such other
party, or permit termination, modification or acceleration thereunder;
(d) to the knowledge of the Debtors, there are no material disputes, oral
agreements or forbearance programs in effect as to the lease or sublease;
(e) none of the Debtors has assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(f) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said
facilities; and
(g) other than in the Ordinary Course of Business, no construction,
alteration or other leasehold improvement work with respect to the lease or
sublease remains to be paid for or performed by the Debtors (except amounts
owing for periods prior to the Filing Date).
2.13 Contracts.
(a) Section 2.13 of the Company Disclosure Schedule sets forth a true and
complete list of all written arrangements (including, without limitation,
written agreements) to which any Debtor is a party which, pursuant to the
rules and regulations of the SEC, would have to be attached as exhibits as
material contracts to an Annual Report on Form 10-K filed by the Parent or the
Company if such Annual Report were filed on the date of this Agreement.
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(b) The Debtors have delivered or otherwise made available to the Buyer a
true and complete copy of each written arrangement (each as amended to date)
required to be listed in Section 2.13 of the Company Disclosure Schedule. With
respect to each written arrangement so listed: (i) as to a prepetition
agreement susceptible of assumption, upon the assumption thereof by the
Debtors pursuant to Section 365 of the Bankruptcy Code as specified in the
Amended Plan, the written arrangement will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing with the same terms as in effect immediately prior to the Closing,
subject to the effect of bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and except as
the availability of equitable remedies may be limited by general principles of
equity; and (ii) none of the Debtors nor, to the Parent's or the Company's
knowledge, any other party, is in material breach or default, and no event
(other than (x) the failure by the Debtor to pay an amount due thereunder with
respect to goods or services rendered prior to the Filing Date, (y) the
failure by the Debtor to render goods or services thereunto prior to the
Filing Date or (z) the commencement of the Chapter 11 Proceeding) has occurred
which with notice or lapse of time would constitute a material breach or
default by the Debtors or, to the Parent's or the Company's knowledge, by any
such other party, or permit termination, modification or acceleration, under
the written arrangement. None of the Debtors is a party to any oral contract,
agreement or other arrangement which, if reduced to written form, would be
required to be listed in Section 2.13 of the Company Disclosure Schedule under
the terms of this Section 2.13. None of the Debtors is restricted by any
arrangement from carrying on its business anywhere in the United States.
2.14 Licenses and Authorizations.
(a) The Debtors hold all licenses, permits, certificates, franchises,
ordinances, registrations, or other rights, applications and authorizations
filed with, granted or issued by, or entered by any Governmental Entity,
including, without limitation, the FCC or any state or local regulatory
authorities or any state or local public service commission or public utility
commission (each, a "State Authority") asserting jurisdiction over any Debtor
or its businesses or assets, that are required for the conduct of their
businesses as currently being conducted (each as amended to date)
(collectively, the "Debtor Authorizations"), other than such licenses,
permits, certificates, franchises, ordinances, registrations or other rights,
applications and authorizations the absence of which would not in the
aggregate materially impair the ability of either the Parent or the Company to
consummate the transactions contemplated hereby or of the Reorganized Debtors
to own and operate the properties, assets and businesses of the Debtors
following the Closing. Section 2.14(a) of the Company Disclosure Schedule
contains a true and complete list of such Debtor Authorizations.
(b) Section 2.14(b) of the Company Disclosure Schedule contains a true and
complete list of (i) each application of the Debtors pending before the FCC
(collectively, the "Debtor FCC Applications"); (ii) each FCC permit and FCC
license which is not a Debtor Authorization but in which any Debtor, directly
or indirectly, holds an interest, including as a stakeholder in the licensee
(collectively, the "Indirect Debtor Authorizations"); and (iii) all licenses,
certificates, consents, permits, approvals and authorizations for the benefit
of the Debtors pending before any State Authority (collectively, the "Debtor
State Applications"). The Debtor Authorizations, the Debtor FCC Applications,
the Indirect Debtor Authorizations and the Debtor State Applications
(collectively, the "Debtor Licenses and Authorizations") are the only federal,
state or local licenses, certificates, consents, permits, approvals and
authorizations that are required for the conduct of the business and
operations of the Debtors as presently conducted, other than such consents,
permits, approvals or authorizations the absence of which would not in the
aggregate materially impair the ability of either the Parent or the Company to
either consummate the transactions contemplated hereby or of the Reorganized
Debtors to own and operate the properties, assets and businesses of the
Debtors following the Closing.
(c) The Debtor Authorizations and, to the Parent's and the Company's
knowledge, the Indirect Debtor Authorizations are in full force and effect
and, other than Security Interests in favor of the lenders under the DIP Loan
Agreement and the Pre-Petition Lenders, have not been pledged or otherwise
encumbered, assigned, suspended, modified in any material adverse respect,
canceled or revoked, and each Debtor has operated in compliance with all terms
thereof or any renewals thereof applicable to it, other than where the failure
to so
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comply would not in the aggregate have a Debtor Material Adverse Effect or
materially impair the ability of either the Parent or the Company to
consummate the transactions contemplated hereby or of the Reorganized Debtors
to own and operate the properties, assets and businesses of the Debtors
following the Closing. No event has occurred with respect to any of the Debtor
Authorizations which permits, or after notice or lapse of time or both would
permit, revocation or termination thereof or would result in any other
material impairment of the rights of the holder of any such Debtor
Authorizations. To the knowledge of the Parent or the Company, there is not
pending any application, petition, objection or other pleading with the FCC,
any State Authority or any similar body having jurisdiction or authority over
the operations of the Debtors which questions the validity of or contests any
Debtor Authorization or which could reasonably be expected, if accepted or
granted, to result in the revocation, cancellation, suspension or any
materially adverse modification of any Debtor Authorization.
(d) Except for approval by the Bankruptcy Court or by the FCC as
contemplated by Section 4.15 or as set forth in Section 2.14(d) of the Company
Disclosure Schedule, no permit, consent, approval, authorization,
qualification or registration of, or declaration to or filing with, any
Governmental Entity is required to be obtained or made by any Debtor in
connection with the transfer or deemed transfer of the Debtor Licenses and
Authorizations to the Buyer as a result of the consummation of the
transactions contemplated hereby, except where the failure to obtain or make
such permit, consent, approval, authorization, qualification, registration,
declaration or filing would not materially impair the ability of the Company
to consummate the transactions contemplated hereby or the Reorganized Debtors
to own and operate the properties, assets and businesses of the Debtors
following the Closing.
2.15 Litigation. Except as to claims arising prior to the Filing Date that
are within the jurisdiction of the Bankruptcy Court or are to be resolved in
the Chapter 11 Proceeding or by force of the discharge granted to the Debtors
in connection with the Chapter 11 proceeding, as of the date of this
Agreement: (a) there is no action, suit, proceeding or investigation to which
any Debtor is a party (either as a plaintiff or defendant) pending or, to the
Parent's or the Company's knowledge, threatened before any court, Governmental
Entity or arbitrator, and, to the Parent's or the Company's knowledge, there
is no basis for any such action, suit, proceeding or investigation; (b) none
of the Debtors nor, to the Parent's or the Company's knowledge, any officer,
director or employee of any Debtor has been permanently or temporarily
enjoined by any order, judgment or decree of any court or Governmental Entity
from engaging in or continuing to conduct the business of the Debtors; and (c)
no order, judgment or decree of any court or Governmental Entity has been
issued in any proceeding to which any Debtor is or was a party or, to the
Parent's or the Company's knowledge, in any other proceeding, that enjoins or
requires any Debtor to take action of any kind with respect to its businesses,
assets or properties. Except for the regulatory matters addressed in Section
2.14, none of the actions, suits, proceedings or investigations listed in
Section 2.15 of the Company Disclosure Schedule, individually or collectively,
if determined adversely to the interests of the Debtors, would have a Debtor
Material Adverse Effect.
2.16 Employees.
(a) Section 2.16(a) of the Company Disclosure Schedule sets forth a true and
complete list as of the most recent practicable date of all employment
contracts or agreements relating to employment to which any of the Debtors is
a party which are not terminable by the Debtors without penalty upon less than
30 or fewer days' notice.
(b) There are no collective bargaining agreements to which any of the
Debtors is a party. No Debtor has experienced any strikes, grievances, claims
of unfair labor practices or other collective bargaining disputes and, to the
Parent's or the Company's knowledge, no organizational effort is presently
being made or threatened by or on behalf of any labor union with respect to
its employees. To the knowledge of the Parent or the Company, there is no
reasonable basis to believe that any Debtor will be subject to any labor
strike or other organized work force disturbance following the Closing.
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2.17 Employee Benefits.
(a) Section 2.17(a) of the Company Disclosure Schedule contains a true and
complete list of all Employee Benefit Plans (as defined below in this Section
2.17(a)) maintained, or contributed to, by any Debtor or any ERISA Affiliate
(as defined below in this Section 2.17(a)) of any Debtor ("Company Employee
Benefit Plans"). For purposes of this Agreement, "Employee Benefit Plan" means
any "employee pension benefit plan" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), any
"employee welfare benefit plan" (as defined in Section 3(l) of ERISA), and any
other material written or oral plan, agreement or arrangement involving direct
or indirect employee compensation, including, without limitation, insurance
coverage, severance benefits, disability benefits, pension, retirement plans,
profit sharing, deferred compensation, bonuses, stock options, stock purchase,
phantom stock, stock appreciation or other forms of incentive compensation or
post-retirement compensation. For purposes of this Agreement, "ERISA
Affiliate" means any member of (i) a controlled group of corporations (as
defined in Section 414(b) of the Code); (ii) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code); or (iii) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code). True and complete copies of (i)
all Company Employee Benefit Plans that have been reduced to writing; (ii)
written summaries of all unwritten Company Employee Benefit Plans; (iii) all
trust agreements, insurance contracts and summary plan descriptions related to
the Company Employee Benefit Plans; (iv) the annual report filed on IRS Form
5500, 5500C or 5500R, if applicable, for the most recent plan year for each
Company Employee Benefit Plan; and (v) the most recent qualification letter
issued by the Internal Revenue Service with respect to each Company Employee
Benefit Plan that is intended to qualify under Section 401(a) of the Code,
have been made available to the Buyer. Each Company Employee Benefit Plan has
been administered in accordance with its terms in all material respects, and
each Debtor and, to the Parent's or the Company's knowledge, each ERISA
Affiliate of any Debtor has in all material respects met its obligations (if
any) with respect to each Company Employee Benefit Plan and has made all
required contributions (if any) thereto. The Debtors and all Company Employee
Benefit Plans are in compliance in all material respects with the currently
applicable provisions (if any) of ERISA, the Code and other applicable
federal, state and foreign laws and the regulations thereunder. Each Company
Employee Benefit Plan that is intended to qualify under Section 401(a) of the
Code is so qualified. Each Company Employee Benefit Plan that is required to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been reviewed
for compliance with, and has satisfied the requirements of, said Sections for
each plan year ending prior to the Closing.
(b) To the Parent's or the Company's knowledge, as of the date of this
Agreement, there are no inquiries or investigations by any Governmental
Entity, termination proceedings or other claims (except claims for benefits
payable in the normal operation of the Company Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders), suits or
proceedings against or involving any Company Employee Benefit Plan or
asserting any rights or claims to benefits under any Company Employee Benefit
Plan.
(c) Neither any Debtor nor, to the Parent's or the Company's knowledge, any
ERISA Affiliate of any Debtor has ever maintained a Company Employee Benefit
Plan subject to Section 412 of the Code, Part 3 of Subtitle B of Title I of
ERISA, or Title IV of ERISA. At no time has any Debtor or, to the Parent's or
the Company's knowledge, any ERISA Affiliate of any Debtor been obligated to
contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA) that is subject to Title IV of ERISA. No act or omission has occurred
and no condition exists with respect to any Company Employee Benefit Plan that
would subject any Debtor or, to the Company's knowledge, any ERISA Affiliate
of any Debtor to any material fine, penalty, Tax or liability of any kind
imposed under ERISA or the Code. No prohibited transaction (as defined in
Section 406 of ERISA or Section 4975 of the Code) has occurred with respect to
any Company Employee Benefit Plan that is subject to ERISA or the Code. No
Company Employee Benefit Plan, plan documentation or agreement, summary plan
description or other written communication distributed generally to employees
by its terms prohibits any Debtor from amending or terminating any such
Company Employee Benefit Plan and any Company Employee Benefit Plan may be
terminated without liability to any Debtor or the Buyer, except for benefits
accrued through the date of termination. Except as may be required by Part 6
of Title I of ERISA or similar state laws regarding continuation of benefits,
no former employees participate in any employee welfare benefit plans listed
in Section
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2.17(a) of the Company Disclosure Schedule beyond the month of the termination
of his employment. No Company Employee Benefit Plan includes in its assets any
securities issued by the Debtors. No Company Employee Benefit Plan has been
subject to tax under Section 511 of the Code.
(d) Section 2.17(d) of the Company Disclosure Schedule lists each: (i)
agreement with any director, executive officer or other key employee of the
Debtors (A) the benefits of which are contingent, or the terms of which are
altered, upon the occurrence of a transaction involving the Debtors of the
nature of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee, or (C) providing
severance benefits or other benefits upon the consummation of any transaction
or after the termination of employment of such director, executive officer or
key employee; (ii) agreement, plan or arrangement under which any person may
receive a payment from any Debtor that may be subject to the tax imposed by
Section 4999 of the Code or may constitute a "parachute payment" under Section
280G of the Code; and (iii) agreement or plan binding any Debtor, including,
without limitation, any stock option plan, stock appreciation right plan,
restricted stock plan, stock purchase plan, severance benefit plan, or any
Company Employee Benefit Plan, any of the benefits of which will be increased,
or the vesting of the benefits of which will be accelerated, by the occurrence
of any of the transactions contemplated by this Agreement or the value of any
of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
2.18 Environmental Matters.
Except for Sections 2.5(a), 2.23 and 2.24, this Section 2.18 contains the
exclusive representations and warranties of the Parent and the Company
concerning environmental matters, including but not limited to Environmental
Laws and Materials of Environmental Concern (as both of those terms are
defined below in this Section 2.18). Each of the Parent and the Company
represents and warrants as follows:
(a) Each of the Debtors is in compliance with all applicable
Environmental Laws (as defined below in this Section 2.18(a)), other than
where the failure to be in compliance would not in the aggregate have a
Debtor Material Adverse Effect. There is no pending or, to the Parent's or
the Company's knowledge, threatened civil or criminal litigation, written
notice of violation, formal administrative proceeding, or written notice of
investigation or inquiry or written information request by any Governmental
Entity, relating to any Environmental Law involving any Debtors or their
respective assets and properties. For purposes of this Agreement,
"Environmental Law" means any foreign, federal, state or local law,
statute, permits, orders, rule or regulation or the common or decisional
law relating to the environment or occupational health and safety,
including, without limitation, any statute, regulation or order pertaining
to (i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous substances or solid or hazardous waste; (ii)
air, water and noise pollution; (iii) groundwater and soil contamination;
(iv) the release or threatened release into the environment of industrial,
toxic or hazardous substances, or solid or hazardous waste, including,
without limitation, emissions, discharges, injections, spills, escapes or
dumping of pollutants, contaminants or chemicals; (v) the protection of
wildlife, marine sanctuaries and wetlands, including, without limitation,
all endangered and threatened species; (vi) storage tanks, vessels and
containers; (vii) underground and other storage tanks or vessels,
abandoned, disposed or discarded barrels, containers and other closed
receptacles; (viii) health and safety of employees and other persons; and
(ix) manufacture, processing, use, distribution, treatment, storage,
disposal, transportation or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or oil or petroleum products
or solid or hazardous waste. For the purposes of this Agreement, the terms
"release" and "environment" shall have the meaning set forth in the United
States Comprehensive Environmental Compensation, Liability and Response Act
of 1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental Concern
(as defined below in this Section 2.18(b)) into the environment at any
parcel of real property or any facility formerly or currently owned,
operated or controlled by any Debtor for which any Debtor may be liable
under any Environmental Law of the jurisdiction in which such property or
facility is located, other than such releases as would not
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in the aggregate have a Debtor Material Adverse Effect. With respect to any
such releases of Materials of Environmental Concern, the Debtor has given
all required notices (if any) to Governmental Entities (copies of which
have been provided to the Buyer). There have been no releases of Materials
of Environmental Concern at parcels of real property or facilities other
than those owned, operated or controlled by the Debtors that could
reasonably be expected to have an impact on the real property or facilities
owned, operated or controlled by the Debtors, other than such impacts as
would not in the aggregate have a Debtor Material Adverse Effect. For
purposes of this Agreement, "Materials of Environmental Concern" means any
chemicals, pollutants or contaminants, hazardous substances (as such term
is defined under CERCLA or any Environmental Law), solid wastes and
hazardous wastes (as such terms are defined under the United States
Resources Conservation and Recovery Act or any Environmental Law), toxic
materials, oil or petroleum and petroleum products, or any other material
subject to regulation under any Environmental Law, except for normal office
and cleaning products.
(c) Set forth in Section 2.18 of the Company Disclosure Schedule is a
list of all environmental reports, investigations and audits which to the
knowledge of the Parent or the Company (whether conducted by or on behalf
of the Debtors or a third party, and whether done at the initiative of the
Debtors or directed by a Governmental Entity or other third party) were
issued during the past five years relating to premises formerly or
currently owned, operated or controlled by the Debtors. True and complete
copies of any such report, or the results of any such investigation or
audit, which to the knowledge of the Parent or the Company are in the
possession of the Parent or the Company (or can be obtained by the Company
through reasonable efforts), have been delivered or otherwise made
available to the Buyer.
(d) Neither the Parent nor the Company has any knowledge of any material
environmental liability of the solid and hazardous waste transporters and
treatment, storage and disposal facilities that have been utilized by
Debtors.
(e) The Debtors hold all Environmental Authorizations (as defined below
in this Section 2.18(e)) that are legally required for the conduct of their
businesses as currently conducted, other than where the failure to hold
such Environmental Authorizations would not in the aggregate have a Debtor
Material Adverse Effect, and such Environmental Authorizations (if any) are
listed in Section 2.18 of the Company Disclosure Schedule. For purposes of
this Agreement, the term "Environmental Authorization" means any license,
permit, certificate, or other authorization from a Governmental Entity
under any applicable Environmental Law. Each of the Debtors is and has been
in compliance with all such Environmental Authorizations, other than such
noncompliance as would not in the aggregate have a Debtor Material Adverse
Effect.
(f) None of the transactions contemplated by this Agreement or the
Amended Plan will require the Company or the Debtors to comply with an
Environmental Property Transfer Act (as defined below in this Section
2.18(f)). For purposes of this Agreement, the term "Environmental Property
Transfer Act" means any applicable law (including rules, regulations and
administrative orders thereunder) of any federal, state, local or foreign
government that requires any notification or disclosure of environmental
conditions in connection with the transfer, sale, lease or closure of any
property.
2.19 Legal Compliance. Each Debtor and the conduct and operation of its
respective business is and has been in compliance with each law (including
rules, regulations and administrative orders thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, that (a)
affects or relates to this Agreement or the transactions contemplated hereby
or (b) is applicable to the Debtors or their respective businesses, other than
where the failure to be or to have been in compliance would not in the
aggregate have a Debtor Material Adverse Effect or materially impair the
ability of the Parent or the Company to consummate the transactions
contemplated hereby or the Reorganized Debtors to own and operate the
properties, assets and businesses of the Debtors following the Closing.
2.20 Subscriber Cancellations; Suppliers. The Debtors have previously
delivered or otherwise made available to the Buyer true and complete reports
of the number of paging units the Debtors had in service on a quarterly basis
for its most recent fiscal year and the interim period covered by the Company
Financial Statements, and the number of subscriber cancellations the Debtors
had for each such period. To the knowledge
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of the Parent or the Company, no material supplier of any Debtors has
indicated within the past year that it will stop, or decrease the rate of,
supplying materials, products or services to them.
2.21 Capital Expenditures. The Debtors have previously delivered to the
Buyer a true and complete list of all capital expenditures in an amount in
excess of $300,000 incurred by the Debtors during 1997, which list is attached
as Section 4.5(a) of the Company Disclosure Schedule.
2.22 Brokers' Fees. None of the Debtors has any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
2.23 Certain Information. None of the information supplied by the Debtors
for inclusion or incorporation by reference in (i) the Proxy Statement and
Registration Statement (each as defined in Section 4.13) or (ii) any document
to be filed with the SEC, the FCC or any other Governmental Entity in
connection with the transactions contemplated hereby will, at the respective
times filed with the SEC, the FCC or other Governmental Entity and, in
addition, (A) in the case of the Proxy Statement, at the time it or any
amendment or supplement thereto is mailed to the Buyer's stockholders and at
the time of the Meeting (as defined in Section 4.12) and at the Closing and,
(B) in the case of the Registration Statement, at the time it becomes
effective under the Securities Act, contain any untrue statement of the
Debtors of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, no representation is made by the Debtors with respect to statements
made in any of the foregoing documents based upon information supplied by the
Buyer.
2.24 Disclosure. No representation or warranty by the Debtors contained in
this Agreement, and no statement contained in the Company Disclosure Schedule
or any other document, certificate or other instrument delivered to or to be
delivered by or on behalf of the Debtors pursuant to this Agreement, contains
or will as of the Closing Date contain any untrue statement of a material fact
or omits or will as of the Closing Date omit to state any material fact
necessary, in light of the circumstances under which it was or will be made,
in order to make the statements herein or therein not misleading.
ARTICLE III
Representations and Warranties of the Buyer
The Buyer represents and warrants to the Parent and the Company that the
statements contained in this Article III are true and complete, except as set
forth in the disclosure schedule of the Buyer delivered to the Company
simultaneously with the execution and delivery hereof (the "Buyer Disclosure
Schedule"). The Buyer Disclosure Schedule shall be arranged in sections and
paragraphs corresponding to the numbered and lettered sections and paragraphs
contained in this Article III, and the disclosures in any section or paragraph
of the Buyer Disclosure Schedule shall qualify other sections or paragraphs in
this Article III only to the extent that it is reasonably clear from a reading
of the disclosure that such disclosure is applicable to such other sections or
paragraphs. For purposes of this Agreement, a "Buyer Material Adverse Effect"
shall mean a material adverse effect on the businesses, assets (including
licenses, franchises and other intangible assets), financial condition,
operating income and prospects of the Buyer and its subsidiaries, taken as a
whole, excluding any effect generally applicable to the economy or the
industry in which the Buyer conducts its business.
3.1 Organization Qualification, Corporate Power and Authority.
(a) Each of the Buyer and the Merger Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Each of the Buyer and the Merger Subsidiary is duly qualified to
conduct business and is in good standing under the laws of each jurisdiction
(each such jurisdiction being set forth in Section 3.1(a) of the Buyer
Disclosure Schedule) in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification, other than where the
failure to be so qualified would not in the aggregate have a Buyer Material
Adverse Effect. Each of the Buyer and the Merger Subsidiary
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has all requisite corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
The Buyer has furnished to the Company true and complete copies of the Buyer's
and the Merger Subsidiary's respective certificates of incorporation and by-
laws, each as amended and as in effect on the date hereof. Each of the Buyer
and the Merger Subsidiary has at all times complied with, and is not in
default under or in violation of, any provision of its certificate of
incorporation or by-laws, other than where the failure to so comply and such
defaults and violations would not in the aggregate have a Buyer Material
Adverse Effect.
(b) Each of the Buyer and the Merger Subsidiary has all requisite power and
authority to execute and deliver this Agreement. The execution and delivery of
this Agreement by the Buyer and the Merger Subsidiary and, subject to the
approval of the Buyer Charter Amendment (as defined in Section 4.12) and the
Buyer Share Issuance (as defined below in this Section 3.1(b)) by the
stockholders of the Buyer, the performance of this Agreement and the
consummation of the transactions contemplated hereby by the Buyer and the
Merger Subsidiary have been duly and validly authorized by all necessary
corporate action on the part of the Buyer and the Merger Subsidiary. This
Agreement has been duly and validly executed and delivered by the Buyer and
the Merger Subsidiary and constitutes a valid and binding obligation of the
Buyer and the Merger Subsidiary, enforceable against the Buyer and the Merger
Subsidiary in accordance with its terms. For purposes of this Agreement,
"Buyer Share Issuance" means the issuance by the Buyer of shares of its
capital stock as contemplated by this Agreement and the Amended Plan,
including (i) the issuance of the Plan Shares as contemplated by the Merger
Agreement and the Amended Plan, (ii) the issuance of shares of Buyer Common
Stock and, if applicable, shares of Class B Common Stock, par value $0.01 per
share, of the Buyer ("Buyer Class B Common Stock") having the terms specified
in the Buyer Charter Amendment upon exercise of Rights issued pursuant to the
Rights Offering or issued to the Standby Purchasers (or their assignees or
persons in substitution therefor) pursuant to the Standby Purchase Commitments
in connection with the Rights Offering, and (iii) the issuance of the Buyers
Warrants issued by the Buyer (x) pursuant to the Rights Offering, (y) to the
Standby Purchasers in connection with the Rights Offering, and (z) pursuant to
the Buyer Distribution, and the issuance of shares of Buyer Common Stock upon
exercise of any of the foregoing Buyer Warrants.
3.2 Capitalization.
(a) The authorized capital stock of the Buyer consists of 75,000,000 shares
of Buyer Common Stock and 10,000,000 shares of preferred stock, $.01 par value
("Buyer Preferred Stock"), of which 100,000 shares have been designated as
Series B Junior Participating Preferred Stock and 250,000 shares have been
designated as Series C Convertible Preferred Stock. As of the date hereof, (i)
21,067,110 shares of Buyer Common Stock are issued and outstanding, (ii) no
shares of Buyer Common Stock are held in the treasury of the Buyer, (iii)
2,740,381 shares of Buyer Common Stock are issuable upon exercise of certain
outstanding options or are reserved for issuance pursuant to the Buyer's
existing stock option and purchase plans, and (iv) 5,343,305 shares of Buyer
Common Stock are reserved for issuance upon exercise of other convertible
securities of the Buyer. As of the date hereof, no shares of Series B Junior
Participating Preferred Stock and 250,000 shares of Series C Convertible
Preferred Stock are issued and outstanding, and no shares of Buyer Preferred
Stock are held in the treasury of the Buyer. Except for such options and such
other convertible securities and except for the rights to purchase shares of
Series B Junior Participating Preferred Stock of the Buyer (the "Preferred
Rights") issued pursuant to the Rights Agreement dated as of October 13, 1995
(the "Rights Agreement"), between the Buyer and The Bank of New York, as
Rights Agent, there are no options, warrants, rights, calls, convertible
instruments, agreements or commitments to which the Buyer or any Buyer
Subsidiary is a party or which are binding upon any of them (other than this
Agreement) providing for the issuance, disposition or acquisition of any of
its capital stock or stock appreciation, phantom stock or similar rights. All
the issued and outstanding shares of the Buyer's capital stock are duly
authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights.
(b) All the outstanding shares of capital stock of each of the Buyer
Subsidiaries are beneficially owned by the Buyer, directly or indirectly, free
and clear of any restrictions on transfer (other than restrictions under the
Securities Act and state or foreign securities laws), claims, Security
Interests, options, warrants, rights, contracts, calls, commitments, equities
or demands, and all such shares are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights.
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(c) There are no voting trusts, proxies or other agreements or
understandings to which the Buyer or any of the Buyer Subsidiaries is a party
with respect to the voting of the capital stock of the Buyer or any Buyer
Subsidiary. None of the Buyer or the Buyer Subsidiaries is required to redeem,
repurchase or otherwise acquire shares of capital stock or debt securities of
the Buyer or of any Buyer Subsidiary as a result of the transactions
contemplated by this Agreement.
(d) The authorized capital stock of the Merger Subsidiary consists of 1,000
shares of common stock, $.01 par value, all of which are issued and
outstanding and held beneficially and of record by the Buyer.
(e) The shares of Buyer Common Stock to be issued and distributed as
contemplated by Section 1.3(e) and Section 1.6 of this Agreement and the
shares of Buyer Common Stock, the shares of Buyer Class B Common Stock, if
applicable, and the Buyer Warrants to be issued and delivered pursuant to the
Rights Offering (as defined in Section 4.20(a)) or as contemplated by the
Standby Purchase Commitments, in each case when so issued and distributed or
delivered, as the case may be, and the shares of Buyer Common Stock issued
upon conversion of such shares of Buyer Class B Common Stock, if applicable,
when so converted in accordance with the Buyer Charter Amendment (as defined
in Section 4.12), and the shares of Buyer Common Stock issued upon exercise of
Buyer Warrants, when issued, paid for and delivered as provided in the Buyer
Warrant Agreement, will be duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights.
3.3 Noncontravention. Except for the applicable requirements of the
Securities Act and the Exchange Act, any applicable state and foreign
securities laws, the HSR Act, the Communications Act and the regulations of
the FCC, and state public utility, telecommunication or public service laws,
neither the execution and delivery of this Agreement by each of the Buyer and
the Merger Subsidiary nor the consummation of the transactions contemplated
hereby will (a) conflict with or violate any provision of the Buyer's or
Merger Subsidiary's respective certificate of incorporation or by-laws, (b)
require on the part of the Buyer and/or the Merger Subsidiary any filing with,
or any permit, authorization, consent or approval of, any Governmental Entity,
other than where the failure to make or obtain such filings, permits,
authorizations, consents or approvals would not in the aggregate have a Buyer
Material Adverse Effect or materially adversely affect the ability of the
Buyer to operate the business of the Buyer following the Effective Time, (c)
conflict with, result in a breach of, constitute (with or without due notice
or lapse of time or both) a default under, result in the acceleration of,
create in any party any right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver under, any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest or other
arrangement to which the Buyer or any Buyer Subsidiary is a party or by which
the Buyer or any Buyer Subsidiary is bound or to which any of their respective
assets are subject or any judgment, order, writ, injunction, decree, statute,
rule or regulation applicable to the Buyer or any Buyer Subsidiary or any of
their respective properties or assets, other than such conflicts, violations,
breaches, defaults, accelerations, terminations, modifications, cancellations
or notices, consents or waivers as would not in the aggregate have a Buyer
Material Adverse Effect, or (d) result in the imposition of any Security
Interest upon any assets of the Buyer or any Buyer Subsidiary.
3.4 Business Entities.
(a) Section 3.4(a) of the Buyer Disclosure Schedule sets forth a true and
complete list of each corporation, partnership, limited liability company or
other form of business association in which the Buyer, directly or indirectly,
owns any equity interest or any security convertible into or exchangeable for
an equity interest (each a "Buyer Business Entity") which is material to the
Buyer.
(b) The Buyer Business Entities listed in Section 3.4(b) of the Buyer
Disclosure Schedule are the only Buyer Business Entities which have conducted
any operations, trade or businesses of the Buyer since January 30, 1997, hold
any Buyer Authorizations (as defined in Section 3.14(a)) or own any assets
necessary for the conduct of the businesses of the Buyer as currently
conducted.
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(c) The Buyer owns all the outstanding equity interests in each Buyer
Business Entity. For purposes of this Agreement, "Buyer Subsidiary" means any
Buyer Business Entity in which the Buyer, directly or indirectly, owns a
majority of the equity interests.
(d) No Buyer Business Entity is in default under or in violation of any
provision of its organizational documents. To the knowledge of the Buyer, all
the issued and outstanding equity interests of each Buyer Business Entity are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. All equity interests of each Buyer Business Entity are held
of record or owned beneficially by the Buyer free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state or foreign securities laws), claims, Security Interests, options,
warrants, rights, contracts, calls, commitments, equities and demands.
(e) There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any equity interests of any Buyer
Business Entity to which the Buyer or any Buyer Subsidiary is a party or by
which it is bound, or, to the Buyer's knowledge, any other such trusts,
proxies, agreements or understandings.
3.5 Reports and Financial Statements.
(a) The Buyer has previously furnished to the Debtors true and complete
copies, each as amended or supplemented to date, of (i) the Buyer's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, as filed by
the Buyer with the SEC, and (ii) all other reports, statements, exhibits and
other documents filed by the Buyer with the SEC under Section 13 or 15 of the
Exchange Act (which are all the reports, statements, exhibits and other
documents required to be so filed) since December 31, 1997 (such materials,
together with any amendments or supplements thereto, collectively being
referred to herein as the "Buyer Reports"). As of their respective dates, the
Buyer Reports complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to such Buyer Reports and the Buyer Reports 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 therein, in light of
the circumstances under which they were made, not misleading. The audited
financial statements and unaudited interim financial statements of the Buyer
included in the Buyer Reports (i) comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto,
and, in the case of interim financial statements, as permitted by Form 10-Q
under the Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Buyer as of the
respective dates thereof and for the periods referred to therein, and (iv) are
consistent with the books and records of the Buyer.
(b) The accounts receivable of the Buyer and its subsidiaries reflected on
the consolidated balance sheet of the Buyer as of June 30, 1998 (the "Buyer
Balance Sheet Date"), filed by the Buyer as part of its Quarterly Report on
Form 10-Q for the quarter that ended on such date (the "Most Recent Buyer
Balance Sheet"), and those arising since the date of the Most Recent Buyer
Balance Sheet, are valid receivables subject to no set-offs or counterclaims,
net of a reserve for bad debts, which reserve is reflected on the Most Recent
Buyer Balance Sheet. The inventories of the Buyer and its subsidiaries
reflected on the Most Recent Buyer Balance Sheet are of a quality and quantity
useable and/or saleable in the Ordinary Course of Business, except as written
down to net realizable value on the Most Recent Buyer Balance Sheet. All
inventory shown on the Most Recent Buyer Balance Sheet has been priced at the
lower of cost or net realizable value.
3.6 Absence of Certain Changes. Since the Buyer Balance Sheet Date, (a)
there has not been any Buyer Material Adverse Effect, nor has there occurred
any event or development that would have a Buyer Material Adverse Effect and
(b) the Buyer has not taken any action that would be prohibited by subsection
(b) of Section 4.5 below if taken from and after the date of this Agreement.
3.7 Undisclosed Liabilities. Neither the Buyer nor any Buyer Subsidiary has
any liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated, whether due or to become due),
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except for (a) liabilities separately shown or expressly reserved on the Most
Recent Buyer Balance Sheet, (b) liabilities that have arisen since the Buyer
Balance Sheet Date in the Ordinary Course of Business of the Buyer or any
Subsidiary and that are similar in nature and amount to the liabilities that
arose during the comparable period of time in the immediately preceding fiscal
period; and (c) liabilities incurred in the Ordinary Course of Business of the
Buyer that are not required by GAAP to be reflected on the Most Recent Buyer
Balance Sheet and that are not in the aggregate material.
3.8 Tax Matters.
(a) Each of the Buyer and the Buyer Subsidiaries has filed all Tax Returns
that it was required to file, and all such Tax Returns were true and complete
in all material respects. Neither the Buyer nor any Buyer Subsidiary is or has
even been a member of a group of corporations which has filed (or been
required to file) consolidated, combined or unitary Tax Returns, other than a
group of which the Buyer and the Buyer Subsidiaries are or were members.
Except as described in Section 3.8(a) of the Buyer Disclosure Schedule, (i)
each group of corporations with which the Buyer has filed (or was required to
file) consolidated, combined, unitary or similar Tax Returns (a "Buyer
Affiliated Group") has filed all Tax Returns that it was required to file with
respect to any period in which the Buyer was a member of such Buyer Affiliated
Group (a "Buyer Affiliated Period") and (ii) all such Tax Returns were true
and complete in all material respects. Each of the Buyer and the Buyer
Subsidiaries has paid on a timely basis all Taxes (as defined below) that were
due and payable and, to the Buyer's knowledge, each member of a Buyer
Affiliated Group has paid all Taxes that were due and payable with respect to
all Buyer Affiliated Periods. The unpaid Taxes of the Buyer for tax periods
through the Most Recent Buyer Balance Sheet do not exceed the accruals and
reserves (other than accruals and reserves established to reflect timing
differences between book and tax income) for Taxes reflected on the Most
Recent Buyer Balance Sheet. All Taxes that the Buyer or any Buyer Subsidiary
is or was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper
Governmental Entity.
(b) The Buyer has delivered or otherwise made available to the Company true
and complete copies of all federal income Tax Returns of the Buyer and the
Buyer Subsidiaries, together with all related examination reports and
statements of deficiencies, for all periods commencing after December 31, 1993
and, to the extent in the possession of the Buyer, true and complete copies of
the portion of the federal income Tax Returns of any member of a Buyer
Affiliated Group, together with all related examination reports and statements
of deficiency, relating to the activities of the Buyer or any Buyer Subsidiary
for all Buyer Affiliated Periods commencing after December 31, 1993. The
federal income Tax Returns of each of the Buyer, any Buyer Subsidiary and,
each member of a Buyer Affiliated Group have been audited by the Internal
Revenue Service or are closed by the applicable statute of limitations for all
taxable years through the taxable year specified in Section 3.8(b) of the
Buyer Disclosure Schedule. The Buyer has delivered or otherwise made available
to the Company true and complete copies of all other Tax Returns of the Buyer
and each Buyer Subsidiary, together with all related examination reports and
statements of deficiency, for all periods commencing after December 31, 1993
and, to the extent in the possession of the Buyer, true and complete copies of
the portion of all other Tax Returns, of any member of a Buyer Affiliated
Group, together with all related examination reports and statements of
deficiency, relating to the activities of the Buyer or any Buyer Subsidiary
for all Affiliated Periods commencing after December 31, 1993. No examination
or audit of any Tax Return of the Buyer, any Buyer Subsidiary or, to the
Buyer's knowledge, any member of a Buyer Affiliated Group with respect to an
Affiliated Period by any Governmental Entity is currently in progress or, to
the knowledge of the Buyer, threatened or contemplated. Neither the Buyer, any
Buyer Subsidiary nor, to the Buyer's knowledge, any member of a Buyer
Affiliated Group has been informed by any jurisdiction that the jurisdiction
believes that the Buyer or any Buyer Subsidiary or any member of a Buyer
Affiliated Group was required to file any Tax Return that was not filed on a
timely basis. Neither the Buyer, any Buyer Subsidiary nor, to the Buyer's
Knowledge, any member of a Buyer Affiliated Group has waived any statute of
limitations with respect to Taxes or agreed to an extension of time with
respect to a Tax assessment or deficiency.
(c) Neither the Buyer nor any Buyer Subsidiary (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code and none of the
assets of the Buyer or any Buyer Subsidiary is subject to an election
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under Section 341(f) of the Code; (ii) has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (iii)
has made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as
an "excess parachute payment" under Section 280G of the Code; (iv) has any
actual or potential liability for any Taxes of any person (other than the
Buyer or any Buyer Subsidiary) under Treasury Regulation Section 1.1502-6 (or
any similar provision of federal, state, local, or foreign law), or as a
transferee or successor, by contract, or otherwise; or (v) is or has been
required to make a basis reduction pursuant to Treasury Regulation Section
1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).
(d) None of the assets of the Buyer or any Buyer Subsidiary: (i) is property
that is required to be treated as being owned by any other person pursuant to
the provisions of former Section 168(f)(8) of the Code; (ii) is "tax-exempt
use property" within the meaning of Section 168(h) of the Code; or (iii)
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code.
(e) Neither the Buyer nor any Buyer Subsidiary has undergone a change in its
method of accounting resulting in an adjustment to its taxable income pursuant
to Section 481(h) of the Code.
(f) No state or federal "net operating loss" of the Buyer or any Buyer
Subsidiary determined as of the Closing Date is subject to limitation on its
use pursuant to Section 382 of the Code or comparable provisions of state law
as a result of any "ownership change" within the meaning of Section 382(g) of
the Code occurring prior to the Closing Date.
(g) Section 3.8(g) of the Buyer Disclosure Schedule sets forth in reasonable
detail the following information with respect to the Buyer and each Buyer
Subsidiary as of the most recent practicable date: (i) the basis of the Buyer
and each Buyer Subsidiary in their respective assets; (ii) the basis of the
stockholder(s) in its stock (or the amount of any "excess loss account");
(iii) the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax, or excess charitable
contribution allocable; and (iv) the amount of any deferred gain or loss
allocable arising out of any "deferred intercompany transaction."
3.9 Tangible Assets. The Buyer and the Buyer Subsidiaries own or lease all
tangible assets necessary for the conduct of their respective businesses as
presently conducted. Each such tangible asset is free from material defects,
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is
suitable for the purposes for which it is presently used, other than where the
failures or defects would not in the aggregate have a Buyer Material Adverse
Effect.
3.10 Owned Real Property. The Buyer has previously made available to the
Company a true and complete listing of all material real property that has
been owned by the Buyer or any Buyer Subsidiary at any time on or after
January 30, 1997. With respect to each parcel of real property which is
currently owned by the Buyer or any Buyer Subsidiary, the identified owner has
good record and marketable title to such parcel, free and clear of any
Security Interest, easement, covenant or other restriction, except for
Security Interests, easements, covenants and other restrictions which do not
materially impair the use, occupancy or value of such parcel as presently used
in the Buyer's or Buyer Subsidiaries' businesses.
3.11 Intellectual Property.
(a) The Buyer owns, licenses or otherwise has the legally enforceable right
to use all patents, trademarks, trade names, service marks, copyrights, and
any applications for such patents, trademarks, trade names, service marks and
copyrights, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material
used in the operation of the business of the Buyer or any Buyer Subsidiary or
necessary for the operation of the business of the Buyer or any Buyer
Subsidiary as presently conducted by the Buyer or any Buyer Subsidiary
(collectively "Buyer Intellectual Property"). Each such item of Buyer
Intellectual Property owned or available for use by the Buyer or a Buyer
Subsidiary
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immediately prior to Closing will be owned or available for use by the Buyer
or the Buyer Subsidiary on substantially similar terms and conditions
immediately following the Closing. No other person or entity has any rights to
any of the Buyer Intellectual Property, and no other person or entity is
infringing, violating or misappropriating any of, the Buyer Intellectual
Property used in the business of the Buyer, other than such infringements,
violations or misappropriations as would not in the aggregate have a Buyer
Material Adverse Effect.
(b) The business, operations and activities of the Buyer and each Buyer
Subsidiary as presently conducted or as conducted at any time within the two
years prior to the date of this Agreement have not materially infringed or
violated, or constituted a material misappropriation of, and do not now
materially infringe or violate, or constitute a material misappropriation of,
any intellectual property rights of any other person or entity. Since January
30, 1997, neither the Buyer nor any Buyer Subsidiary has received any written,
or to its knowledge, verbal, complaint, claim or notice alleging any such
infringement, violation or misappropriation which has not been disposed of
through a settlement agreement described in Section 3.11(b) of the Buyer
Disclosure Schedule.
3.12 Real Property Leases. Section 3.12 of the Buyer Disclosure Schedule
lists all real property (other than tower sites) leased or subleased to the
Buyer or any Buyer Subsidiary, indicating, in each case, the term of the lease
and the rent payable under such lease. The Buyer has made available to the
Company true and complete copies of all such leases and subleases (each as
amended to date). With respect to each such lease and sublease:
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect, subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and except as the availability of equitable remedies may
be limited by general principles of equity;
(b) neither the Buyer nor any Buyer Subsidiary nor, to the Buyer's
knowledge, any other party to the lease or sublease, is in material breach
or default, and no event has occurred which, with notice or lapse of time,
would constitute a material breach or default by the Buyer or any Buyer
Subsidiary or, to the Buyer's knowledge, by any such other party, or permit
termination, modification or acceleration thereunder;
(c) to the knowledge of the Buyer, there are no material disputes, oral
agreements or forbearance programs in effect as to the lease or sublease;
(d) neither the Buyer nor any Buyer Subsidiary has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold;
(e) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said
facilities; and
(f) other than in the Ordinary Course of Business, no construction,
alteration or other leasehold improvement work with respect to the lease or
sublease remains to be paid for or performed by the Buyer or any Buyer
Subsidiary.
3.13 Contracts. The Buyer has delivered or otherwise made available to the
Company a true and complete copy of each written arrangement (each as amended
to date) filed as an exhibit to any Buyer Report. With respect to each written
arrangement (i) each written agreement will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing with the same terms as in effect immediately prior to the Closing,
subject to the effect of bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and except as
the availability of equitable remedies may be limited by general principles of
equity; and (ii) neither the Buyer nor any Buyer Subsidiary nor, to the
Buyer's knowledge, any other party, is in material breach or default, and no
event has occurred which with notice or lapse of time would constitute a
material breach or default by the Buyer or any Buyer Subsidiary or, to the
Buyer's knowledge, by any such other party, or permit termination,
modification or acceleration, under the written arrangement. Neither the Buyer
nor any Buyer Subsidiary is a party to any oral contract, agreement or other
arrangement which, if reduced to written form, would be required to be filed
as an exhibit as a material contract to an Annual Report on Form 10-K filed by
the Buyer. Neither the Buyer nor any Buyer Subsidiary is restricted by any
arrangement from carrying on its business anywhere in the United States.
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3.14 Licenses and Authorizations
(a) The Buyer and the Buyer Subsidiaries hold all licenses, permits,
certificates, franchises, ordinances, registrations, or other rights,
applications and authorizations filed with, granted or issued by, or entered
by any Governmental Entity, including, without limitation, the FCC or any
State Authority asserting jurisdiction over the Buyer or any Buyer Subsidiary
or its business or assets, that are required for the conduct of their
businesses as currently being conducted (each as amended to date) (the "Buyer
Authorizations"), other than such licenses, permits, certificates, franchises,
ordinances, registrations or other rights, applications and authorizations the
absence of which would not in the aggregate materially impair the ability of
the Buyer to consummate the transactions contemplated hereby or of the Buyer
to own and operate the properties, assets and businesses of the Buyer
following the Closing. The Buyer has heretofore delivered to the Company a
true and complete list of such Buyer Authorizations.
(b) The Buyer has previously made available to the Company a true and
complete list of (i) each application of the Buyer and/or any Buyer Subsidiary
pending before the FCC (collectively, the "Buyer FCC Applications"); (ii) each
FCC permit and FCC license which is not a Buyer Authorization but in which the
Buyer or any Buyer Subsidiary, directly or indirectly, holds an interest,
including as a stakeholder in the licensee (collectively, the "Indirect Buyer
Authorizations"); and (iii) all licenses, certificates, consents, permits,
approvals and authorizations for the benefit of the Buyer and the Buyer
Subsidiaries, as applicable, pending before any State Authority (collectively,
the "Buyer State Applications"). The Buyer Authorizations, the Buyer FCC
Applications, the Indirect Buyer Authorizations and the Buyer State
Applications (collectively, the "Buyer Licenses and Authorizations") are the
only federal, state or local licenses, certificates, consents, permits,
approvals and authorizations that are required for the conduct of the business
and operations of the Buyer and the Buyer Subsidiaries as presently conducted,
other than such consents, permits, approvals or authorizations the absence of
which would not in the aggregate materially impair the ability of the Buyer
and the Merger Subsidiary to either consummate the transactions contemplated
hereby or of the Buyer and the Buyer Subsidiaries to own and operate the
properties, assets and businesses of the Buyer and the Buyer Subsidiaries
following the Closing.
(c) The Buyer Authorizations and, to the Buyer's knowledge, the Indirect
Buyer Authorizations are in full force and effect and have not been pledged or
otherwise encumbered, assigned, suspended, modified in any material adverse
respect, canceled or revoked, and the Buyer and the Buyer Subsidiaries have
each operated in compliance with all terms thereof or any renewals thereof
applicable to them, other than where the failure to so comply would not in the
aggregate have a Buyer Material Adverse Effect or materially impair the
ability of the Buyer to consummate the transactions contemplated hereby or of
the Buyer to own and operate the properties, assets and businesses of the
Buyer following the Closing. No event has occurred with respect to any of the
Buyer Authorizations which permits, or after notice or lapse of time or both
would permit, revocation or termination thereof or would result in any other
material impairment of the rights of the holder of any such Buyer
Authorizations. To the knowledge of the Buyer, there is not pending any
application, petition, objection or other pleading with the FCC, any State
Authority or any similar body having jurisdiction or authority over the
operations of the Buyer and the Buyer Subsidiaries which questions the
validity of or contests any Buyer Authorization or which could reasonably be
expected, if accepted or granted, to result in the revocation, cancellation,
suspension or any materially adverse modification of any Buyer Authorization.
(d) Except for approval by the Bankruptcy Court or by the FCC as
contemplated by Section 4.15, or as set forth in Section 3.14(d) of the Buyer
Disclosure Schedule, no permit, consent, approval, authorization,
qualification or registration of, or declaration to or filing with, any
Governmental Entity is required to be obtained or made by the Buyer or any
Buyer Subsidiary in connection with the transfer or deemed transfer of the
Buyer Licenses and Authorizations as a result of the consummation of the
transactions contemplated hereby, except where the failure to obtain or make
such permit, consent, approval, authorization, qualification, registration,
declaration or filing would not materially impair the ability of the Buyer to
consummate the transactions contemplated hereby or the Buyer to own and
operate the properties, assets and businesses of the Buyer following the
Closing.
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3.15 Litigation. Except as described in the Buyer Reports, as of the date of
this Agreement: (a) there is no action, suit, proceeding or investigation to
which the Buyer or any Buyer Subsidiary is a party (either as a plaintiff or
defendant) pending or, to the Buyer's knowledge, threatened before any court,
Governmental Entity or arbitrator, and, to the Buyer's knowledge, there is no
basis for any such action, suit, proceeding or investigation; (b) neither the
Buyer nor any Buyer Subsidiary nor, to the Buyer's knowledge, any officer,
director or employee of the Buyer or any Buyer Subsidiary has been permanently
or temporarily enjoined by any order, judgment or decree of any court or
Governmental Entity from engaging in or continuing to conduct the business of
the Buyer or any Buyer Subsidiary; and (c) no order, judgment or decree of any
court or Governmental Entity has been issued in any proceeding to which the
Buyer or any Buyer Subsidiary is or was a party or, to the Buyer's knowledge,
in any other proceeding, that enjoins or requires the Buyer or any Buyer
Subsidiary to take action of any kind with respect to its business, assets or
properties. None of the actions, suits, proceedings or investigations listed
in Section 3.15 of the Buyer Disclosure Schedule, individually or
collectively, if determined adversely to the interests of the Buyer or any
Buyer Subsidiary, would have a Buyer Material Adverse Effect.
3.16 Employees.
(a) There are no collective bargaining agreements to which Buyer or any
Buyer Subsidiary is a party. Neither the Buyer nor any Buyer Subsidiary has
experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes and, to the Buyer's knowledge, no
organizational effort is presently being made or threatened by or on behalf of
any labor union with respect to its employees. To the knowledge of the Buyer
or any Buyer Subsidiary there is no reasonable basis to believe that the Buyer
or any Buyer Subsidiary will be subject to any labor strike or other organized
work force disturbance following the Closing.
3.17 Employee Benefits.
(a) Section 3.17(a) of the Buyer Disclosure Schedule contains a true and
complete list of all Employee Benefit Plans maintained, or contributed to, by
the Buyer or any Buyer Subsidiary or any ERISA Affiliate of the Buyer or any
Buyer Subsidiary (the "Buyer Employee Benefit Plan"). True and complete copies
of (i) all Buyer Employee Benefit Plans that have been reduced to writing;
(ii) written summaries of all unwritten Buyer Employee Benefit Plans; (iii)
all trust agreements, insurance contracts and summary plan descriptions
related to the Buyer Employee Benefit Plans; (iv) the annual report filed on
IRS Form 5500, 5500C or 5500R, if applicable, for the most recent plan year
for each Buyer Employee Benefit Plan; and (v) the most recent qualification
letter issued by the Internal Revenue Service with respect to each Buyer
Employee Benefit Plan that is intended to qualify under Section 401(a) of the
Code, have been made available to the Company. Each Buyer Employee Benefit
Plan has been administered in accordance with its terms in all material
respects, and the Buyer and each Buyer Subsidiary and, to the Buyer's
knowledge, each ERISA Affiliate of the Buyer or any Buyer Subsidiary has in
all material respects met its obligations (if any) with respect to each Buyer
Employee Benefit Plan and has made all required contributions (if any)
thereto. The Buyer, all Buyer Subsidiaries and all Buyer Employee Benefit
Plans are in compliance in all material respects with the currently applicable
provisions (if any) of ERISA, the Code and other applicable federal, state and
foreign laws and the regulations thereunder. Each Buyer Employee Benefit Plan
that is intended to qualify under Section 401(a) of the Code is so qualified.
Each Buyer Employee Benefit Plan that is required to satisfy Section 401(k)(3)
or Section 401(m)(2) of the Code has been reviewed for compliance with, and
has satisfied the requirements of, said Sections for each plan year ending
prior to the Closing.
(b) To the Buyer's knowledge, as of the date of this Agreement, there are no
inquiries or investigations by any Governmental Entity, termination
proceedings or other claims (except claims for benefits payable in the normal
operation of the Buyer Employee Benefit Plans and proceedings with respect to
qualified domestic relations orders), suits or proceedings against or
involving any Buyer Employee Benefit Plan or asserting any rights or claims to
benefits under any Buyer Employee Benefit Plan.
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(c) Neither the Buyer or any Buyer Subsidiary nor, to the Buyer's knowledge,
any ERISA Affiliate of the Buyer or any Buyer Subsidiary has ever maintained
an Buyer Employee Benefit Plan subject to Section 412 of the Code, Part 3 of
Subtitle B of Title I of ERISA, or Title IV of ERISA. At no time has the Buyer
or any Buyer Subsidiary or, to the Buyer's knowledge, any ERISA Affiliate of
the Buyer or any Buyer Subsidiary been obligated to contribute to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) that is
subject to Title IV of ERISA. No act or omission has occurred and no condition
exists with respect to any Buyer Employee Benefit Plan that would subject the
Buyer, any Buyer Subsidiary or, to the Buyer's knowledge, any ERISA Affiliate
of the Buyer or any Buyer Subsidiary to any material fine, penalty, Tax or
liability of any kind imposed under ERISA or the Code. No prohibited
transaction (as defined in Section 406 of ERISA or Section 4975 of the Code)
has occurred with respect to any Buyer Employee Benefit Plan that is subject
to ERISA or the Code. No Buyer Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits the Buyer from amending or
terminating any such Buyer Employee Benefit Plan and any Buyer Employee
Benefit Plan may be terminated without liability to the Buyer or any Buyer
Subsidiary, except for benefits accrued through the date of termination.
Except as may be required by Part 6 of Title I of ERISA or similar state laws
regarding continuation of benefits, no former employees participate in any
employee welfare benefit plans listed in Section 3.17(a) of the Buyer
Disclosure Schedule beyond the month of the termination of his employment. No
Buyer Employee Benefit Plan includes in its assets any securities issued by
the Buyer. No Employee Benefit Plan has been subject to tax under Section 511
of the Code.
(d) Section 3.17(d) of the Buyer Disclosure Schedule lists each: (i)
agreement with any director, executive officer or other key employee of the
Buyer or any Buyer Subsidiary (A) the benefits of which are contingent, or the
terms of which are altered, upon the occurrence of a transaction involving the
Buyer or any Buyer Subsidiary of the nature of any of the transactions
contemplated by this Agreement; (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
upon the consummation of any transaction or after the termination of
employment of such director, executive officer or key employee; (ii)
agreement, plan or arrangement under which any person may receive payments
from the Buyer or any Buyer Subsidiary that may be subject to the tax imposed
by Section 4999 of the Code or may constitute a "parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding the Buyer or any
Buyer Subsidiary, including, without limitation, any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan, or any Employee Benefit Plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement.
3.18 Environmental Matters.
Except for Sections 3.5(a), 3.26, and 3.27, this Section 3.18 contains the
exclusive representations and warranties of the Buyer concerning environmental
matters, including but not limited to Environmental Laws and Materials of
Environmental Concern. The Buyer represents and warrants as follows:
(a) Each of the Buyer and each Buyer Subsidiary is in compliance with all
applicable Environmental Laws, other than where the failure to be in
compliance would not in the aggregate have a Buyer Material Adverse Effect.
There is no pending or, to the knowledge of the Buyer or any Buyer
Subsidiary, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or written notice of
investigation or inquiry or written information request by any Governmental
Entity, relating to any Environmental Law involving the Buyer or any Buyer
Subsidiary or their respective assets and properties.
(b) There have been no releases of any Materials of Environmental Concern
into the environment at any parcel of real property or any facility
formerly or currently owned, operated or controlled by the Buyer or any
Buyer Subsidiary for which the Buyer or any Buyer Subsidiary may be liable
under any Environmental Law of the jurisdiction in which such property or
facility is located, other than such releases as would not in the aggregate
have a Buyer Material Adverse Effect. With respect to any such releases of
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Materials of Environmental Concern, the Buyer or such Buyer Subsidiary has
given all required notices (if any) to Governmental Entities (copies of
which have been provided to the Company). There have been no releases of
Materials of Environmental Concern at parcels of real property or
facilities other than those owned, operated or controlled by the Buyer or
any Buyer Subsidiary that could reasonably be expected to have an impact on
the real property or facilities owned, operated or controlled by the Buyer
or any Buyer Subsidiary other than such impacts as would not in the
aggregate have a Debtor Material Adverse Effect.
(c) Set forth in Section 3.18 of the Buyer Disclosure Schedule is a list
of all environmental reports, investigations and audits which to the
knowledge of the Buyer (whether conducted by or on behalf of the Buyer or
any Buyer Subsidiary or a third party, and whether done at the initiative
of the Buyer or any Buyer Subsidiary or directed by a Governmental Entity
or other third party) were issued during the past five years relating to
premises formerly or currently owned, operated or controlled by the Buyer
or any Buyer Subsidiary. True and complete copies of any such report, or
the results of any such investigation or audit, which to the knowledge of
the Buyer are in the possession of Buyer or any Buyer Subsidiary (or can be
obtained by Buyer or any Buyer Subsidiary through reasonable efforts), have
been delivered or otherwise made available to the Company.
(d) Neither the Buyer nor any Buyer Subsidiary has any knowledge of any
material environmental liability of the solid and hazardous waste
transporters and treatment, storage and disposal facilities that have been
utilized by the Buyer or any Buyer Subsidiary.
(e) The Buyer and the Buyer Subsidiaries hold all Environmental
Authorizations that are legally required for the conduct of their
businesses as currently conducted, other than where the failure to hold
such Environmental Authorizations would not in the aggregate have a Buyer
Material Adverse Effect, and such Environmental Authorizations (if any) are
listed in Section 3.18 of the Buyer Disclosure Schedule. The Buyer and each
of the Buyer Subsidiaries is and has been in compliance with all such
Environmental Authorizations, other than such noncompliance as would not in
the aggregate have a Buyer Material Adverse Effect.
(f) None of the transactions contemplated by this Agreement or the
Amended Plan will require the Buyer or any Buyer Subsidiary to comply with
an Environmental Property Transfer Act.
3.19 Legal Compliance. Each of the Buyer and each Buyer Subsidiary and the
conduct and operation of its respective business, is and has been in
compliance with each law (including rules, regulations and administrative
orders thereunder) of any federal, state, local or foreign government, or any
Governmental Entity, that (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the Buyer or any
Buyer Subsidiary or their respective businesses, other than where the failure
to be or to have been in compliance would not in the aggregate have a Buyer
Material Adverse Effect or materially impair the ability of the Buyer to
consummate the transactions contemplated hereby or the Buyer to own and
operate the properties, assets and businesses of the Buyer following the
Closing.
3.20 Merger Subsidiary. The Merger Subsidiary was formed solely for the
purpose of effecting the transactions contemplated by this Agreement and,
except for such obligations or liabilities incurred in connection with its
incorporation or organization, and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, the Merger
Subsidiary has not and will not have incurred, directly or indirectly, any
obligations or liabilities or engaged in any business activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
person.
3.21 Capital Expenditures; Suppliers. The Buyer has previously delivered to
the Company a true and complete accounting of all capital expenditures
incurred by it or the Buyer Subsidiaries during 1997 and their projected
capital expenditure budget for calendar years 1998 and 1999. To the knowledge
of the Buyer or any Buyer Subsidiary no material supplier of the Buyer or any
Buyer Subsidiary has indicated within the past year that it will stop, or
decrease the rate of, supplying materials, products or services to them.
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3.22 Brokers' Fees. Neither the Buyer nor any Buyer Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement
except to Bear, Stearns & Co. Inc. ("Bear Stearns"), the financial advisor to
the Buyer.
3.23 Rights Agreement; Section 203. The Buyer has executed the amendment to
its Rights Agreement dated as of October 13, 1995 in the form attached hereto
as Exhibit D, and such amendment is in full force and effect.
(b) The Board of Directors of the Buyer has approved the Merger, this
Agreement and the Amended Plan together with the transactions contemplated
thereby (including without limitation the acquisition by the Standby
Purchasers of Buyer Warrants, Buyer Common Stock or Buyer Class B Common
Stock, if applicable, pursuant to this Agreement, the Amended Plan and the
Standby Purchase Commitments, or of Buyer Common Stock or Buyer Class B Common
Stock, if applicable, pursuant to the Buyer Warrants), including for purposes
of Section 203 of the DGCL.
3.24 Opinion of Financial Advisor. The Buyer has received an opinion of Bear
Stearns & Co. Inc., a copy of which is attached hereto as Exhibit E.
3.25 Required Vote of the Buyer's Stockholders. The affirmative vote of a
majority of the votes cast by holders of Buyer Stock is required to approve
the Buyer Share Issuance and the affirmative vote of a majority of the votes
entitled to be cast by holders of Buyer Stock is required to approve the Buyer
Charter Amendment. No other vote of the security holders of the Buyer or of
any Buyer Subsidiary is required by law, the respective organization documents
thereof or otherwise in order for the Buyer to consummate the Merger and the
other transactions contemplated hereby and by the Amended Plan.
3.26 Certain Information. None of the information supplied by the Buyer or
any Buyer Subsidiary for inclusion or incorporation by reference in (i) the
Proxy Statement (as defined in Section 4.13(a)) and Registration Statement (as
defined in Section 4.20(c)) or (ii) any document to be filed with the SEC, the
FCC or any other Governmental Entity in connection with the transactions
contemplated hereby will, at the respective times filed with the SEC, the FCC
or other Governmental Entity and, in addition, (A) in the case of the Proxy
Statement, at the time it or any amendment or supplement thereto is mailed to
the Buyer's stockholders and at the time of the Meeting (as defined in Section
4.12) and at the Closing and, (B) in the case of the Registration Statement,
at the time it becomes effective under the Securities Act, contain any untrue
statement of the Buyer or any Buyer Subsidiary of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing, no representation is made by
the Buyer or any Buyer Subsidiary with respect to statements made in any of
the foregoing documents based upon information supplied by the Company.
3.27 Disclosure. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in the Buyer Disclosure Schedule or
any other document, certificate or other instrument delivered to or to be
delivered by or on behalf of the Buyer pursuant to this Agreement, contains or
will as of the Closing Date contain any untrue statement of a material fact or
omits or will as of the Closing Date omit to state any material fact
necessary, in light of the circumstances under which it was or will be made,
in order to make the statements herein or therein not misleading.
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ARTICLE IV
Covenants
4.1 Best Efforts. Except, in the case of the Parent and the Company, to the
extent required by Bankruptcy-Related Requirements (as defined in Section
4.5), each Party shall use its best efforts to cause the transactions
contemplated by this Agreement and the Amended Plan to be consummated in
accordance with the terms hereof and thereof, and without limiting the
generality of the foregoing shall use its best efforts to obtain all necessary
approvals, waivers, consents, permits, licenses, registrations and other
authorizations required in connection with this Agreement and the Amended Plan
and the transactions contemplated hereby and thereby and, in the case of the
Buyer, to assist the Parent and the Company in the preparation of a Disclosure
Statement related to the Amended Plan and, in the case of the Parent and the
Company, to assist the Buyer in the preparation of the Proxy Statement and
Registration Statement, including, without limitation, entry of the
Confirmation Order, and to make all filings with and to give all notices to
third parties which may be necessary or reasonably required of it in order to
consummate the transactions contemplated hereby and thereby, provided,
however, that actions taken by the Parent and the Company in compliance with
Section 4.7(b) and actions taken by the Buyer in accordance with Section
4.7(e) shall not be deemed a breach by the Parent or the Company, on the one
hand, or the Buyer, on the other hand, of this Section 4.1.
4.2 Approvals; Consents. Each Party shall obtain and maintain in full force
and effect all approvals, consents, permits, licenses and other authorizations
from all Governmental Entities reasonably necessary or required for the
operation of their respective businesses as presently conducted, as and when
such approvals, consents, permits, licenses or other authorizations are
necessary or required, except where the failure to do so would not have a
Debtor Material Adverse Effect or a Buyer Material Adverse Effect, as
applicable, or materially impair the ability of the Company or the Buyer to
consummate the transactions contemplated hereby or the Reorganized Debtors or
the Buyer to own and operate the properties, assets and businesses of the
Debtors following the Closing. Without limiting the generality of the
foregoing, each Party shall maintain its respective authorizations in full
force and effect, shall not take any action which could reasonably be expected
to have a material adverse effect on such authorizations or any licenses and
authorizations, shall diligently pursue all applications and shall, prior to
the expiration date of any material authorization, timely file for the renewal
of any such authorization. Neither Party shall make any material commitments
to any Governmental Entity relating to any material approval, consent, permit,
license or other authorization without the prior written consent of the other
Parties. The Parties shall consult with one another as to the approach to be
taken with any Governmental Entity with respect to obtaining any necessary
consent to the transactions contemplated hereby and by the Amended Plan, and
each of the Parties shall keep the other Parties reasonably informed as to the
status of any such communications with any Governmental Entity. Without
limiting the generality of the foregoing, the Buyer, the Parent and the
Company shall, and shall cause each of the Buyer Subsidiaries or each of the
other Debtors, as applicable, to make the necessary preliminary filings under
the HSR Act no later than ten days following the date of this Agreement and
shall seek early termination of all applicable waiting periods. The Buyer, the
Parent and the Company shall, and shall cause each of the Buyer Subsidiaries
or each of the other Debtors, as applicable, to use their reasonable best
efforts to resolve any competitive issues relating to or arising under the HSR
Act or any other federal or state antitrust or fair trade law raised by any
Governmental Entity. The Parties will consult and cooperate with one another,
and consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any Party in connection
with proceedings under or relating to the HSR Act or any other federal or
state antitrust or fair trade law. In the event of a challenge to the
transactions contemplated by this Agreement pursuant to the HSR Act, the
Buyer, the Parent and the Company shall, and shall cause each of the Buyer
Subsidiaries or each of the other Debtors, as applicable, to use their
reasonable best efforts to defeat such challenge, including by institution and
defense of litigation, or to settle such challenge on terms that permit the
consummation of the transactions contemplated by this Agreement; provided,
however, that nothing herein shall require the Buyer to divest or hold
separate any portion of its business or otherwise take any action, which
divestiture or holding separate or taking such action would be materially
adverse to the continued conduct of the Buyer's or the Debtor's businesses.
The Buyer shall pay all filing fees payable by any Party in connection with
the HSR Act.
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4.3 Buyer Not To Control. Notwithstanding any provision of this Agreement
that may be construed to the contrary, pending the consummation of the
transactions contemplated hereby, the Buyer shall not obtain actual (de facto)
or legal (de jure) control over the Debtors. Specifically, and without
limitation, the responsibility for the operation of the Debtors shall, pending
the consummation of the transactions contemplated hereby, reside with the
Boards of Directors of the Debtors (subject to the jurisdiction of the
Bankruptcy Court), including, but not limited to, responsibility for the
following matters: access to and the use of the facilities of and equipment
owned by the Debtors; control of the daily operation of the Debtors; creation
and implementation of policy decisions; employment and supervision of
employees; payment of financing obligations and expenses incurred in the
operation of the Debtors; receipt and distribution of monies and profits
derived from the operation of the Debtors; and execution and approval of all
contracts and applications prepared and filed before regulatory agencies.
Notwithstanding the foregoing, the Parties shall consult and cooperate with
one another, and consider in good faith the views of one another with respect
to the assumption or rejection by the Debtors prior to Closing of any
unexpired lease, license or other executory contract.
4.4 Bankruptcy Covenants.
(a) Promptly after the execution of this Agreement, the Parent and the
Company shall, and shall cause each of the other Debtors to, file a motion
(the "Initial Merger Motion") for expedited determination of approval of the
Exclusivity Provisions (as defined in Section 4.7(a)), the Company Breakup Fee
and the Buyer Breakup Fee (as defined in Section 4.8(a)) and the Buyer
Reimbursement (as defined in Section 4.21) provided for in this Agreement in
form and substance acceptable to the Buyer. The Parent and the Company shall,
and shall cause each of the other Debtors to, use its best efforts to obtain
an order approving the Initial Merger Motion (the "Initial Merger Order")
within 15 days after the date of this Agreement, which order shall be in form
and substance acceptable to the Buyer, the Parent and the Company with only
such changes as shall be agreed to by all the Parties in writing.
(b) As soon as practicable following the execution of this Agreement (and in
no event later than August 20, 1998), the Parent and the Company shall, and
shall cause each of the other Debtors to, file with the Bankruptcy Court the
Amended Plan. As soon as practicable following the filing of the Amended Plan
(and in no event later than August 24, 1998), the Parent and the Company
shall, and shall cause each of the Debtors to, file with the Bankruptcy Court
a Disclosure Statement related thereto in form and substance reasonably
acceptable to the Buyer and the Company (the "Disclosure Statement").
Thereafter, without the prior written consent of the Buyer, the Parent and the
Company shall not, and shall cause each of the other Debtors not to, amend or
modify any material provision of the Amended Plan or the Disclosure Statement
or, except as provided in Section 4.7(b), withdraw the Amended Plan or file
any other plan of reorganization of the Debtors.
(c) The Parent and the Company shall, and shall cause each of the other
Debtors to, promptly provide the Buyer with drafts of all documents, motions,
orders, filings or pleadings that the Parent, the Company or any other Debtor
proposes to file with the Bankruptcy Court which relate to the consummation or
approval of the Amended Plan, this Agreement or any provision therein or
herein, and will provide the Buyer with reasonable opportunity to review such
filings to the extent reasonably practicable. The Parent and the Company
shall, and shall cause each of the other Debtors to, consult and cooperate
with the Buyer, and consider in good faith the views of the Buyer, as
contemplated by the Amended Plan, with respect to all such filings and the
acceptance or rejection prior to Closing of any unexpired lease, license or
other executory contract. The Parent and the Company shall, and shall cause
each of the other Debtors to, promptly (and, in any event, within 48 hours
after receipt of such pleadings by the Debtors) provide the Buyer with copies
of all pleadings (other than proofs of claim below $10,000 in amount) received
by or served by or upon any of the Debtors in connection with the Chapter 11
Proceeding after the date hereof, which either the Parent or the Company knows
have not otherwise been served on the Buyer.
4.5 Operation of Business. Except as otherwise contemplated by this
Agreement or the Amended Plan and, in the case of the Debtors, to the
Bankruptcy Code, the Bankruptcy Rules, the operation and information
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requirements of the Office of United States Trustee, and any orders entered or
approvals or authorizations granted by the Bankruptcy Court in the Chapter 11
Proceeding during the period prior to the Closing (collectively, "Bankruptcy-
Related Requirements"), each of the Company, the Parent or the Company, on the
one hand, or the Buyer, on the other hand, shall, and shall cause each of the
other Debtors or each of the Buyer Subsidiaries, as applicable, to, conduct
its operations in the Ordinary Course of Business and in compliance with all
other applicable laws and regulations, and, to the extent consistent
therewith, use all reasonable efforts to preserve intact its current business
organization, keep its physical assets in good working condition, pay all
Taxes (all post-petition Taxes in the case of the Debtors) as they become due
and payable, maintain insurance on its business and assets (in amounts and
types consistent with past practice), keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end that its
goodwill and ongoing business shall not be impaired in any material respect.
(a) Without limiting the generality of the foregoing, prior to the Closing,
and, except to the extent required by any Bankruptcy-Related Requirements, the
Parent and the Company shall not and shall not permit any other Debtor to,
without the prior written consent of the Buyer and except as otherwise
contemplated by this Agreement or the Amended Plan, or as otherwise provided
in Section 4.5 of the Company Disclosure Schedule:
(i) except for assets not in excess of $2,500,000 in aggregate fair
market value, sell, lease, mortgage, pledge, encumber or dispose
(collectively, "Dispose") of any of its assets, other than in the Ordinary
Course of Business;
(ii) except for borrowings under the existing DIP Loan Agreement in an
aggregate amount outstanding at any one time equal to the sum of (x)
amounts representing costs incurred or committed as of the date hereof in
connection with the Company's NPCS network construction as set forth in
Section 4.5(a) of the Company Disclosure Schedule ("NPCS Construction")
plus any additional costs for NPCS Construction approved by the Buyer
(which approval shall be given or withheld in writing within ten (10)
business days after the written request for such approval) and (y) (1) at
any time on or before December 31, 1998 up to a maximum of $20 million, and
(2) at any time between January 1, 1999 and June 30, 1999 up to a maximum
of $30 million, create, incur or assume any indebtedness for borrowed money
not currently outstanding (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person; or make any loans, advances or capital
contributions to, or investments in, any other person;
(iii) except for changes to Debtors' payroll program as previously
disclosed to the Buyer, enter into, adopt or amend any Company Employee
Benefit Plan or any employment or severance agreement or arrangement of the
type described in Section 2.17, or (except for normal adjustments in the
Ordinary Course of Business) increase in any material respect the
compensation or fringe benefits of, or modify the employment terms of its
directors, officers or employees generally or pay any benefit not required
by the terms in effect on the date hereof of any existing Company Employee
Benefit Plan;
(iv) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable
change in GAAP;
(v) pay any pre-petition liability other than (x) liabilities in
connection with the assumption of pre-petition contracts and with respect
to wages, taxes, customer refunds and other related expenses that the
Debtors are authorized to pay by the Bankruptcy Court and (y) adequate
protection payments and the payment of the Net Cash Proceeds (as defined in
the DIP Loan Agreement) under the Debtor Tower Agreement to the Pre-
Petition Lenders, in each case as authorized by the Bankruptcy Court;
(vi) amend its certificate of incorporation, by-laws or other comparable
organizational documents;
(vii) sell, assign, transfer or license any material Debtor Licenses and
Authorizations or Debtors' Intellectual Property, other than in the
Ordinary Course of Business;
(viii) enter into, amend, terminate, take or omit to take any action that
would constitute a material violation of or default under, or waive any
material rights under, any of the Debtor Licenses and Authorizations, or
any contract or agreement (other than the Debtor Tower Agreement) which, if
existing on the date hereof, would be required to be set forth in Section
2.13 of the Company Disclosure Schedule, other than in the Ordinary Course
of Business;
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(ix) make or commit to make any capital expenditure not set forth in the
capital expense budget set forth as Section 4.5(a) to the Company
Disclosure Schedule;
(x) (A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its outstanding capital stock (other than, with respect to a
Debtor other than the Company, to its corporate parent), (B) split, combine
or reclassify any of its outstanding capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of its outstanding capital stock, or (C) purchase,
redeem or otherwise acquire any shares of outstanding capital stock or any
rights, warrants or options to acquire any such shares;
(xi) issue, sell, grant or pledge any shares of its capital stock, any
other voting securities or any securities convertible into or exchangeable
for, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible or exchangeable securities, other than upon the
exercise of options, or upon the conversion or exchange of securities,
outstanding on the date of this Agreement;
(xii) settle or compromise any material Tax liability or any pending or
threatened suit or action other than consistent with the Company's practice
since the Filing Date or pursuant to the terms of the Amended Plan or make
any material Tax election;
(xiii) establish, or transfer any assets to, a trust for purposes of
funding any Debtor Employee Benefit Plan, including, without limitation, a
so-called "rabbi trust," except as required by applicable law;
(xiv) make any material amendment to the Debtor Tower Agreement or
terminate the Debtor Tower Agreement (whether by agreement with Pinnacle
Towers Inc. or otherwise); or
(xv) agree in writing or otherwise to take any of the foregoing actions.
(b) Without limiting the generality of the foregoing, prior to the Closing,
the Buyer shall not, and shall not permit any Buyer Subsidiary to, without the
prior written consent of the Company, and except as otherwise contemplated by
this Agreement or the Amended Plan, or as otherwise provided in Section 4.5 of
the Buyer Disclosure Schedule:
(i) Dispose of any of its assets or acquire or Dispose of any assets or
shares or other equity interests in or securities of any Business Entity,
other than in the Ordinary Course of Business, except for (A) the mortgage,
pledge or encumbering of such assets, shares, equity interests or
securities pursuant to agreements existing as of the date of this Agreement
or agreements entered into to provide funding, in whole or in part, for the
amounts payable by the Buyer under this Agreement or the Amended Plan or
(B) the acquisition of such assets, shares, equity interests or securities
of any other Person with an aggregate purchase price not exceeding
$25,000,000;
(ii) except for borrowings under the terms of its Second Amended and
Restated Credit Agreement (Tranche A and Tranche C Facilities), dated as of
June 29, 1998, by and among Arch Paging, Inc., The Bank of New York, Royal
Bank of Canada, Toronto Dominion (Texas), Inc. and the other parties
thereto, and its Second Amended and Restated Credit Agreement (Tranche B
Facility), dated as of June 29, 1998, by and among Arch Paging, Inc., The
Bank of New York, Royal Bank of Canada, Toronto Dominion (Texas), Inc. and
the other parties thereto, each as amended from time to time, or borrowings
to provide funding for the amounts payable by Buyer under this Agreement or
the Amended Plan, create, incur or assume any indebtedness for borrowed
money not currently outstanding (including obligations in respect of
capital leases); assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person; or make any loans, advances or capital
contributions to, or investments in, any other person;
(iii) change in any material respect its accounting methods, principles
or practices, except insofar as may be required by a generally applicable
change in GAAP;
(iv) amend its certificate of incorporation, by-laws or other comparable
organizational documents;
(v) sell, assign, transfer or license any material Buyer Licenses and
Authorizations or Buyer Intellectual Property, other than in the Ordinary
Course of Business;
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(vi) enter into, amend, terminate, take or omit to take any action that
would constitute a material violation of or default under, or waive any
material rights under, any of the Buyer Licenses and Authorizations or any
contract or agreement which, if existing on the date hereof, would be
required to be set forth in Section 3.13 of the Buyer Disclosure Schedule,
other than in the Ordinary Course of Business;
(vii) make or commit to make any capital expenditure not set forth in the
capital expense budget attached as Section 4.5(b) to the Buyer Disclosure
Schedule;
(viii) except as required under agreements existing as of the date of
this Agreement, (A) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, securities or other property) in
respect of, any of its outstanding capital stock (other than, with respect
to any Buyer Subsidiary, to its corporate parent), (B) split, combine or
reclassify any of its outstanding capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock, or (C) purchase,
redeem or otherwise acquire any shares of outstanding capital stock or any
rights, warrants or options to acquire any such shares, except, in the case
of this clause (C), for the acquisition of shares from holders of options
in full or partial payment of the exercise price payable by such holder
upon exercise of options;
(ix) issue, sell, grant, pledge or, if outstanding as of the date hereof,
change the material terms of, any shares of its capital stock, any other
voting securities or any securities convertible into or exchangeable for,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible or exchangeable securities, other than pursuant
to the terms of any benefit plan as in effect on the date of this Agreement
in accordance with past practice or upon the exercise of options, or upon
the conversion or exchange of securities, outstanding on the date of this
Agreement;
(x) make any material Tax election or settle or compromise any material
Tax liability or any pending or threatened suit or action;
(xi) establish, or transfer any assets to, a trust for purposes of
funding any Buyer Employee Benefit Plan, including, without limitation, a
so-called "rabbi trust," except as required by applicable law; or
(xii) agree in writing or otherwise to take any of the foregoing actions.
4.6 Notice of Breaches. Each Party shall promptly deliver to the other
Parties written notice of any event or development that would (a) render any
statement, representation or warranty of such Party in this Agreement
(including its respective Disclosure Schedule) inaccurate or incomplete in any
respect, or (b) constitute or result in a breach by such Party of, or a
failure by such Party to comply with, any agreement or covenant in this
Agreement applicable to such Party. No such disclosure shall be deemed to
avoid or cure any such misrepresentation or breach.
4.7 Exclusivity.
(a) Except as contemplated by the Debtor Tower Agreement, from and after the
date hereof, the Parent and the Company shall not, and shall cause each other
Debtor and each of their respective directors, officers, employees, financial
advisors, representatives or agents not to, directly or indirectly, (i)
solicit, initiate, engage or participate in or encourage discussions or
negotiations with any person or entity (other than the Buyer) concerning any
merger, consolidation, sale of material assets, tender offer for,
recapitalization of or accumulation or acquisition of securities issued by any
Debtor, proxy solicitation or other business combination involving any Debtor
(collectively, "Company Acquisition Proposals") or (ii) provide any non-public
information concerning the business, properties or assets of any Debtor to any
person or entity (other than to the Buyer and to the Debtors' creditors in
accordance with existing confidentiality arrangements). The Parent and the
Company shall, and shall cause each of the other Debtors to, immediately cease
any and all existing activities, discussions or negotiations with any person
other than the Buyer with respect to any Company Acquisition Proposal. The
Parent and the Company shall immediately notify the Buyer of, and shall
disclose to the Buyer all details of, any inquiries, discussions or
negotiations of the nature described in the first sentence of this Section
4.7. The provisions of this Section 4.7 are referred to in this Agreement as
the "Exclusivity Provisions".
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(b) Notwithstanding the provisions of subsection (a) above, prior to the
entry of the Confirmation Order, the Debtors may, to the extent required by
the Bankruptcy-Related Requirements, or to the extent that the Board of
Directors of the Company determines, in good faith after consultation with
outside legal counsel, that such Board's fiduciary duties under applicable law
require it to do so, participate in discussions or negotiations with, and,
subject to the requirements of paragraph (c) below, furnish information to any
person, entity or group after such person, entity or group has delivered to
the Debtors, in writing, an unsolicited bona fide offer to effect a Company
Acquisition Proposal that the Board of Directors of the Company in its good
faith judgment determines, after consultation with its independent financial
advisors, would result in a transaction more favorable to the stakeholders of
the Debtors from a financial point of view than the transactions contemplated
hereby and for which financing, to the extent required, is then committed (or
which, in the good faith judgment of such Board, is reasonably capable of
being obtained) and which (in the good faith judgment of such Board) is likely
to be consummated (a "Company Superior Proposal"). In the event the Debtors
receive a Company Superior Proposal, nothing contained in this Agreement (but
subject to the terms hereof) will prevent the Board of Directors of the
Company from approving such Company Superior Proposal or requesting
authorization of such Company Superior Proposal from the Bankruptcy Court, if
such Board determines, in good faith, after consultation with outside legal
counsel, that such action is required by its fiduciary duties under applicable
law; in such case, the Board of Directors of the Company may terminate this
Agreement pursuant to Section 6.1(e) hereof; provided, however, that the
Company shall not terminate this Agreement until at least 48 hours after the
Buyer's receipt of a copy of such Company Superior Proposal.
(c) Notwithstanding anything to the contrary in this Section 4.7, the Parent
and the Company shall not, and shall cause each of the other Debtors not to,
provide any non-public information to a third party unless: (i) the Debtors
provide such non-public information pursuant to a non-disclosure agreement
with terms regarding the protection of confidential information at least as
restrictive as such terms in the Confidentiality Agreements between the Parent
and the Buyer dated March 26, 1998 and June 10, 1998 (the "Confidentiality
Agreement"); and (ii) such non-public information has previously been
delivered or made available to the Buyer.
(d) Except as contemplated by the Asset Purchase and Sale Agreement between
certain subsidiaries of Arch Communications Group, Inc., and OmniAmerica,
Inc., dated April 10, 1998, from and after the date hereof the Buyer shall
not, and shall cause each Buyer Subsidiary and each of their respective
directors, officers, employees, financial advisors, representatives or agents
not to, directly or indirectly, (i) solicit, initiate, engage or participate
in or encourage discussions or negotiations with any person or entity (other
than the Parent, the Company and, in connection with the transactions
contemplated by this Agreement, the Official Committee of Unsecured Creditors
of the Company) concerning any merger (other than mergers of the Buyer
Subsidiaries in connection with acquisitions of other businesses by the Buyer
(x) with a fair market value not in excess of $25,000,000 and (y) that would
not upon the closing thereof be in breach of the Buyer's obligations under
Section 4.5), consolidation, sale of material assets, tender offer for,
recapitalization of or accumulation or acquisition of securities issued by the
Buyer or any of the Buyer Subsidiaries, proxy solicitation or other business
combination (other than business combinations of the Buyer Subsidiaries in
connection with acquisitions of other businesses by the Buyer (x) with a fair
market value not in excess of $25,000,000 and (y) that would not upon the
closing thereof be in breach of the Buyer's obligations under Section 4.5),
involving the Buyer or any Buyer Subsidiary (collectively, "Buyer Acquisition
Proposals") or (ii) except as permitted by the foregoing clause (i), provide
any non-public information concerning the business, properties or assets of
the Buyer or any Buyer Subsidiary to any person or entity (other than the
Debtors or any of the Buyer's financing sources). The Buyer and the Buyer
Subsidiaries will immediately cease any and all existing activities,
discussions or negotiations with any person other than the Company with
respect to any Buyer Acquisition Proposal. The Buyer shall immediately notify
the Company of, and shall disclose to the Company all details of, any
inquiries, discussions or negotiations of the nature described in the first
sentence of this Section 4.7(d).
(e) Notwithstanding the provisions of subsection (d) above, prior to the
Meeting (as defined in Section 4.12), the Buyer may, to the extent that the
Board of Directors of the Buyer determines, in good faith, after consultation
with outside legal counsel, that such Board's fiduciary duties under
applicable law require it to do
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so, participate in discussions or negotiations with, and, subject to the
requirements of paragraph (f) below, furnish information to any person, entity
or group after such person, entity or group has delivered to the Buyer, in
writing, an unsolicited bona fide offer to effect a Buyer Acquisition Proposal
that the Board of Directors of the Buyer in its good faith judgment
determines, after consultation with its independent financial advisors, would
result in a transaction more favorable to the shareholders of the Buyer from a
financial point of view than the transactions contemplated hereby and for
which financing, to the extent required, is then committed (or which, in the
good faith judgment of such Board, is reasonably capable of being obtained)
and which (in the good faith judgment of such Board) is likely to be
consummated (a "Buyer Superior Proposal"). In the event the Buyer receives a
Buyer Superior Proposal, nothing contained in this Agreement (but subject to
the terms hereof) will prevent the Board of Directors of the Buyer from
recommending to the Buyer's shareholders such Buyer Superior Proposal if such
Board determines, in good faith, after consultation with outside legal
counsel, that such action is required by its fiduciary duties under applicable
law.
(f) Notwithstanding anything to the contrary in this Section 4.7, the Buyer
shall not provide any non-public information to a third party unless: (i) the
Buyer provides such non-public information pursuant to a non-disclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the Confidentiality Agreement; and (ii)
such non-public information has previously been delivered or made available to
the Company.
4.8 Breakup Fee Provisions. In the event that (i) the Buyer terminates this
Agreement pursuant to Section 6.1(b) or Section 6.1(i) or (ii) the Company or
the Buyer terminates this Agreement pursuant to Section 6.1(c) or 6.1(d) (in
either case as a result of the failure of the condition set forth in Section
5.1(h) to be satisfied due to (A) the failure of the creditors of the Debtors
entitled to vote on the Amended Plan (other than holders of Class 7, 8 or 9
Claims) to vote in favor of the Amended Plan, (B) the withdrawal of the
Amended Plan by the Debtors, the filing of any other plan of reorganization by
the Debtors, or the modification or amendment of any material provision of the
Amended Plan by the Debtors, in each case without the prior written consent of
the Buyer, or (C) the confirmation of any other plan of reorganization filed
by any other person other than the Debtors, (iii) except as set forth in
Section 4.8(a) of the Company Disclosure Schedule, the Debtors sell or
otherwise transfer (other than to the Buyer or the Buyer Subsidiaries) all or
any substantial portion of their assets as part of a sale approved pursuant to
Section 363 of the Bankruptcy Code, (iv) the Company has terminated this
Agreement pursuant to Section 6.1(e) (a termination under (i), (ii), (iii) or
(iv) being herein called a "Major Breakup Event"), or (v) the Buyer or the
Company terminates this Agreement pursuant to Section 6.1(j) (a "Minor Breakup
Event"; together with the Major Breakup Events, the "Breakup Events"), and at
the time of any such Breakup Event the Buyer is not in material breach of any
material covenant or obligation required to be performed by the Buyer
hereunder at or before such time, and is not in breach of its representations
and warranties contained in this Agreement (except where the matters in
respect of which such representations and warranties are in breach would not
in the aggregate have a Buyer Material Adverse Effect), then the Company shall
pay to the Buyer as promptly as practicable after demand therefor (but in no
event later than the third Business Day thereafter and, in the case of a Minor
Breakup Event, only if and when the Pinnacle Breakup Amount referred to below
is actually received by the Debtors) (x) in the case of a Major Breakup Event,
the amount of $25,000,000, and (y) in the case of a Minor Breakup Event, an
amount equal to one-half of any amount (the "Pinnacle Breakup Amount")
actually received by the Debtors pursuant to Section 7.05 of the Debtor Tower
Agreement (or pursuant to a settlement with Pinnacle in lieu thereof) (in
either case, the "Buyer Breakup Fee"). The claims of the Buyer to the Buyer
Breakup Fee shall constitute a first priority administrative expense under 11
U.S.C. (S) 507(a)(1).
(b) In the event that (i) the Company terminates this Agreement pursuant to
Section 6.1(b) or (g), or (ii) the Buyer or the Company terminates this
Agreement after June 30, 1999 pursuant to Section 6.1(c) or (d) (in either
case as a result of the Closing not occurring due to the Buyer's failure to
obtain the financing necessary to effect the transactions contemplated hereby
and by the Amended Plan under circumstances when all the conditions set forth
in Section 5.1 (other than the condition set forth in Section 5.1(j)) and
Section 5.2 are satisfied, or would have been satisfied had such financing
been obtained) and at the time of such termination
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each of the Company and the Parent is not in material breach of any material
covenant or obligation required to be performed by the Company or the Parent
hereunder at or before such time and is not in breach of its representations
and warranties contained in this Agreement (except where the matters in
respect of which such representations and warranties are in breach would not
in the aggregate have a Debtor Material Adverse Effect), then the Buyer shall
pay to the Company as promptly as practicable after demand therefor (but in no
event later than the third Business Day thereafter) the amount of $32,500,000
(the "Company Breakup Fee").
(c) This Section 4.8 shall be effective only from and after the date the
Initial Merger Order is signed by the Bankruptcy Court.
4.9 Nasdaq National Market Quotation. The Buyer shall use its best efforts
to have the shares of Buyer Common Stock (including all such shares issuable
upon conversion of the Buyer Class B Common Stock and upon exercise of the
Buyer Warrants) and Buyer Warrants to be issued as contemplated in the Amended
Plan and this Agreement approved for quotation on the Nasdaq National Market
prior to the Closing.
4.10 Delivery of Financial Statements. As promptly as possible following the
last day of each month after the date of this Agreement until the Closing
Date, and in any event within 35 days after the end of each such month, each
of the Buyer and the Company shall deliver to the other its unaudited
consolidated balance sheet and the related consolidated statements of
operations and cash flows for the one-month period then ended, all certified
by its chief financial officer to the effect that such interim financial
statements are prepared in accordance with GAAP (except as otherwise described
therein) on a consistent basis as with each Party's audited financial
statements and fairly present the consolidated financial condition and results
of operations of each Party as of the date thereof and for the period covered
thereby (collectively, the "Interim Monthly Financial Statements"). As
promptly as possible following the last day of each fiscal quarter, and in any
event within 45 days after the end of each such quarter, each of the Buyer and
the Company shall deliver to the other its unaudited consolidated balance
sheet and the related unaudited consolidated statements of operations and cash
flows for the year-to-date period then ended, prepared in accordance with GAAP
(except as otherwise described therein) applied on a consistent basis as with
the Audited Financial Statements, which comply as to form with the applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto (collectively, the "Unaudited Quarterly Financial
Statements"). The Company shall furnish the Buyer with all information
(including, without limitation, the Audited Financial Statements and the
Unaudited Quarterly Financial Statements, pro forma financial information and
projections included in the Disclosure Statement) and shall take such other
action including obtaining any necessary consents and comfort letters (in
customary form and scope) from its accountants, as the Buyer may reasonably
request in connection with any offering of securities of the Buyer used to
fund the amounts to be paid by the Buyer under the Amended Plan or the working
capital requirements of the Buyer following the Closing.
4.11 Full Access. Each of the Buyer, the Parent and the Company shall
permit representatives of the other to have full access (at all reasonable
times, and in a manner so as not to interfere with normal business operations)
to all premises, properties, financial and accounting records, contracts,
other records and documents, and personnel, of or pertaining to such Party.
Each of the Buyer, the Parent and the Company shall cause its officers and
management to cooperate fully with the representatives and agents of such
other Party and shall make themselves available to the extent reasonably
necessary to complete the due diligence process and the consummation of the
transactions contemplated hereby. The Parent and the Company shall, at the
request of the Buyer, introduce the Buyer to its principal suppliers and
employees to facilitate discussions between such persons and the Buyer in
regard to the conduct of the businesses of the Surviving Corporation following
the Closing.
4.12 Stockholders Approval; Meeting. The Buyer shall take all action
reasonably necessary in accordance with applicable law, the rules of the
Nasdaq National Market, this Agreement and the Buyer's Restated Certificate of
Incorporation, as amended, and By-laws, as amended, duly to convene a meeting
of its stockholders (the "Meeting") as promptly as practicable to consider and
vote upon (i) the Buyer Charter Amendment in the form attached as Exhibit F
hereto (the "Buyer Charter Amendment") and (ii) the Buyer Share Issuance. The
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Buyer will (i) subject to Section 4.7(e), recommend in the Proxy Statement (as
defined in Section 4.13(a)) that its stockholders vote in favor of the Buyer
Charter Amendment and the Buyer Share Issuance (the "Buyer Recommendation")
and (ii) subject to Section 4.7(e), use its best efforts to cause to be
solicited proxies from stockholders of the Buyer to be voted at the Meeting in
favor of the Buyer Charter Amendment and the Buyer Share Issuance and to take
all other actions necessary or advisable to secure the vote or consent of
stockholders required to approve the Buyer Charter Amendment and the Buyer
Share Issuance.
4.13 Proxy Statement, Disclosure Statement, Etc.
(a) The Buyer shall promptly after execution of this Agreement prepare and
file with the SEC under the Exchange Act, and shall use its best efforts to
have cleared by the SEC and shall thereafter promptly mail to its
stockholders, a proxy statement for the Meeting (the "Proxy Statement"). The
Proxy Statement shall be mailed to stockholders of the Buyer at least 20
business days in advance of the date of the Meeting. The Company shall furnish
the Buyer with all information (including, without limitation, its Audited
Financial Statements and the Unaudited Quarterly Financial Statements, pro
forma financial information and projections included in the Disclosure
Statement) and shall take such other action (including obtaining any necessary
consents from the accountants) as the Buyer may reasonably request in
connection with the Proxy Statement. The Buyer shall consult with the Company
and its counsel in connection with, and shall permit the Company and its
counsel to participate in, the preparation of the Proxy Statement.
(b) The Buyer shall promptly notify the Company of the receipt of the
comments of the SEC and of any requests by the SEC for amendments or
supplements to the Proxy Statement or for additional information, and shall
promptly supply the Debtors with copies of all correspondence between it (or
its representatives) and the SEC (or its staff) with respect thereto, and
shall permit counsel for the Company to participate in any telephone
conferences or meetings with the staff of the SEC. If, at any time prior to
the Meeting, any event should occur relating to or affecting a Party or its
officers or directors, which event should be described in an amendment or
supplement to the Proxy Statement, such Party shall promptly inform the other
Party and shall cooperate in promptly preparing, filing and clearing with the
SEC and, if required by applicable securities law, mailing to the Buyer's
stockholders, as the case may be, such amendment or supplement.
(c) The Buyer shall furnish the Company with all information (including
historical and pro forma financial information and projections of the Buyer)
and shall take such other action as the Company may reasonably request in
connection with the Disclosure Statement. The Company shall consult with the
Buyer and its counsel in connection with, and shall permit the Buyer and its
counsel to participate in, the preparation and Bankruptcy Court approval
process of the Disclosure Statement and any amendments or supplements thereto.
4.14 Application of Pinnacle Proceeds. The Buyer, the Parent and the Company
agree that the net proceeds from the Closing (as defined in the Debtor Tower
Agreement) shall promptly be paid to the Pre-Petition Agent for the benefit of
the Pre-Petition Lenders.
4.15 FCC Filing. As soon as practicable following the date of this Agreement
and in no event later than the later to occur of the date fifteen days
following the execution hereof or the date ten days following the filing with
the Bankruptcy Court of the Amended Plan, the Parties shall jointly prepare
and file applications (the "FCC Applications") on the appropriate FCC forms in
accordance with all applicable FCC rules and regulations requesting (i) the
FCC's consent to the transfer of the control of the Debtor Authorizations to
the Buyer, (ii) to the extent that such consent is required, the FCC's consent
to the transfer of control of the Buyer Authorizations from the Buyer's
current stockholders to the Buyer's stockholders immediately following the
consummation of the transactions contemplated hereby in accordance with the
Amended Plan, (iii) the termination of the hearing in WT Docket No. 97-115, In
the Matter of MobileMedia Corporation, et al. (the "Hearing") without any
further findings adverse to the Debtors, or to the Debtor Authorizations or
otherwise materially restricting the Buyer's or the Reorganized Debtors'
ability to own or operate the properties, assets and businesses of the Debtors
following the Closing, and (iv) the grant to the Buyer of permanent license
authority to operate those stations listed on Attachment C of Public Notice DA
97-78 (January 13, 1997) (the "Attachment C Stations"), as to
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which Debtors are currently operating under a grant of interim operating
authority, or in the alternative, a determination by the FCC that as to such
stations, the Buyer will enjoy protection from, and rights of incumbency as
to, any future Market Area Licensee authorized to operate on the frequencies
licensed under interim operating authority. The Parties shall cooperate in
providing all information and taking all steps necessary to expedite the
preparation, filing and prosecution of the FCC Applications with the FCC. In
the event any person or entity petitions the FCC to deny any FCC Application,
or petitions for any further proceedings in the Hearing, or otherwise
challenges the grant of any FCC Application before the FCC, or in the event
the FCC approves the transfer of control of the Debtor Authorizations (and, if
necessary, the Buyer Authorizations), and any person requests reconsideration
or judicial review of such order, then the Parties shall take such reasonable
actions as are necessary to oppose such petition or challenge before the FCC
or defend such action and the order of the FCC before the judiciary diligently
and in good faith; provided, however, that nothing contained herein shall be
deemed to require the Buyer to intervene in the Hearing or otherwise to defend
the Debtors as to any allegations or proceedings relating to the allegations
before the FCC in the Hearing, except as reasonably required to support the
transfer of control of the Debtor Authorizations to the Buyer. The Company
shall provide the Buyer (whether or not the Buyer intervenes or otherwise
participates in the Hearing) with reasonable advance notice of, and a right to
participate in, any meetings or hearings relating to the FCC Applications or
the Hearing, and a right to review in advance any correspondence, agreements,
or pleadings which may be submitted by the Debtors to the FCC or any other
party to the Hearing with regard to the FCC Applications or any proceedings
relating to the Hearing. In each such case, each Party shall bear its own
costs and expenses of prosecuting such application to a favorable conclusion,
to the end that the transactions contemplated by this Agreement and the
Amended Plan may be consummated.
The Parent and the Company each covenants that it will continue to use
reasonable best efforts to complete the program, voluntarily undertaken by the
Debtors and monitored by its independent regulatory consultant, to inspect and
audit the Debtors' transmitter site facilities and license data, within the
time frames established by Debtors' independent regulatory consultant and
reported to the FCC, and will provide Buyer with periodic updates of the
progress of the program, including copies of status reports prepared by the
Debtors' independent regulatory consultant and furnished to the Company's
Board of Directors.
4.16 Indemnification; Director and Officers Insurance. (a) The Buyer agrees
that, to the extent set forth in the Amended Plan and only to such extent, all
rights to indemnification and exculpation from liabilities for acts or
omissions occurring prior to the Effective Time now existing in favor of the
current or former directors or officers of the Debtors as provided in their
respective charters or by-laws (or comparable organization documents) and any
indemnification agreements of the Debtors (including with Alvarez & Marsal,
Inc.) shall survive the Merger and shall continue in full force and effect in
accordance with their terms for a period of not less than three years from the
Effective Time and the obligations of the Debtors in connection therewith
shall be assumed by the Buyer. To the extent set forth in the Amended Plan and
only to such extent, the Buyer shall provide, or shall cause the Surviving
Corporation to provide, the Debtors' current directors and officers an
insurance and indemnification policy (including any fiduciary liability
policy) that provides coverage with respect to any claims made during the
three-year period following the Effective Time for events occurring prior to
the Effective Time.
(b) The provisions of this Section 4.16 are intended to be for the benefit
of, and shall be enforceable by, each person who is or has been a director or
officer of any of the Debtors (except for such Persons who are not entitled to
indemnification as provided for in the Amended Plan) and such director's or
officer's heirs and personal representatives and shall be binding on all
successors and assigns of the Buyer and the Surviving Corporation.
4.17 State Takeover Laws. If any "fair price", "business combination" or
"control share acquisition" statute or other similar statute or regulation
shall become applicable to the transactions contemplated hereby, the Buyer,
the Parent and the Company and their respective Boards of Directors shall use
all reasonable efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be
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consummated as promptly as practicable on the terms contemplated hereby and
shall otherwise act to minimize the effects of any such statute or regulation
on the transactions contemplated hereby.
4.18 Employees.
(a) Buyer's Benefits for Affected Employees. As promptly as practicable
following the Effective Time, the Buyer shall transfer to one or more employee
benefit plans maintained by the Buyer any employee of the Parent, the Company
or any of the Company's Subsidiaries who becomes an employee of the Buyer or
any of its Subsidiaries (collectively, the "Affected Employees"). Prior to
such transfer, the Buyer shall maintain, or shall cause the Company and its
Subsidiaries to maintain, compensation and employee benefits plans and
arrangements for the Affected Employees that are comparable to those provided
for under the compensation arrangements and Company Employee Benefit Plans as
in effect on the date hereof; provided, that for such period, the Buyer shall
not reduce the severance benefits payable to any terminated employee or
Affected Employee below the level currently provided to such terminated
employee or Affected Employee by the Company. Notwithstanding the foregoing,
the Buyer shall have the right, following the Effective Time, in the good
faith exercise of its managerial discretion, to terminate the employment of
any employee. Nothing in this Agreement shall be construed as granting to any
employee any rights of continuing employment.
(b) Honoring Accrued Vacation and 1998 Employee Incentive Plan. Without
limiting the generality of the foregoing subsection, and to the extent
permitted by law, the Buyer shall (i) honor all vacation, holiday, sickness
and personal days accrued by Affected Employees and, to the extent applicable,
former employees of the Parent, the Company and its Subsidiaries ("Former
Employees") as of the Effective Time and (ii) for purposes of the Company's
1998 Employee Incentive Plan, in the event the payments under the 1998
Employee Incentive Plan would be paid or payable after the Closing, (x) use
the evaluations of the executives covered by such plan prepared in good faith,
and to be provided by the Company to the Buyer at least five business days
prior to the Closing and (y) calculate the Company's 1998 EBITDA in a manner
consistent with the Company's current accounting practices, in connection with
the 1998 Employee Incentive Plan and without deduction for any restructuring
or other special or one-time charge relating to the transactions contemplated
by this Agreement.
(c) Participation in Benefit Plans. Employees and, to the extent applicable,
Former Employees shall be given credit, to the extent permitted by law, for
all service with the Parent, the Company and its Subsidiaries (or service
credited by the Company or such Subsidiaries) under all Buyer Employee Benefit
Plans currently maintained by the Buyer or any of its Subsidiaries in which
they are or become participants for purposes of eligibility, vesting, level of
participant contributions and benefit accruals (but subject to an offset, if
necessary, to avoid duplication of benefits) to the same extent as if rendered
to the Buyer or any of its Subsidiaries other than as otherwise provided in
clause (a) or (b) of this Section 4.18. The Buyer shall cause to be waived any
pre-existing condition limitation under its welfare plans that might otherwise
apply to an Affected Employee or, to the extent applicable, a Former Employee.
The Buyer agrees to recognize (or cause to be recognized) the dollar amount of
all expenses incurred by Affected Employees or, to the extent applicable,
Former Employees, during the calendar year in which the Effective Time occurs
for purposes of satisfying the calendar year deductions and co-payment
limitations for such year under the relevant benefit plans of the Buyer and
the Buyer Subsidiaries.
4.19 Rights Agreement. The Buyer shall not (i) amend the Rights Agreement or
(ii) take any action with respect to, or make any determination under, the
Rights Agreement (including a redemption of the Preferred Rights) with the
purpose of facilitating a Buyer Acquisition proposal.
4.20 Buyer Rights Offering; Registration Statement. (a) As specified in the
Amended Plan, the Buyer will issue (the "Rights Offering") to the holders of
certain Allowed Claims as specified in the Amended Plan the Rights to
purchase, for an aggregate consideration of $217 million, shares of Buyer
Common Stock, Buyer Class B Common Stock, if applicable, and Buyer Warrants.
The Rights Offering will be made substantially on the terms set forth in
Schedule III hereto.
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(b) Concurrently with the execution of this Agreement, the Company and the
Buyer have entered into a Standby Purchase Commitment with each Standby
Purchaser and, prior to or at the Closing, the Buyer will execute and deliver
to each of the Standby Purchasers the Registration Rights Agreement.
(c) The Buyer will file with the SEC a registration statement as required
under the Securities Act to effect the Rights Offering as contemplated hereby
(the "Registration Statement") as promptly as practicable (in any event within
15 days) after the date of this Agreement, and the Buyer will use its best
efforts to have the Registration Statement declared effective by the SEC as
promptly as practicable thereafter. The Buyer shall also take any action
required to be taken under state blue sky laws or other securities laws in
connection with the Rights Offering. The Parent and the Company shall furnish
the Buyer with all information (including, without limitation, the Audited
Financial Statements and the Unaudited Quarterly Financial Statements, pro
forma financial information and projections included in the Disclosure
Statement) and shall take such other action, including obtaining any necessary
consents and comfort letters (in customary form and scope) from its
accountants, as the Buyer may reasonably request in connection with the
Registration Statement. The Buyer shall consult with the Parent and the
Company and its counsel in connection with, and shall permit the Parent and
the Company and its counsel to participate in, the preparation of the
Registration Statement. The Buyer shall cause the Rights to be issued as
specified in the Amended Plan as soon as practicable after the date the
Registration Statement becomes effective but not before approval of Disclosure
Statement by the Bankruptcy Court.
(d) The Buyer shall promptly notify the Parent and the Company of the
receipt of the comments of the SEC and of any requests by the SEC for
amendment or supplements to the Registration Statement or for additional
information, and shall promptly supply the Parent and the Company with copies
of all correspondence between it (or its representatives) and the SEC (or its
staff) with respect thereto, and shall permit counsel for the Parent and the
Company to participate in any telephone conferences or meetings with the staff
of the SEC. If, at any time prior to the Effective Date, any event should
occur relating to or affecting a Party or its officers or directors, which
event should be described in an amendment or supplement to the Registration
Statement, such Party shall promptly inform the other Party and shall
cooperate in promptly preparing, filing and clearing with the SEC and, if
required by applicable securities law, distributing such amendment or
supplement.
4.21 Reimbursement of Buyer's Expenses. As soon as practicable after the
date of receipt of the Initial Merger Order (but in no event later than the
third Business Day thereafter), the Company shall pay to the Buyer, by wire
transfer to a bank account of the Buyer specified in a prior written notice
from the Buyer to the Company, $500,000 in next day funds in partial
reimbursement of the Buyer's expenses in connection with the negotiation and
execution of this Agreement (the "Buyer Reimbursement").
ARTICLE V
Conditions to Closing
5.1 Conditions to Obligations of Each Party. The respective obligation of
each Party to consummate the transactions to be performed by it in connection
with the Closing is subject to the satisfaction, or waiver by such Parties, of
the following conditions:
(a) each of the Buyer Charter Amendment and the Buyer Share Issuance
shall have been approved by the requisite vote of the holders of Buyer
Stock in accordance with the DGCL and the restated certificate of
incorporation, as amended, and by-laws, as amended, of the Buyer;
(b) no statute, rule, order, decree or regulation shall have been enacted
or promulgated by any foreign or domestic Governmental Entity which
prohibits the consummation of the transactions contemplated hereby and all
consents, orders and approvals from all Governmental Entities and other
persons or entities listed in Section 2.3 of the Company Disclosure
Schedule or Section 3.3 of the Buyer Disclosure Schedule shall have been
obtained and shall be in effect;
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(c) there shall be no order or injunction of a foreign or United States
federal or state court or other governmental authority of competent
jurisdiction in effect precluding, restraining, enjoining or prohibiting
consummation of the transactions contemplated hereby;
(d) the expiration or early termination of any waiting period under the
HSR Act shall have occurred;
(e) (1) the FCC shall have issued an order (the "FCC Grant") both (i)
consenting to the transfer of the Debtor Authorizations and, to the extent
requested by the Parties, to the transfer of the Buyer Authorizations
without any conditions that would have a Buyer FCC Material Adverse Effect
(as defined below in this Section 5.1(e)) or a Debtor FCC Material Adverse
Effect (as defined below in this Section 5.1(e)) and (ii) terminating the
Hearing without any findings or conclusions (x) that are materially adverse
to the Reorganized Debtors or the Debtor Authorizations or which would have
a material adverse effect on the use of the Debtor Authorizations by the
Reorganized Debtors following the Closing, or (y) which impose any material
monetary forfeiture on the Debtors or the Reorganized Debtors or retain
jurisdiction to impose any material monetary forfeitures in the future on
the Buyer or the Reorganized Debtors based on the activities of the Debtors
prior to the Closing, or (z) which would have a Buyer FCC Material Adverse
Effect or a Debtor FCC Material Adverse Effect; and (2) either (i) the FCC
Grant has become a Final Order (as defined below in this Section 5.1(e)) or
(ii)(a) any condition or conditions under the Bank Lending Documents to the
effect that the FCC Grant shall have become a Final Order (or any condition
or conditions therein having a substantially similar effect) shall have
been satisfied or, if not satisfied, the Bank Lenders shall have waived any
such condition or conditions (or any such condition or conditions having a
substantially similar effect) and (b) any condition or conditions under the
Other Lending Documents to the effect that the FCC Grant shall have become
a Final Order (or any condition or conditions therein having a
substantially similar effect) shall have been satisfied or, if not
satisfied, the Other Lenders shall have waived any such condition or
conditions (or any such condition or conditions having a substantially
similar effect); it being agreed that, for purposes of this Section 5.1(e)
and Section 5.1(h), (A) "Bank Lenders" shall mean, collectively, the
Existing Lenders (as defined in the Bank Commitment Letter) and the Credit
Parties (as so defined), as the same in each case shall exist at the
Closing, (B) "Bank Lending Documents" shall mean the Existing Credit
Agreements (as defined in the Bank Commitment Letter) as amended and
modified by the Amendments (as so defined), (C) "Bank Commitment Letter"
shall mean the Commitment Letter of even date herewith between Arch Paging,
Inc. and the Credit Parties, including the Term Sheet (as defined in such
Bank Commitment Letter), copies of which has been delivered to the Company
by the Buyer, as the same may be amended or modified, (D) "Other Lenders"
shall mean the Lenders (as defined in the Bridge Commitment Letter), as the
same shall exist at the Closing, or, if applicable, any other lenders which
lend funds to Arch Communications, Inc. (or the Buyer or any other Buyer
Subsidiary) pursuant to a Substitute Loan Agreement (as defined below), (E)
"Other Lending Documents" shall mean the Bridge Commitment Letter, Bridge
Loan Agreement (as defined in the Bridge Commitment Letter) or any other
loan agreement, indenture or similar agreement (the "Substitute Loan
Agreement") entered into by the Buyer or any Buyer Subsidiary in lieu
thereof for purposes of funding a material portion of the consideration
required by the Buyer for the transactions contemplated by this Agreement,
(F) "Bridge Commitment Letter" shall mean the Bridge Commitment Letter, the
Bridge Fee Letter and the Bridge Engagement Letter, each of even date
herewith, between the Buyer and Arch Communications, Inc., on the one hand,
and the Other Lenders, on the other hand, a copy of which has been
delivered by the Buyer to the Company, as the same may be amended or
modified, (G) "Buyer FCC Material Adverse Effect" shall mean a material
adverse effect on the financial condition and operating income of the Buyer
and its subsidiaries, taken as a whole, excluding any effect generally
applicable to the economy or the industry in which Buyer conducts its
business, and (H) "Debtor FCC Material Adverse Effect" shall mean a
material adverse effect on the financial condition and operating income of
the Debtors, taken as a whole, excluding any effect generally applicable to
the economy or the industry in which the Company conducts its business; and
it being further agreed that, for purposes of this Section 5.1(e), the FCC
Grant shall become a "Final Order" when no request for a stay is pending,
no stay is in effect and any deadline for filing such a request that may be
designated by statute or regulation is past; no petition for rehearing or
reconsideration or application for review is pending and the time for
filing any such petition or application is passed; the FCC does not have
the action or decision under
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reconsideration on its own motion and the time for initiating any such
reconsideration that may be designated by statute or rule has passed; and
no appeal is pending or in effect and any deadline for filing any such
appeal that may be designated by statute or rule has passed;
(f) the Registration Statement shall have been declared effective and no
stop order with respect thereto shall be in effect;
(g) the shares of Buyer Common Stock (including all such shares issuable
upon conversion of the Buyer Class B Common Stock and the Buyer Warrants)
to be issued as contemplated by the Amended Plan and this Agreement shall
have been approved for quotation on the Nasdaq National Market;
(h) (1) the Confirmation Order (which shall authorize and approve the
assumption by the Debtors of the Assumed Contracts), in a form reasonably
satisfactory to each of the Parties, shall have been entered by the
Bankruptcy Court; and (2) either (i) the Confirmation Order has become a
Final Order (as defined below in this Section 5.1(h)) or (ii) (a) any
condition or conditions under the Bank Lending Documents to the effect that
the Confirmation Order shall have become a Final Order (or any condition or
conditions therein having a substantially similar effect) shall have been
satisfied or, if not satisfied, the Bank Lenders shall have waived any such
condition or conditions (or any such condition or conditions having a
substantially similar effect), and (b) any condition or conditions under
the Other Lending Documents to the effect that the Confirmation Order shall
have become a Final Order (or any condition or conditions therein having a
substantially similar effect) shall have been satisfied or, if not
satisfied, the Other Lenders shall have waived any such condition or
conditions (or any such condition or conditions having a substantially
similar effect), it being agreed that, for purposes of this Section 5.1(h),
the Confirmation Order shall become a "Final Order" when it shall have been
in full force and effect for eleven days without any stay or material
modification or amendment thereof, and when the time to appeal or petition
for certiorari designated by statute or regulation has expired and no
appeal or petition for certiorari is pending or, if an appeal or petition
for certiorari has been timely filed or taken, the order or judgment of the
tribunal has been affirmed (or such appeal or petition has been dismissed
as moot) by the highest court (or other tribunal having appellate
jurisdiction over the order or judgment) to which the order was appealed or
the petition for certiorari has been denied, and the time to take any
further appeal or to seek further certiorari designated by statute or
regulation has expired;
(i) no action, suit or proceeding shall be pending or threatened by any
Governmental Entity challenging the validity of the actions taken by the
Buyer, the Debtors or any of their respective Subsidiaries in connection
with the confirmation of the Amended Plan;
(j) the Effective Date (as defined in the Amended Plan) shall have
occurred; and
(k) the Plan Shares to be issued and distributed as contemplated by
Section 1.3(e) and Section 1.6 shall, when so issued and distributed, be
(i) issued and distributed pursuant to the exemption from registration
under the Securities Act provided by Section 1145 of the Bankruptcy Code,
(ii) freely tradeable by holders thereof who are not then affiliates of the
Buyer or "underwriters" under the Securities Act or 1145(b)(1) of the
Bankruptcy Code and, (iii) except for certificates issuable to such
affiliates or underwriters, represented by certificates bearing no
restrictive legend.
5.2 Conditions to Obligations of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by the Buyer in connection with
the Closing is subject to the satisfaction, or waiver by the Buyer, of the
following conditions:
(a) the representations and warranties of the Parent and the Company
contained in this Agreement, which representations and warranties shall be
deemed for purposes of this Section 5.2(a) not to include any qualification
or limitation with respect to materiality (whether by reference to a
"Debtor Material Adverse Effect" or otherwise), shall be true and correct
as of the Effective Time, with the same effect as though such
representations and warranties were made as of the Effective Time, except
where the matters in respect of which such representations and warranties
are not true and correct, result from actions permitted by this Agreement
or would not in the aggregate have a Debtor Material Adverse Effect;
41
<PAGE>
(b) the Parent and the Company shall each have performed or complied with
its material agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Closing in all material
respects;
(c) there shall not have occurred between the Agreement Date and the
Closing Date a Debtor Material Adverse Effect;
(d) the Parent and the Company shall have delivered to the Buyer a
certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified in clauses
(a) through (c) of this Section 5.2 is satisfied in all respects;
(e) after the Registration Statement has been declared effective, the
Rights Offering shall have expired and the Buyer shall have received
aggregate proceeds therefrom (and/or from the closings contemplated by the
Standby Purchase Commitments) of $217.0 million; and
(f) the Debtors shall have on or prior to the Closing Date paid to the
Pre-Petition Agent for the benefit of the Pre-Petition Lenders at least
$165 million in net proceeds under the Debtor Tower Agreement (the "Company
Tower Sale Proceeds").
5.3 Conditions to Obligations of the Company. The obligations of the Parent
and the Company to consummate the transactions to be performed by each of them
in connection with the Closing is subject to the satisfaction, or waiver by
the Parent and the Company, of the following conditions:
(a) the representations and warranties of the Buyer contained in this
Agreement, which representations and warranties shall be deemed for
purposes of this Section 5.3(a) not to include any qualification or
limitation with respect to materiality (whether by reference to a "Buyer
Material Adverse Effect" or otherwise), shall be true and correct as of the
Effective Time with the same effect as though such representations and
warranties were made as of the Effective Time, except where the matters in
respect of which such representations and warranties are not true and
correct result from actions permitted by this Agreement or would not in the
aggregate have a Buyer Material Adverse Effect;
(b) the Buyer shall have performed or complied with its material
agreements and covenants required to be performed or complied with under
this Agreement as of or prior to the Closing in all material respects;
(c) there shall not have occurred between the Agreement Date and the
Closing Date a Buyer Material Adverse Effect;
(d) the Preferred Rights shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of the Rights
Agreement; and
(e) the Buyer shall have delivered to the Company a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect
that each of the conditions specified in clauses (a) through (d) of this
Section 5.3 is satisfied in all respects.
ARTICLE VI
Termination
6.1 Termination of Agreement. The Parties may terminate this Agreement prior
to the Closing Date only as provided below:
(a) the Parties may terminate this Agreement by mutual written consent;
(b) either the Buyer or the Company may terminate this Agreement by
giving written notice to the other in the event the other is in breach (i)
of its representations and warranties contained in this Agreement, which
representations and warranties shall be deemed for purposes of this Section
6.1(b) not to include any qualification or limitation with respect to
materiality (whether by reference to a "Debtor Material Adverse Effect",
"Buyer Material Adverse Effect" or otherwise), except where the matters in
respect of which such representations and warranties are in breach would
not in the aggregate have a Debtor Material Adverse
42
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Effect or a Buyer Material Adverse Effect, as the case may be, or (ii) of
its material covenants or agreements contained in this Agreement in any
material respect, and in either case such breach is not remedied within 20
business days of delivery of such written notice thereof (which notice
shall specify in reasonable detail the nature of such breach);
(c) (i) after March 31, 1999, the Buyer may terminate this Agreement by
written notice to the Company if the Confirmation Order has not been
entered by the Bankruptcy Court on or prior to such date (unless such
failure results primarily from a breach by the Buyer of any representation,
warranty or covenant contained in this Agreement) or (ii) after June 30,
1999, the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before such date
(unless the failure results primarily from a breach by the Buyer of any
representation, warranty or covenant contained in this Agreement);
(d) (i) after March 31, 1999, the Company may terminate this Agreement by
written notice to the Buyer if the Confirmation Order has not been entered
by the Bankruptcy Court on or prior to such date (unless the failure
results primarily from a breach by the Company of any representation,
warranty or covenant contained in this Agreement) or (ii) after June 30,
1999, the Company may terminate this Agreement by giving written notice to
the Buyer if the Closing shall not have occurred on or before such date
(unless the failure results primarily from a breach by the Company of any
representation, warranty or covenant contained in this Agreement);
(e) the Company may terminate this Agreement pursuant to and in
accordance with the provisions of Section 4.7 by giving written notice to
the Buyer, provided that on or before such termination the Debtors shall
have paid to the Buyer the applicable Buyer Breakup Fee;
(f) the Buyer may terminate this Agreement by giving written notice to
the Company if the Initial Merger Order has not been entered by the
Bankruptcy Court on or prior to September 4, 1998;
(g) The Company may terminate this Agreement by giving written notice to
the Buyer if (i) the Buyer's Board of Directors does not issue the Buyer
Recommendation prior to the Meeting or withdraws or amends in a manner
adverse to the Company the Buyer Recommendation or otherwise materially
breaches the first sentence of Section 4.12 or of Section 4.13(a) or (ii)
at the Meeting the Buyer Charter Amendment or the Buyer Share Issuance is
not approved by the requisite vote of the holders of Buyer Common Stock;
(h) the Buyer may terminate this Agreement by giving written notice to
the Company if the Company or any other Debtor files either an amendment to
the Amended Plan or any other plan of reorganization in violation of
Section 4.4(b);
(i) the Buyer may terminate this Agreement by giving written notice to
the Company if (x) the Company takes any action (or omits to take any
action) that would constitute a material breach of any of its material
covenants or agreements contained in Section 4.1 or 4.5 but for the
language of such Sections that permits the Company to take actions (or omit
to take actions) required by a Bankruptcy-Related Requirement, and (y) such
action (or omission to take action) is not remedied within 20 business days
of delivery of written notice thereof (which notice shall specify in
reasonable detail the nature of such action (or omission to take action)
and the nature of the resulting breach (but for such language)); and
(j) either the Buyer or the Company may terminate this Agreement by
giving written notice to the other (i) if at the time of giving such notice
the Debtor Tower Agreement shall have been terminated in accordance with
its terms, unless, prior to or simultaneously with such termination, the
Company shall have entered into a definitive agreement (which shall be
comparable in form and substance to the Debtor Tower Agreement, and any
lease entered into in connection therewith shall be comparable in form and
substance to the Master Lease (as defined in the Debtor Tower Agreement),
and a copy of which shall be delivered to Arch promptly following execution
thereof) with a bona fide third-party purchaser providing for a sale to
such third party of the assets or substantially all the assets to be sold
to Pinnacle Towers Inc. pursuant to the Debtor Tower Agreement and which
results in net proceeds to the Company of not less than $165,000,000 (an
"Acceptable Sale"), or (ii) on or after December 31, 1998 if the Closing
(as
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defined in the Debtor Tower Agreement) or the closing of an Acceptable Sale
shall not have occurred on or before such date.
6.2 Effect of Termination. If any Party terminates this Agreement pursuant
to Section 6.1, all obligations of the Parties hereunder shall terminate
without any liability of any Party to any other Party, except for any
liability of any Party for willful or intentional breaches of this Agreement,
and except for the Company's obligation to pay the Buyer Breakup Fee, if
applicable, and the Buyer's obligation to pay the Company Breakup Fee, if
applicable, each pursuant to Section 4.8, which shall survive any such
termination; provided that Article VIII shall also survive any such
termination. Any claims arising out of or in connection with the Company's
willful or intentional breach of any covenant or agreement herein after entry
of the Confirmation Order shall be treated as a claim for an expense of
administration under 11 U.S.C. (S) 503(b)(1) of each of Debtor's bankruptcy
estate.
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ARTICLE VII
Definitions
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Affected Employees....................................... 4.18(a)
Agreement................................................ Introduction
Agreement Date........................................... Introduction
Allowed Claims........................................... Preliminary Statement
Amended Plan............................................. Preliminary Statement
Attachment C Stations.................................... 4.15
Audited Company Financial Statements..................... 2.5(a)
Bankruptcy Code.......................................... 2.1(a)
Bankruptcy Court......................................... Preliminary Statement
Bankruptcy-Related Requirements.......................... 4.5
Bear Stearns............................................. 3.22
Breakup Events........................................... 4.8(a)
Business Entity.......................................... 2.4(a)
Buyer.................................................... Introduction
Buyer Acquisition Proposals.............................. 4.7(d)
Buyer Affiliated Group................................... 3.8(a)
Buyer Affiliated Period.................................. 3.8(a)
Buyer Authorizations..................................... 3.14(a)
Buyer Balance Sheet Date................................. 3.5(b)
Buyer Breakup Fee........................................ 4.8(a)
Buyer Business Entity.................................... 3.4(a)
Buyer Class B Common Stock............................... 3.1(b)
Buyer Common Stock....................................... Preliminary Statement
Buyer Charter Amendment.................................. 4.12
Buyer Disclosure Schedule................................ Article III
Buyer Distribution....................................... 1.7(a)
Buyer Employee Benefit Plan.............................. 3.17(a)
Buyer FCC Applications................................... 3.14(b)
Buyer FCC Material Adverse Effect........................ 5.1(e)
Buyer Intellectual Property.............................. 3.11(a)
Buyer Licenses and Authorizations........................ 3.14(b)
Buyer Material Adverse Effect............................ Article III
Buyer Preferred Stock.................................... 1.7(a)
Buyer Recommendation..................................... 4.12
Buyer Reimbursement...................................... 4.21
Buyer Reports............................................ 3.5(a)
Buyer Share Issuance..................................... 3.1(b)
Buyer State Applications................................. 3.14(b)
Buyer Stock.............................................. 1.7(a)
Buyer Subsidiary......................................... 3.4(c)
Buyer Superior Proposal.................................. 4.7(e)
Buyer Warrant Agreement.................................. Preliminary Statement
Buyer Warrants........................................... Preliminary Statement
CERCLA................................................... 2.18(a)
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Certificate of Merger.................................... 1.1
Chapter 11 Proceeding.................................... Preliminary Statement
Closing.................................................. 1.2
Closing Date............................................. 1.2
Code..................................................... Preliminary Statement
Communications Act....................................... 2.3
Company.................................................. Introduction
Company Acquisition Proposals............................ 4.7(a)
Company Balance Sheet Date............................... 2.5(a)
Company Breakup Fee...................................... 4.8(b)
Company Disclosure Schedule.............................. Article II
Company Employee Benefit Plans........................... 2.17(a)
Company Financial Statements............................. 2.5(a)
Company Group............................................ 2.8(b)(i)
Company Stock............................................ 1.5(b)
Company Superior Proposal................................ 4.7(b)
Company Tower Sale Proceeds.............................. 5.2(f)
Confidentiality Agreement................................ 4.7(c)
Confirmation Order....................................... Preliminary Statement
Debtor................................................... Preliminary Statement
Debtor Affiliated Group.................................. 2.8(b)
Debtor Affiliated Period................................. 2.8(b)
Debtor Authorizations.................................... 2.14(a)
Debtor Business Entity................................... 2.4(a)
Debtor FCC Applications.................................. 2.14(b)
Debtor FCC Material Adverse Effect....................... 5.1(e)
Debtor Licenses and Authorizations....................... 2.14(b)
Debtor Material Adverse Effect........................... Article II
Debtor State Applications................................ 2.14(b)
Debtor Tower Agreement................................... 2.10
Debtors.................................................. Preliminary Statement
Debtors' Intellectual Property........................... 2.11(a)
DGCL..................................................... 1.1
DIP Loan Agreement....................................... 1.11
Disclosure Statement..................................... 4.4(b)
Dispose.................................................. 4.5(a)(i)
Effective Time........................................... 1.1
Employee Benefit Plan.................................... 2.17(a)
Environmental Authorization.............................. 2.18(e)
Environmental Law........................................ 2.18(a)
Environmental Property Transfer Act...................... 2.18(f)
ERISA.................................................... 2.17(a)
ERISA Affiliate.......................................... 2.17(a)
Exchange Act............................................. 2.3
Exchange Agent........................................... 1.3
Exclusivity Provisions................................... 4.7(a)
FCC...................................................... 2.3
FCC Applications......................................... 4.15
Filing Date.............................................. 2.5(a)
Final Order.............................................. 5.1(e)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Former Employees.......................................... 4.18(b)
GAAP...................................................... 2.5(a)
Governmental Entity....................................... 2.3
Hearing................................................... 4.15
HSR Act................................................... 2.3
Indirect Buyer Authorizations............................. 3.14(b)
Indirect Debtor Authorizations............................ 2.14(b)
Initial Merger Motion..................................... 4.4(a)
Initial Merger Order...................................... 4.4(a)
Interim Monthly Financial Statements...................... 4.10
June 30 Unaudited Company Balance......................... 2.5(a)
Knowledge................................................. 8.15
Major Breakup Event....................................... 4.8(a)
Materials of Environmental Concern........................ 2.18(b)
Meeting................................................... 4.12
Merger.................................................... 1.1
Merger Subsidiary......................................... Introduction
Minor Breakup Event....................................... 4.8(a)
MobileMedia............................................... Preliminary Statement
Most Recent Buyer Balance Sheet........................... 3.5(b)
Ordinary Course of Business............................... 2.3
Parties................................................... Introduction
Parent.................................................... Introduction
Pinnacle.................................................. 2.10
Plan Cash................................................. 1.3
Plan Shares............................................... 1.3
Preferred Rights.......................................... 3.2(a)
Prior Plan................................................ Preliminary Statement
Proxy Statement........................................... 4.13(a)
Registration Rights Agreement............................. Preliminary Statement
Registration Statement.................................... 4.20(c)
Rights Agreement.......................................... 3.2(a)
Rights Offering........................................... 4.20(a)
SEC....................................................... 2.5(a)
Securities Act............................................ 2.3
Security Interest......................................... 2.3
Standby Purchase Commitments.............................. Preliminary Statement
Standby Purchasers........................................ Preliminary Statement
State Authority........................................... 2.14(a)
Surviving Corporation..................................... 1.1
Tax Returns............................................... 2.8(a)
Taxes..................................................... 2.8(a)
Unaudited Quarterly Financial Statements.................. 4.10
</TABLE>
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<PAGE>
ARTICLE VIII
General Provisions
8.1 Press Releases and Announcements. No Party shall issue any press release
or announcement relating to the subject matter of this Agreement without the
prior written approval of the other Parties; provided, however, that any Party
may make any public disclosure it determines in good faith, after consultation
with counsel, is required by law or regulation (in which case the disclosing
Party shall advise the other Parties and provide them with a copy of the
proposed disclosure prior to making the disclosure).
8.2 No Third Party Beneficiaries. Except as otherwise expressly provided
herein, this Agreement shall not confer any rights or remedies upon any person
other than the Parties and their respective successors and permitted assigns.
8.3 Entire Agreement. This Agreement and the exhibits and schedules attached
hereto, including the Amended Plan, and the Confidentiality Agreement
constitute the entire agreement among the Parties and supersede any prior
understandings, agreements or representations by or among the Parties, written
or oral, that may have related in any way to the subject matter of the
Agreement.
8.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior
written approval of the other Parties; provided, that the Buyer may assign its
rights under this Agreement to another wholly owned subsidiary of the Buyer by
notice to the Company; provided, further, that the Buyer shall remain liable
for all its obligations hereunder.
8.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.6 Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 Notices. All notices, requests, demands, claims and other communications
hereunder shall be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly delivered three business days
after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or two business days after it is sent via a reputable
international overnight courier service, in each case to the intended
recipient as set forth below:
If to the Company: Copy to:
Sidley & Austin
MobileMedia Communications, Inc. 875 Third Avenue
Fort Lee Executive Park New York, NY 10022
One Executive Drive, Suite 500 Attn: James D. Johnson
Fort Lee, NJ 07024
Attn: Chairman--Restructuring
Copy to:
If to the Parent: Sidley & Austin
875 Third Avenue
MobileMedia Corporation New York, NY 10022
Fort Lee Executive Park Attn: James D. Johnson
One Executive Drive, Suite 500
Fort Lee, NJ 07024
Attn: Chairman--Restructuring
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If to the Buyer: Copy to:
Hale and Dorr LLP
Arch Communications Group, Inc. 60 State Street
1800 West Park Drive, Suite 250 Boston, MA 02109
Westborough, MA 01581 Attn: Jay E. Bothwick
Attn: Chairman and Chief Executive
Officer
Any Party may give any notice, request, demand, claim or other communication
hereunder by personal delivery or telecopy, but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the Party for whom it is intended.
Any Party may change the address to which notices, requests, demands, claims
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State
of Delaware.
8.9 Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time by a written instrument signed by all of the
Parties. No waiver by any Party of any default, misrepresentation or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
8.10 Severability. If any court of competent jurisdiction determines that
any material provision of this Agreement is invalid or unenforceable, then,
only to the extent the Parties agree, such provision shall be severable and
null and void, and, in such event, such determination shall in no way limit or
affect the enforceability or operative effect of any or all other portions of
this Agreement.
8.11 Expenses. Except as otherwise set forth in this Agreement, each of the
Parties shall bear its or their own costs and expenses (including fees and
expenses of their respective legal, accounting and financial advisors)
incurred in connection with this Agreement and the transactions contemplated
hereby.
8.12 Specific Performance. Each of the Parties acknowledges and agrees that
one or more of the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court having jurisdiction over the Parties and the
matter, in addition to any other remedy to which it may be entitled, at law or
in equity.
8.13 Construction. The language used in this Agreement shall be deemed to be
the language chosen by the Parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise.
8.14 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
8.15 Knowledge. For purposes of this Agreement, the term "knowledge" of the
Company and the Buyer shall mean the actual knowledge, after due inquiry, of
the senior executive officers of the Buyer and each of its Subsidiaries and
the Parent, the Company and each other Debtor, respectively.
8.16 Survival of Representations. None of the representations and warranties
made by the Parties herein or the documents or certificates contemplated
hereby, nor the covenants set forth in Article IV, shall survive the Closing.
49
<PAGE>
8.17 Bankruptcy Process. Nothing contained in this Agreement shall be deemed
to limit in any manner the ability of any Debtor to take any position before
or make any motion to the Bankruptcy Court in connection with the Chapter 11
Proceeding; provided, however, that no Debtor shall take any such position or
make any such motion in support of any action or inaction by such Debtor that
would constitute a breach of any covenant of the Company contained in this
Agreement.
50
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT AND PLAN OF
MERGER AS OF THE DATE FIRST ABOVE WRITTEN.
ARCH COMMUNICATIONS GROUP, INC.
By:
---------------------------------
Name:
Title:
FARM TEAM CORP.
By:
---------------------------------
Name:
Title:
SUBJECT TO ENTRY OF THE PROVISION
ORDER AS TO THE PROVISIONS HEREOF
COVERED THEREBY AND TO THE RECEIPT
OF THE CONFIRMATION ORDER FROM THE
BANKRUPTCY COURT WITH RESPECT TO
THE AMENDED PLAN AS DESCRIBED
HEREIN:
MOBILEMEDIA CORPORATION
By:
---------------------------------
Name:
Title:
MOBILEMEDIA COMMUNICATIONS, INC.
By:
---------------------------------
Name:
Title:
51
<PAGE>
ANNEX B
(LOGO)
August 14, 1998
Board of Directors
Arch Communications Group, Inc.
1800 West Park Drive, Suite 250
Westborough, Massachusetts 01581
Dear Sirs:
We understand that Arch Communications Group, Inc. ("Arch"), MobileMedia
Corporation ("Parent") and Parent's wholly owned subsidiary, MobileMedia
Communications, Inc. ("MobileMedia"), intend to enter into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which MobileMedia will be
merged with and into a newly-formed, wholly-owned subsidiary of Arch and that,
immediately prior thereto, Parent will contribute all of its assets to
MobileMedia (collectively, the "Transaction"). MobileMedia and its
subsidiaries are currently operating as debtors-in-possession under Chapter 11
of the United States Bankruptcy Code and the proposed Transaction constitutes
the basis of MobileMedia's First Amended Joint Plan of Reorganization (the
"Amended Plan"). You have provided us a copy of (i) the Merger Agreement,
together with the exhibits and schedules thereto, in substantially final form,
(ii) the Amended Plan, in substantially final form, and (iii) the proxy
statement relating to the Transaction, in draft form (the "Proxy Statement").
In connection with the Transaction and pursuant to the Amended Plan: (i)
MobileMedia's senior secured creditors will receive approximately $649 million
in cash ($170 million of which will be raised from the sale of certain
transmission tower assets by MobileMedia and $217 million of which will be
raised through a rights offering of Arch securities (the "Rights Offering") to
MobileMedia unsecured creditors), (ii) Arch will pay up to approximately $35
million, in the aggregate, of MobileMedia non-ordinary course administrative
claims and pre-petition priority claims, (iii) Arch will repay up to $30
million of debtor-in-possession financing (notwithstanding any additional
amounts spent by MobileMedia on N-PCS capital expenditures) outstanding as of
the effective date of the Transaction, (iv) Arch will issue between
approximately 48.8 million and 57.7 million shares of common stock, par value
$.01 per share ("Arch Common Stock"), to MobileMedia unsecured creditors
(representing between approximately 66% and 69%, respectively, of the pro
forma shares of Arch Common Stock outstanding after giving effect to the
consummation of the Transaction and the conversion of outstanding shares of
Series C Convertible Preferred Stock, par value $.01 per share ("Arch
Convertible Preferred Stock")) (such pro forma shares being collectively
referred to as the "Pro Forma Shares"), which includes the issuance of shares
of Arch Common Stock pursuant to a rights offering to MobileMedia unsecured
creditors, and (v) Arch will issue to MobileMedia unsecured creditors warrants
to purchase Arch Common Stock representing approximately 5% of the fully-
diluted shares (i.e., Pro Forma Shares after further giving effect to the
issuance of Arch Common Stock upon exercise of all warrants issued in
connection with the Transaction, including the Arch Stockholder Warrants
described below). Immediately following the consummation of the Transaction
and the Amended Plan, Arch intends to issue, to the holders of Arch Common
Stock and Arch Convertible Preferred Stock outstanding immediately prior to
the Transaction, warrants (the "Arch Stockholder Warrants") to purchase shares
of Arch Common Stock representing approximately 7% of the fully-diluted
shares. Existing Stockholders of Parent will receive no distribution in
connection with the Transaction or the Amended Plan.
You have asked us to render our opinion as to whether (i) the consideration
to be paid by Arch to the claimholders of MobileMedia in connection with the
Transaction (and pursuant to the Amended Plan) and (ii) the issuance of the
Arch Stockholder Warrants, taken together as a whole, is fair, from a
financial point of view, to Arch and its stockholders.
B-1
<PAGE>
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement, together with the exhibits and
schedules thereto, in substantially final form;
2. reviewed the Amended Plan in substantially final form;
3. reviewed the Proxy Statement in draft form;
4. reviewed Parent's Annual Reports to Stockholders and Annual Reports on
Form 10-K for the fiscal years ended December 31, 1994 and 1995, its
audited financial statements for the fiscal years ended December 31, 1996
and 1997, its unaudited financial statements for the six months ended June
30, 1998 and its Quarterly Report on Form 10-Q for the period ended
September 30, 1997;
5. reviewed MobileMedia's Monthly Operating Reports as filed with the
United States Bankruptcy Court for the District of Delaware since its
declaration of bankruptcy in January 1997, and its filings on Form 8-K
during the interim;
6. reviewed Arch's Annual Reports to Stockholders and Annual Reports on
Form 10-K for the fiscal years ended December 31, 1995 through 1997, its
Quarterly Report on Form 10-Q for the period ended March 31, 1998 and its
unaudited financial statements for the six months ended June 30, 1998;
7. reviewed certain operating and financial information provided to us by
the senior managements of Arch and MobileMedia relating to Arch's and
MobileMedia's respective businesses and prospects, including projections of
each company for the years ended 1998 through 2002 (and Arch management's
adjustments thereto in the case of MobileMedia's projections)
(collectively, the "Projections") and certain other forward-looking
information;
8. reviewed certain estimates of anticipated cost savings, capital
expenditure avoidance and other Transaction benefits (collectively, the
"Transaction Benefits") expected to result from the Transaction, jointly
prepared and provided to us by the senior managements of Arch and
MobileMedia;
9. reviewed certain estimates of anticipated MobileMedia non-ordinary
course administrative claims and other pre-petition priority claims, and
certain liabilities to be assumed pursuant to the Amended Plan (the "Claims
Estimates");
10. met separately and/or jointly with certain members of the senior
managements of Arch and MobileMedia to discuss (i) the current paging
industry landscape and competitive dynamics related thereto, (ii) each
company's operations, historical financial statements, future prospects and
financial condition, (iii) their views of the business, operational and
financial rationale for, and expected strategic benefits and other
implications of, the Transaction and (iv) the Projections and the
Transaction Benefits;
11. reviewed the historical stock prices, trading volumes and valuation
multiples for the common shares of Arch;
12. reviewed and analyzed the pro forma financial impacts of the
Transaction on Arch;
13. reviewed publicly available financial data, stock market performance
data and valuation multiples for companies which we deemed generally
comparable to Arch and MobileMedia or otherwise relevant to our inquiry;
14. reviewed the financial terms, to the extent publicly available, of
recent mergers and acquisitions which we deemed generally comparable to the
Transaction; and
15. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In preparing our opinion, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all information
supplied or otherwise made available to us, discussed with or reviewed by or
for us, or publicly available. With respect to the Projections, the
Transaction Benefits and the Claims Estimates, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the senior management of Arch as to the anticipated
future performance of Arch and MobileMedia and as to the anticipated
Transaction Benefits achievable within the time frames forecast
B-2
<PAGE>
therein. We have not assumed any responsibility for the independent
verification of such information, or of the Projections or the Transaction
Benefits, nor have we undertaken an independent evaluation or appraisal of any
of the assets or liabilities of Arch or MobileMedia or been furnished with any
such evaluation or appraisal. In addition, we have not assumed any obligation
to conduct, nor have we conducted, any physical inspection of the properties
or facilities of Arch or MobileMedia. We have further relied upon the
assurances of the senior managements of Arch and MobileMedia that they are
unaware of any facts that would make the information, Projections or
Transaction Benefits provided to us incomplete or misleading in any material
respect. We have also assumed that the Transaction will be consummated in
accordance with the terms described in the Merger Agreement and the Amended
Plan, without the waiver of any material condition and with all necessary
material consents and approvals having been obtained without any limitations,
restrictions, conditions, amendments or modifications that collectively would
have a material effect on Arch, MobileMedia or the expected benefits of the
Transaction to Arch.
We are not expressing any opinion as to what the value of Arch Common Stock
actually will be at the time of the Transaction or the price or range of
prices at which Arch Common Stock may trade subsequent to the announcement or
consummation of the Transaction. Such trading price or range of prices of Arch
Common Stock may be impacted by, among other things, prevailing interest
rates, conditions in the financial markets, the anticipated initial holdings
of Arch Common Stock by former MobileMedia unsecured creditors, some of whom
may prefer to liquidate their investment rather than hold it on a long-term
basis, the potential concentration of shares of Arch Common Stock that may be
held by the standby purchasers in the Rights Offering, arbitrage activity and
other factors that generally influence the prices of securities. Our opinion
is necessarily based on economic, market and other conditions, and the
information made available to us, as of the date hereof, and we undertake no
obligation to update our opinion to reflect any developments occurring after
the date hereof.
We have acted as financial advisor to Arch in connection with the
Transaction and the Amended Plan and will receive a fee for such services
(including the rendering of this opinion), payment of a significant portion of
which is contingent upon the consummation of the Transaction. In addition, we
will be receiving fees for our services on Arch's behalf in connection with
the financing for the Transaction. We have also previously rendered certain
investment banking and financial advisory services to Arch for which we
received customary compensation. In the ordinary course of our business, we
may actively trade the debt and equity securities of Arch and/or MobileMedia
for our own account and for the accounts of our customers and, accordingly,
may at any time hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of Arch. Our opinion does not address the merits of the
underlying decision by Arch to engage in the Transaction and does not
constitute a recommendation to any holder of Arch Common Stock as to how to
vote in connection with the Transaction or the issuance of Arch Common Stock
to effect the Transaction, or as to any related financing transaction. This
letter is not to be used for any other purpose, or reproduced, disseminated,
quoted or referred to at any time, in whole or in part, without our prior
written consent; provided, however, that this letter may be included in its
entirety in the Proxy Statement to be distributed to the holders of Arch
Common Stock in connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, (i) the consideration to be paid by Arch to the claimholders of
MobileMedia in connection with the Transaction (and pursuant to the Amended
Plan) and (ii) the issuance of the Arch Stockholder Warrants, taken together
as a whole, are fair, from a financial point of view, to Arch and its
shareholders.
Very truly yours,
Bear, Stearns & Co. Inc.
/s/ H.C. Charles Diao
By:
----------------------------------
Senior Managing Director
B-3
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re: ) Chapter 11
)
MobileMedia Communications, ) Case No. 97-174 (PJW)
Inc., et al., )
) (Jointly Administered)
Debtors )
</TABLE>
DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION
DATED: AUGUST 20, 1998
J. Ronald Trost James D. Johnson Shelley C. Chapman Lee M. Stein SIDLEY &
AUSTIN 875 Third Avenue New York, New York 10022 (212) 906-2000
James L. Patton, Jr. (No. 2202) Joel A. Waite (No. 2925) YOUNG CONAWAY STARGATT
& TAYLOR, LLP P.O. Box 391 Wilmington, Delaware 19899 (302) 571-6600
Co-Counsel to Debtors and Debtors-in-Possession
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
INTRODUCTION............................................................. 1
ARTICLE I DEFINITIONS; INTERPRETATION.................................... 1
1.1 Definitions..................................................... 1
1.2 Interpretation.................................................. 10
1.3 Computation of Time............................................. 10
ARTICLE II CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.......... 11
2.1 Administrative Claims........................................... 11
2.2 Priority Tax Claims............................................. 11
2.3 Class 1 Claims (Priority Claims)................................ 12
2.4 Class 2 Claims (Miscellaneous Secured Claims)................... 12
2.5 Class 3 Claims (Customer Refund Claims)......................... 12
2.6 Class 4 Claims (Claims arising under or related to the 1995
Credit Agreement).............................................. 12
2.7 Class 5 Claims (Claims arising under or related to the Dial Page
Notes).......................................................... 13
2.8 Class 6 Claims (Non-Priority Unsecured Claims).................. 13
2.9 Class 7 Claims (Note Litigation Claims)......................... 14
2.10 Class 8 Claims and Interests (Common Stock Claims and Interests
and Subordinated Indemnification Obligation Claims)............ 14
2.11 Class 9 Claims and Interests (Subsidiary Claims and Interests).. 15
ARTICLE III TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES........ 15
3.1 Rejection....................................................... 15
3.2 Assumption...................................................... 16
3.3 Post-Petition Contracts and Leases.............................. 16
ARTICLE IV IMPLEMENTATION OF PLAN........................................ 16
4.1 Actions Occurring Prior to the Effective Date................... 16
4.2 Actions Occurring on the Effective Date......................... 17
4.3 Distributions Occurring On and After the Effective Date......... 18
4.4 Procedure For Determination of Claims and Interests............. 22
4.5 Issuance of Arch Capital Shares................................. 23
4.6 Issuance of Arch Warrants....................................... 23
4.7 Issuance of Rights.............................................. 23
4.8 Exemption from Securities Laws.................................. 23
4.9 Registration Rights Agreement................................... 23
4.10 Effectuating Documents; Further Transactions; Exemption From
Certain Transfer Taxes.......................................... 23
4.11 Release of Security Interests................................... 23
ARTICLE V CONDITIONS TO EFFECTIVE DATE................................... 24
5.1 Conditions to Occurrence of Effective Date...................... 24
5.2 Effect of Non-occurrence of Conditions to the Effective Date.... 24
5.3 Non-consensual Confirmation..................................... 24
ARTICLE VI DISCHARGE, TERMINATION, INJUNCTION AND SUBORDINATION RIGHTS... 24
6.1 Discharge of Claims and Termination of Interests................ 24
6.2 Injunctions..................................................... 25
6.3 Termination of Subordination Rights and Settlement of Related
Claims and Controversies........................................ 25
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE VII MISCELLANEOUS................................................ 26
7.1 Retention of Jurisdiction....................................... 26
7.2 Retention and Enforcement Of Causes Of Action................... 27
7.3 Limitation of Liability......................................... 27
7.4 Releases........................................................ 27
7.5 Indemnification Obligations; Directors' and Officers' Liability
Insurance....................................................... 28
7.6 Terms Binding................................................... 29
7.7 Additional Terms of Securities and Other Instruments............ 29
7.8 Post-Consummation Effect of Evidences of Claims or Interests.... 29
7.9 Payment Dates................................................... 29
7.10 Successors and Assigns.......................................... 29
7.11 Inconsistencies................................................. 30
7.12 Compliance with Applicable Law.................................. 30
7.13 Governing Law................................................... 30
7.14 Severability.................................................... 30
7.15 Incorporation by Reference...................................... 30
</TABLE>
<TABLE>
<S> <C>
Exhibit A....................... Registration Rights Agreement (10% Holders)
Exhibits B-1 through B-6........ Standby Purchase Commitment
Schedule 1...................... Assumed Employment and Benefit Agreements
</TABLE>
2
<PAGE>
MobileMedia Corporation, a Delaware corporation ("MobileMedia"), MobileMedia
Communications, Inc., a Delaware corporation ("Communications"), MobileMedia
Communications, Inc. (California), a California corporation, MobileMedia DP
Properties, Inc., a Delaware corporation, MobileMedia PCS, Inc., a Delaware
corporation, Dial Page Southeast, Inc., a Delaware corporation, Radio Call
Company of Va., Inc., a Virginia corporation, MobileMedia Paging, Inc., a
Delaware corporation, Mobile Communications Corporation of America, a
Mississippi corporation, MobileComm of the Southeast, Inc., a Delaware
corporation, MobileComm of the Northeast, Inc., a Delaware corporation,
MobileComm Nationwide Operations, Inc., a Delaware corporation, MobileComm of
Tennessee, Inc., a Tennessee corporation, MobileComm of the Southeast Private
Carrier Operations, Inc., a Georgia corporation, MobileComm of the Southwest,
Inc., a Texas corporation, MobileComm of Florida, Inc., a Florida corporation,
MobileComm of the Midsouth, Inc., a Missouri corporation, FWS Radio, Inc., a
Texas corporation, and MobileComm of the West, Inc., a California corporation,
each a debtor and debtor-in-possession herein (collectively, the "Debtors"),
propose the following First Amended Joint Plan of Reorganization (the "Plan").
INTRODUCTION
This Plan encompasses a reorganization of the Debtors pursuant to which
Communications will merge with and into Farm Team Corp., a Delaware
corporation ("Merger Subsidiary") and a subsidiary of Arch Communications
Group, Inc. ("Arch"), with Merger Subsidiary being the surviving company. The
Debtors' creditors will receive cash or equity securities of Arch. There will
be no recovery for the Debtors' equity security holders.
Reference is made to the Disclosure Statement accompanying this Plan,
including the exhibits thereto, for a discussion of the Debtors' and Arch's
history, business, results of operations and properties, and for a summary and
analysis of this Plan. All creditors are encouraged to consult the Disclosure
Statement and to read this Plan carefully before voting to accept or reject
this Plan.
NO SOLICITATION MATERIALS, OTHER THAN THE DISCLOSURE STATEMENT AND RELATED
MATERIALS TRANSMITTED THEREWITH AND APPROVED BY THE BANKRUPTCY COURT, HAVE
BEEN AUTHORIZED BY THE BANKRUPTCY COURT FOR USE IN SOLICITING ACCEPTANCES OR
REJECTIONS OF THIS PLAN.
ARTICLE I
Definitions; Interpretation
1.1 Definitions.
In addition to such other terms as are defined in other Sections of this
Plan, the following terms (which appear in this Plan as capitalized terms)
shall have the meanings set forth below. A term used in this Plan and not
defined in this Plan but that is defined in the Code has the meaning set forth
in the Code.
"9 3/8% Note Indenture" means the Indenture dated as of November 13, 1995,
between Communications, as Issuer, and State Street Bank and Trust Company, as
Trustee.
"9 3/8% Notes" means the Senior Subordinated Notes due November 1, 2007,
issued pursuant to the 9 3/8% Note Indenture.
"10 1/2% Note Indenture" means the Indenture dated as of December 1, 1993,
between Communications, as Issuer, and First Trust USA (as successor to
BankAmerica National Trust Company), as Trustee, as amended.
"10 1/2% Notes" means the 10 1/2% Senior Subordinated Deferred Coupon Notes
due December 1, 2003, issued pursuant to the 10 1/2% Note Indenture.
<PAGE>
"1995 Credit Agreement" means the Credit Agreement dated as of December 4,
1995, as amended, among Communications, the Pre-Petition Lenders and the Pre-
Petition Agent.
"Administrative Claim" means a Claim to the extent that it is of the kind
described in section 503(b) of the Code and is entitled to priority under
section 507(a)(1) of the Code.
"Allowed" means as to any Claim (whether an Administrative Claim, Priority
Claim, Priority Tax Claim, Secured Claim or Unsecured Claim), the extent to
which such Claim:
(a) (i) was timely filed or listed in the Schedules and not listed as
disputed, contingent or unliquidated as to amount; and
(ii) the Debtors, the Reorganized Debtors or any other party in
interest entitled to do so has not and does not file an objection to such
Claim within the time period set forth for objecting in Section 4.4;
(b) is allowed by a Final Order of the Bankruptcy Court; or
(c) is allowed by this Plan.
"Arch Capital Shares" means, collectively, the Arch Common Shares and the
Arch Class B Common Shares.
"Arch Class B Common Shares" means the shares of Class B Common Stock of
Arch, par value $0.01 per share, to be authorized and issued as and when
contemplated by the Merger Agreement.
"Arch Common Shares" means the shares of Common Stock of Arch, par value
$0.01 per share, which are issued and outstanding plus additional shares which
will be authorized and issued as and when contemplated by the Merger
Agreement.
"Arch Series C Convertible Preferred Shares" means the shares of Series C
Convertible Preferred Stock of Arch, par value $0.01 per share.
"Arch Warrants" means warrants for the purchase of Arch Common Shares,
certain of which Warrants will be part of the Units to be subscribed for in
the Rights Offering, and all of which Warrants will be issued pursuant to a
Warrant Agreement governing their issuance and exercise that will be in the
form set forth in Exhibit B to the Merger Agreement .
"Ballot" means the ballot for voting to accept or reject this Plan
distributed by the Debtors to all holders of impaired Claims entitled to vote
on this Plan.
"Bankruptcy Court" means the United States Bankruptcy Court for the District
of Delaware in which the Cases were filed on January 30, 1997, or any other
court with jurisdiction over the Cases.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as
amended from time to time to the extent applicable to the Cases.
"Benefit Plan Indemnification Obligations" means Indemnification Obligations
with respect to any officer or employee serving as a fiduciary of any employee
benefit plan or program of the Debtors, pursuant to charter, by law, contract
or applicable state law for any actions taken or not taken in the discharge of
such officer's or employee's duties as a fiduciary of such employee benefit
plans or programs.
"Business Day" means any day other than a Saturday, Sunday or day on which
commercial banks in the city of New York, New York or the States of New Jersey
or Delaware are authorized or required to close.
"Capped Administrative Claims" means the Debtors' good faith estimate of the
sum of (i) Priority Tax Claims, (ii) Administrative Claims for (x) bonuses
payable to employees and professionals on or as a result of
2
<PAGE>
the Effective Date, (y) amounts necessary to cure any defaults in executory
contracts or unexpired leases assumed pursuant to this Plan as required by
section 365(b) of the Code and (z) any accrued and unpaid fees and expenses of
professionals retained by the Debtors or the Committee pursuant to orders of
the Bankruptcy Court, and (iii) Claims for (x) the Allowed Class 4 Claims
described in Section 2.6(B)(ii), (iii) and (iv), (y) the Allowed Class 5
Claims described in Section 2.7(B), and (z) Allowed Class 6 Claims of the
indenture trustees under the Subordinated Indentures described in Section
2.8(C)(3), in each case (other than those Claims in clause (iii)(z) hereof
which shall be payable until such professionals no longer provide services to
their respective constituencies on account of the Cases), accrued and unpaid
or payable as of the Effective Date, which estimate shall be in reasonable
detail (which in the case of professional fees, shall be in substantially the
same form as would be submitted to the Bankruptcy Court) and shall be
delivered to Arch (with a copy to the Committee) twenty days prior to the
Effective Date. If no objection is made by Arch to the Debtors' estimate
within ten days after receipt thereof, the estimate shall be deemed to be the
amount of Capped Administrative Claims for purposes of Section 2.1(D). If Arch
delivers to the Debtors (with a copy to the Committee) a written objection to
the Debtors' estimate within ten days after receipt of such estimate, and the
Debtors and Arch are unable to resolve such objection, it shall be submitted
to the Bankruptcy Court to be determined on or as soon as practicable after
the Effective Date.
"Cash Equivalent" means, with respect to any Right, an amount equal to the
value of such Right as determined based on the actual proceeds received from
the sale of Rights from the Rights Reserve pursuant to Section 4.1(B)(5) (or,
if the Rights Reserve is then fully depleted, the fair value thereof as of the
time such sale would have occurred based on the market price for such Right
or, if no such price is available, as determined by the Debtors, Arch and the
Committee in good faith or determined by the Bankruptcy Court if no agreement
can be reached). to which a holder of an Allowed Class 6 Claim would have been
entitled had such holder's Claim been Allowed as of the Rights Offering
Supplemental Record Date, an amount equal to the value of such Right as
determined based on the actual proceeds received from the sale of the then
existing Rights Reserve pursuant to Section 4.1(B)(5) (or, if the Rights
Reserve is then fully depleted, the fair value thereof as of the time such
sale would have occurred based on the market price for such Right or, if no
such price is available, as determined by the Debtors, Arch and the Committee
in good faith or determined by the Bankruptcy Court if no agreement can be
reached).
"Cases" means the reorganization proceedings of the Debtors under chapter 11
of the Code, jointly administered as Case No. 97-174 (PJW).
"Causes of Action" means all claims and causes of action now owned or
hereafter acquired by the Debtors, whether arising under any contract or under
the Code or other federal or state law, including, without limitation, any
causes of action arising under sections 544, 545, 547, 548, 549, 550, 551,
553(b) or other sections of the Code.
"Claim" means "claim" as defined in section 101(5) of the Code, as
supplemented by section 102(2) of the Code, and shall, in each case, mean a
Claim against any Debtor (whether or not so designated).
"Class" means each class of Claims or Claims and Interests created under
this Plan.
"Class 6 Adjusted Pro Rata Share" means, as to any Allowed Class 6 Claim, as
of the date that is five Business Days prior to the Final Distribution Date, a
fraction (i) the numerator of which is the amount of such Allowed Class 6
Claim and (ii) the denominator of which is the aggregate amount of all Allowed
Class 6 Claims as of such date.
"Class 6 Pro Rata Share" means, as to any Allowed Claim in Class 6 on the
Effective Date or such later date (prior to the Final Distribution Date) as
such Claim becomes Allowed, a fraction (i) the numerator of which is the
amount of such Allowed Claim and (ii) the denominator of which is the sum of
(x) the Effective Date Disputed Claims, (y) the Effective Date Allowed Claims
and (z) an estimate of the aggregate amount of Claims arising from the
rejection of executory contracts and unexpired leases pursuant to Section 3.1
that are anticipated
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to become Allowed Claims, such estimate to be mutually agreed upon by the
Debtors, the Committee and Arch in good faith or determined by the Bankruptcy
Court if no such agreement can be reached.
"Code" means the United States Bankruptcy Code, 11U.S.C. (S)(S)101 et seq.,
as amended from time to time to the extent applicable to the Cases.
"Committee" means the Official Committee of Unsecured Creditors appointed by
the United States Trustee for the District of Delaware on February 10, 1997.
"Common Stock" means, collectively, (i) the Class A common stock of
MobileMedia, par value $.001, issued and outstanding immediately prior to the
Effective Date, (ii) the Class B common stock of MobileMedia, par value $.001,
issued and outstanding immediately prior to the Effective Date and (iii) all
options, warrants and other rights to purchase the Class A common stock or the
Class B common stock of MobileMedia.
"Common Stock Claim" means any Claim with respect to the Common Stock of the
kind described in section 510(b) of the Code, including, without limitation,
any such Claim asserted in or by the parties to the Securities Actions and any
Claim by an officer, director or underwriter for contribution, reimbursement
or indemnification related thereto.
"Confirmation" means "confirmation" as used in section 1129 of the Code.
"Confirmation Date" means the date on which the Confirmation Order is
entered by the Bankruptcy Court.
"Confirmation Hearing" means the hearing at which the Bankruptcy Court
considers Confirmation of this Plan.
"Confirmation Order" means an order of the Bankruptcy Court confirming this
Plan, which order shall be reasonably satisfactory to Arch and, as to the
provisions relating to the treatment of Allowed Class 4 Claims, the Pre-
Petition Agent.
"Creditor" means "creditor" as defined in section 101(10) of the Code and
shall mean a creditor of any Debtor.
"Creditor Stock Pool" means a number of newly-issued Arch Common Shares
equal to approximately [16.9%-31.0%](/1/) of the issued and outstanding Arch
Capital Shares, on the date the "Buyer Market Price" is determined in
accordance with Schedule II to the Merger Agreement, computed on a Diluted
Basis and after giving effect to the Plan as if the Effective Date had
occurred on such date and assuming 21,067,110 Arch Common Shares are issued
and outstanding immediately prior thereto as such number of shares
constituting the Creditor Stock Pool may be adjusted pursuant to Section
2.1(D).
"Customer Refund Claim" means a Claim by a customer or subscriber of any of
the Debtors for refund of amounts improperly paid or billed, or for the return
of a deposit.
"Dial Page Indenture" means the Indenture dated as of February 1, 1993,
between Dial Page, Inc., a Delaware corporation, as Issuer, and the Dial Page
Indenture Trustee, as amended.
"Dial Page Indenture Trustee" means Norwest Bank Minnesota, N.A. (as
successor to First Union Bank of South Carolina), as Trustee under the Dial
Page Indenture.
"Dial Page Notes" means the 12 1/4% Senior Notes due 2000, issued pursuant
to the Dial Page Indenture.
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(1) Such percentage will be fixed prior to soliciting votes on this Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
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"Diluted Basis" means after giving effect to (i) the issuance and
distribution pursuant to this Plan of the Arch Capital Shares (including the
Arch Capital Shares issued upon exercise of the Rights issued pursuant to the
Rights Offering but excluding Arch Capital Shares issued or issuable upon
exercise of the Arch Warrants) and (ii) the assumed issuance of all Arch
Common Shares issuable upon conversion of all convertible preferred stock
(including the Arch Series C Convertible Preferred Shares) and convertible
debt securities of Arch outstanding as of the date the "Buyer Market Price" is
determined in accordance with Schedule II to the Merger Agreement.
"DIP Agent" means The Chase Manhattan Bank, in its capacity as agent for the
DIP Lenders under the DIP Credit Agreement.
"DIP Approval Orders" means, collectively, (i) the Final Order (I)
Authorizing (A) Secured Post-Petition Financing On A Super Priority Basis
Pursuant To 11 U.S.C. (S) 364, (B) Use Of Cash Collateral Pursuant to 11
U.S.C. (S) 363 and (C) Grant of Adequate Protection Pursuant To 11 U.S.C.
(S)(S) 363 And 364, dated February 19, 1997, (ii) Order (I) Authorizing
Extension of (A) Secured Post-Petition Financing On A Super Priority Basis
Pursuant To 11 U.S.C. (S) 364, (B) Use Of Cash Collateral Pursuant To 11
U.S.C. (S) 363 And (C) Grant Of Adequate Protection Pursuant To 11 U.S.C.
(S)(S) 363 And 364 And (II) Scheduling A Final Hearing Pursuant To Bankruptcy
Rule 4001(c), dated January 27, 1998 and (iii) Order (I) Authorizing Extension
of (A) Secured Post- Petition Financing On A Super Priority Basis Pursuant To
11 U.S.C. (S) 364, (B) Use Of Cash Collateral Pursuant To 11 U.S.C. (S) 363
And (C) Grant Of Adequate Protection Pursuant To 11 U.S.C. (S)(S) 363 And 364
And (II) Scheduling A Final Hearing Pursuant To Bankruptcy Rule 4001(c), dated
July 28, 1998.
"DIP Credit Agreement" means the Revolving Credit and Guarantee Agreement
dated as of January 30, 1997, as amended, among Communications, as Borrower,
MobileMedia, as Parent and Guarantor, each of the direct and indirect
subsidiaries of Communications designated as Guarantor in Schedule 3.5
thereto, as Guarantors, the DIP Agent and the DIP Lenders.
"DIP Lenders" means those financial institutions from time to time party to
the DIP Credit Agreement as lenders.
"Director Indemnification Obligations" means Indemnification Obligations
with respect to any present or former director of any of the Debtors.
"Disclosure Statement" means the Disclosure Statement respecting this Plan
approved by order of the Bankruptcy Court, and all supplements and exhibits
thereto.
"Disputed Claim" means a Claim against any of the Debtors to the extent that
such Claim is not Allowed.
"Effective Date" means the date on which this Plan becomes effective which
date shall be ten Business Days after all the conditions to the Effective Date
set forth in Section 5.1 have first been satisfied or waived, or such earlier
date (but not less than seven Business Days after such conditions have first
been satisfied or waived) as the Debtors, Arch, the Pre-Petition Agent, the
DIP Agent and the Committee shall agree.
"Effective Date Allowed Claims" means those Class 6 Claims that have been
Allowed by order of the Bankruptcy Court prior to the Effective Date or that
are Allowed pursuant to this Plan, as set forth in a schedule delivered by the
Debtors to the Exchange Agent and Arch two Business Days prior to the
Effective Date, which schedule, absent manifest error, shall be conclusive for
the purposes of calculating Class 6 Pro Rata Share and Class 6 Adjusted Pro
Rata Share.
"Effective Date Disputed Claims" means, on and as of the Effective Date, any
Class 6 Claim that is a Disputed Claim on and as of such date, in the full
amount set forth in any timely filed proof of claim or listed by the Debtors
in the Schedules, as set forth in a schedule delivered by the Debtors to the
Exchange Agent and Arch two Business Days prior to the Effective Date, which
schedule, absent manifest error, shall be conclusive for purposes of
calculating Class 6 Pro Rata Share and Class 6 Adjusted Pro Rata Share.
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"Estate Representative" has the meaning given such term in Section
4.2(C)(5).
"Exchange Agent" means a bank trust company or other entity reasonably
satisfactory to MobileMedia and the Committee, appointed by Arch to act as the
exchange agent for making distributions to the holders of Allowed Class 6
Claims.
"Excluded Indemnification Obligations" means Indemnification Obligations
with respect to (i) any present or former officer of the Debtors considered as
of the Effective Date by the FCC to be an alleged wrongdoer for purposes of
the FCC Proceeding, (ii) any present or former officer of the Debtors now or
hereafter named as a defendant in the Securities Actions, as to claims arising
out of the matters alleged in the Securities Actions, (iii) any present or
former officer of the Debtors named as a defendant in any action initiated
after the date hereof based upon similar factual allegations, or alleging
similar causes of action, to the Securities Actions, as to claims arising out
of the matters alleged therein, (iv) any officer or employee of the Debtors
that is not an officer or employee as of the Effective Date, (v) present or
former professionals or advisors of the Debtors, including, without
limitation, accountants, auditors, financial consultants, underwriters or
attorneys, other than Indemnification Obligations arising out of post-petition
agreements approved by the Bankruptcy Court, and (vi) any Indemnification
Obligation of the kind described in section 510(b) of the Code.
"FCC" means the Federal Communications Commission or any governmental
authority succeeding to the rights and powers thereof.
"FCC Proceeding" means the hearing in WT Docket No. 97-115, In the Matter of
MobileMedia Corporation, et al.
"Final Distribution Date" means the tenth Business Day after the day on
which no Class 6 Claim remains a Disputed Claim.
"Final Order" means, as to any court, administrative agency or other
tribunal, an order or judgment of such tribunal as entered on its docket as to
which the time to appeal or petition for certiorari has expired and as to
which no appeal or petition for certiorari is pending or, if an appeal or
petition for certiorari has been timely filed or taken, the order or judgment
of the tribunal has been affirmed (or such appeal or petition has been
dismissed as moot) by the highest court (or other tribunal having appellate
jurisdiction over the order or judgment) to which the order was appealed or
the petition for certiorari has been denied, and the time to take any further
appeal or to seek further certiorari has expired.
"Fully Diluted Basis" means after giving effect to (i) the issuance and
distribution pursuant to this Plan of the Arch Capital Shares (including the
Arch Capital Shares issued upon exercise of the Rights issued pursuant to the
Rights Offering), (ii) the assumed issuance of all Arch Common Shares issuable
upon conversion of all convertible preferred stock (including the Arch Series
C Convertible Preferred Shares) and convertible debt securities of Arch
outstanding as of the date the "Buyer Market Price" is determined in
accordance with Schedule II to the Merger Agreement, and (iii) the assumed
issuance of all Arch Common Shares issuable upon the exercise of the Arch
Warrants.
"Indemnification Obligations" means the obligation of any of the Debtors to
indemnify, reimburse or provide contribution to any present or former officer,
director or employee, or any present or former professionals or advisors of
the Debtors, including, without limitation, accountants, auditors, financial
consultants, underwriters or attorneys, whether pursuant to charter, by law,
contract or statute, regardless of whether the indemnification is owed in
connection with a pre-Petition Date or post-Petition occurrence.
"Interest" means all rights (including unpaid dividends) arising from any
equity security (as defined in section 101(16) of the Code) of the Debtors,
including, without limitation, the Common Stock, but excluding Common Stock
Claims.
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"License Co. L.L.C." means the limited liability company to be formed as a
wholly owned subsidiary of MCCA as reorganized pursuant to this Plan that will
hold the Reorganized Debtors' Licenses after the Effective Date.
"Licenses" means the licenses and other authorizations of the Debtors to
operate their paging networks.
"Lien" means, with respect to any interest in property, any mortgage, lien,
pledge, charge, security interest, easement or encumbrance of any kind
whatsoever affecting such interest in property.
"Merger" means the merger of Communications into Merger Subsidiary
contemplated by the Merger Agreement and Section 4.2(B).
"Merger Agreement" means the Agreement and Plan of Merger by and among Arch,
the Merger Subsidiary, MobileMedia and Communications dated as of August 18,
1998.
"MCCA" means Mobile Communications Corporation of America, a Mississippi
corporation.
"Miscellaneous Secured Claim" means a Secured Claim not classified in Class
4 under this Plan.
"Net Tower Sale Proceeds" shall be the Net Cash Proceeds (as defined in the
DIP Credit Agreement) from the Debtors' sale of their towers and certain
related assets, as set forth in the Tower Sale Agreement, which Net Cash
Proceeds shall be at least $165 million.
"Non-Priority Unsecured Claim" means any Unsecured Claim not classified in
Class 3, 5, 7, 8 or 9 under this Plan.
"Note Litigation Claim" means any Claim with respect to the Notes of the
kind described in section 510(b) of the Code, including, without limitation,
any such Claim asserted in or by the parties to the Securities Actions and any
Claim by an officer, director or underwriter for contribution, reimbursement
or indemnification related thereto.
"Notes" means, collectively, the Dial Page Notes, the 9 3/8% Notes and the
10 1/2% Notes.
"Person" means any person, including, without limitation, any individual,
partnership, joint venture, corporation, company, trust, estate,
unincorporated organization and any governmental unit.
"Personal Injury Claim" means a Claim against any of the Debtors that is
unliquidated or contingent as of the Confirmation Date and is of the kind
described in 28 U.S.C. (S)157(b)(5).
"Petition Date" means January 30, 1997, the date on which the petitions
initiating the Cases were filed with the Bankruptcy Court.
"Plan" means this First Amended Joint Plan of Reorganization, as amended
from time to time, and all addenda, exhibits, schedules and other attachments
hereto, as the same may be amended from time to time, pursuant to this Plan or
the Code, all of which are incorporated herein by reference.
"Pre-Petition Agent" means The Chase Manhattan Bank, in its capacity as the
agent for the Pre-Petition Lenders under the 1995 Credit Agreement.
"Pre-Petition Lenders" means those financial institutions from time to time
party to the 1995 Credit Agreement as lenders.
"Priority Claim" means a Claim to the extent that it is of the kind
described in, and entitled to priority under, section 507(a)(3), (a)(4) or
(a)(6) of the Code.
"Priority Tax Claim" means a Claim to the extent that it is of the kind
described in, and entitled to priority under, section 507(a)(8) of the Code.
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"Pro Rata Share" means proportionately, so that with respect to an Allowed
Claim other than an Allowed Class 6 Claim, the ratio of (i) the amount of
payments or other property distributable on account of a particular Allowed
Claim in a particular Class under this Plan to (ii) the amount of such Allowed
Claim in such Class is the same as the ratio of (a) the amount of payments or
other property distributable on account of all Allowed Claims in such Class to
(b) the amount of all Allowed Claims in such Class.
"Registration Rights Agreement" means a registration rights agreement to be
entered into pursuant to Section 4.9 between Arch and any Person entitled to
become a party to such registration rights agreement under Section 4.9, which
shall be in substantially the form attached as Exhibit A.
"Reorganized Communications" means, on and after the Effective Date, Merger
Subsidiary, the successor to Communications (as reorganized under and pursuant
to this Plan) and a wholly owned subsidiary of Arch as a result of the Merger.
"Reorganized Debtors" means, on and after the Effective Date, Reorganized
Communications and Reorganized MCCA.
"Reorganized Debtor's Certificate of Incorporation" means, (i) as to
Reorganized Communications, the Certificate of Incorporation of Merger
Subsidiary, as amended by the Certificate of Merger relating to the Merger and
except that the name of the corporation set forth therein shall be changed to
"MobileMedia Communications, Inc.", and (ii) as to Reorganized MCCA, the
Certificate of Incorporation of Delaware Subsidiary Co.
"Reorganized Debtor's Bylaws" means, as to Reorganized Communications, the
Bylaws of Merger Subsidiary, and as to Reorganized MCCA, the Bylaws of
Delaware Subsidiary Co.
"Reorganized MCCA" means Delaware Subsidiary Co., the successor to MCCA (as
reorganized under and pursuant to this Plan) and a wholly owned subsidiary of
Reorganized Communications.
"Rights" means certificated, transferable rights issued by Arch for the
purchase of (i) an aggregate number of Arch Capital Shares equal to
approximately [34.5%-52.4%]/2/ of the issued and outstanding Arch Capital
Shares, on the date the "Buyer Market Price" is determined in accordance with
Schedule II to the Merger Agreement, computed on a Diluted Basis after giving
effect to the Plan as if the Effective Date had occurred on such date and
assuming 21,067,110 Arch Common Shares are issued and outstanding immediately
prior thereto (such number of Arch Capital Shares being herein called the
"Rights Shares"), and (ii) Arch Warrants entitling the holders thereof to
purchase, in the aggregate, a number of Arch Common Shares equal to 2.50% of
the issued and outstanding Arch Capital Shares, computed on a Fully Diluted
Basis on the date the "Buyer Market Price" is determined in accordance with
Schedule II to the Merger Agreement, computed on a Fully Diluted Basis after
giving effect to the Plan as if the Effective Date had occurred on such date
and assuming 21,067,110 Arch Common Shares are issued and outstanding
immediately prior thereto, which Rights shall be issued to certain holders of
Allowed Class 6 Claims pursuant to the Rights Offering, and which Rights shall
have the terms set forth in Schedule III to the Merger Agreement. Each Right
will be exercisable for one Unit.
"Rights Offering" means the issuance of the Rights by Arch to holders of
Allowed Class 6 Claims on the Rights Offering Commencement Date.
"Rights Offering Commencement Date" means the date on which Arch commences
the Rights Offering by mailing to holders of Allowed Class 6 Claims as of the
Rights Offering Initial Record Date certificates representing the Rights and
instructions for the exercise thereof, which date shall be as soon as
practicable after the later to occur of (i) approval by the Bankruptcy Court
of the Disclosure Statement and (ii) the effectiveness of the Registration
Statement (as defined in the Merger Agreement).
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(2) Such percentage will be fixed prior to soliciting votes on this Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
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"Rights Offering Distribution Pool" means all of the Rights minus the Rights
included in the Rights Reserve.
"Rights Offering Expiration Date" means 5:00 p.m., New York City time, on
the date on which the Rights Offering terminates, which date shall be
established by Arch and Communications, on or prior to the Confirmation Date,
but shall be not less than 15 calendar days after the date on which all the
conditions to effectiveness of this Plan shall have been satisfied or waived
(other than (i) the requirement that the order entered by the FCC has become a
Final Order in connection with the condition set forth in Section 5.1(e) of
the Merger Agreement, and (ii) such conditions that by their nature are to be
satisfied on the Effective Date).
"Rights Offering Initial Record Date" means the date that is the record date
to determine which holders of Claims are entitled to vote on this Plan.
"Rights Offering Pro Rata Share" means, as to any Allowed Class 6 Claim, a
fraction, (i) the numerator of which is the amount of such Allowed Class 6
Claim as of the date of determination and (ii) the denominator of which is the
aggregate amount of Allowed Class 6 Claims as of the Rights Offering Initial
Record Date.
"Rights Offering Supplemental Record Date" means the Confirmation Date.
"Rights Reserve" means, as of the Rights Offering Initial Record Date, a
number of Rights equal to the product of (i) the total number of Rights, and
(ii) a fraction, (A) the numerator of which is the sum of the estimated
aggregate amount of (x) Class 6 Claims that are Disputed Claims and (y) Claims
arising from the rejection of executory contracts and unexpired leases
pursuant to Section 3.1 that are anticipated to become Allowed Claims, such
estimate to be mutually agreed upon by the Debtors, the Committee and Arch, in
good faith, or determined by the Bankruptcy Court if no such agreement can be
reached, and (B) the denominator of which is the sum of the estimated
aggregate amount of (x) Class 6 Claims that are Disputed Claims, (y) Claims
arising from the rejection of executory contracts and unexpired leases
pursuant to Section 3.1 that are anticipated to become Allowed Claims, such
estimate to be mutually agreed upon by the Debtors, the Committee and Arch, in
good faith, or determined by the Bankruptcy Court if no such agreement can be
reached, and (z) all Allowed Class 6 Claims as of such date.
"Rights Shares" has the meaning included in the definition of Rights.
"Schedules" means the joint Schedules of Assets, Liabilities and Executory
Contracts filed by the Debtors with the Clerk of the Bankruptcy Court for the
District of Delaware pursuant to Bankruptcy Rule1007, as such schedules have
been or may be amended or supplemented by the Debtors from time to time.
"Secured Claim" means a Claim that is secured by a Lien on, or interest in,
property of any of the Debtors, or that is subject to setoff under section 553
of the Code, but only to the extent of the value of the Creditor's interest
(directly or by enforceable subrogation) in the Debtor's interest in such
property, or to the extent of the amount subject to setoff, which value shall
be determined as provided in section 506(a) of the Code or as provided in this
Plan.
"Securities Actions" means, collectively, the actions styled In re
MobileMedia Securities Litigation, No. 96-5723 (AJL) (D. N.J. 1996), Allen T.
Gilliland Trust v. Hellman & Friedman Capital Partners II, L.P., et al., Civil
Action No. 97-3543 (N.D. Cal. 1997) and Allen T. Gilliland Trust v. Hellman &
Friedman MobileMedia Partners, L.L.C., et al., Case No. 989891 (Cal. Super.
Ct. 1997).
"Semi-Annual Distribution Date" means the last Business Day of each June and
December after the Effective Date and prior to the Final Distribution Date;
provided, that if the Effective Date is within 60 days before the end of June
or December, the first Semi-Annual Distribution Date will be the last Business
Day of the next succeeding June (if the Effective Date is in December) or
December (if the Effective Date is in June).
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"Standby Purchase Commitment" means the various commitments of the Standby
Purchasers to purchase Units in the event any Rights are not exercised in the
Rights Offering, as evidenced by the letters attached hereto as Exhibits B-1
through B-6.
"Standby Purchasers" means those creditors of the Debtors that have executed
a Standby Purchase Commitment.
"Subordinated Indemnification Obligation Claims" means Indemnification
Obligations that are rejected pursuant to Section 7.5(A) and any Claims
arising therefrom.
"Subordinated Indentures" means, collectively, the 9 3/8% Note Indenture and
the 10 1/2% Note Indenture.
"Subordinated Noteholder Claims" means all Claims arising under or relating
to the Subordinated Notes, the Subordinated Indentures and related agreements,
other than Note Litigation Claims.
"Subordinated Notes" means, collectively, the 9 3/8% Notes and the 10 1/2%
Notes.
"Subsidiary Claim" means any Claim by a Debtor against another Debtor.
"Subsidiary Interest" means any Interest held by a Debtor in another Debtor,
including all options, warrants and other rights to purchase any such Interest
in a Debtor held by another Debtor.
"Tower Sale Agreement" means the Purchase Agreement between the Debtors and
Pinnacle Towers Inc. dated July 7, 1998, as approved by the Bankruptcy Court
on August 10, 1998, or as amended in accordance therewith and in accordance
with the order of the Bankruptcy Court.
"Unit" means (i) one Arch Capital Share and (ii) 0. of an Arch Warrant./3/
"Unsecured Claim" means a Claim that is not an Administrative Claim, a
Priority Claim, a Priority Tax Claim or a Secured Claim.
"Voting Deadline" means that date set in an order of the Bankruptcy Court as
the deadline for the return of Ballots accepting or rejecting this Plan.
1.2 Interpretation. For purposes of this Plan: (a) whenever from the context
it is appropriate, each term, whether stated in the singular or the plural,
will include both the singular and the plural; (b) unless otherwise provided
in this Plan, any reference in this 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 will be substantially
in such form or substantially on such terms and conditions; (c) unless
otherwise provided in this Plan, any reference in this Plan to an existing
document or Exhibit means such document or Exhibit, as it may have been or may
be amended, modified or supplemented pursuant to this Plan; (d) unless
otherwise specified herein, any reference to an entity as a holder of a Claim
includes that entity's successors, assigns and affiliates; (e) unless
otherwise specified, all references in this Plan to Sections, Articles and
Exhibits are references to Sections, Articles and Exhibits of or to this Plan;
(f) the words "herein" and "hereto" refer to this Plan in its entirety rather
than to a particular portion of this Plan; (g) captions and headings to
Articles and Sections are inserted for convenience of reference only and are
not intended to be part of or to affect the interpretation of this Plan; and
(h) the rules of construction set forth in section 102 of the Code will apply.
1.3 Computation of Time. In computing any period of time prescribed or
allowed by this Plan, the provisions of Bankruptcy Rule 9006(a) will apply.
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(3) The fraction of an Arch Warrant that will be included in each Unit will
equal the fraction obtained by dividing (i) the total number of Arch
Warrants purchasable upon exercise of Rights by (ii) the total number of
Arch Capital Shares purchasable upon exercise of Rights (which will be
determined prior to soliciting votes on this Plan based on the pricing
mechanism set forth in Schedule II to the Merger Agreement).
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ARTICLE II
Classification and Treatment of Claims and Interests
The following is a designation of the Classes of Claims and Interests
classified under this Plan, and the treatment to be provided to each such
Class.
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 the Claim or Interest qualifies within the description of
such different Class. Administrative Claims and Priority Tax Claims have not
been classified in accordance with section 1123(a)(1) of the Code, although
the treatment for such unclassified Claims is set forth below.
The treatment of and consideration to be provided on account of Claims and
Interests pursuant to this Plan shall be in full settlement, release and
discharge of such Claims and Interests; provided, that such discharge shall
not affect the liability of any other entity on, or the property of any other
entity encumbered to secure payment of, any such Claim or Interest, except as
otherwise provided in this Plan; and provided, further, that such discharge
shall not affect the Reorganized Debtors' obligations under and pursuant to
this Plan. The treatment of and consideration to be provided to Allowed Claim
and Interest holders in each Class shall apply to all of the Cases.
No Claim shall entitle the holder thereof to a distribution of cash or
securities or to other consideration pursuant to this Plan unless, and only to
the extent that, such Claim is an Allowed Claim.
UNCLASSIFIED CLAIMS
2.1 Administrative Claims.
A. General. Subject to the provisions of Section 4.4(A) and unless otherwise
agreed by the holder of an Allowed Administrative Claim (in which event such
other agreement shall govern), each holder of an Allowed Administrative Claim
shall receive on account of such Administrative Claim: (i) cash equal to the
unpaid amount of such Allowed Administrative Claim; or (ii) at the option of
Reorganized Communications, payment in accordance with the ordinary business
terms of such Allowed Administrative Claim.
B. Statutory Fees. On or before the Effective Date, Administrative Claims
for fees payable pursuant to section 1930 of title 28 of the United States
Code, 28 U.S.C.(S) 1930, as determined by the Bankruptcy Court at the
Confirmation Hearing, will be paid in cash in an amount equal to the amount of
such Administrative Claims. All such fees payable after the Effective Date
will be assumed by the Reorganized Debtors.
C. Ordinary Course Liabilities. Administrative Claims based on liabilities
incurred by the Debtors in the ordinary course of their businesses will be
assumed and paid by Reorganized MCCA pursuant to the terms and conditions of
the particular transaction giving rise to such Administrative Claim, without
any further action by the holders of such Claims.
D. Funding of Certain Administrative Claims. Arch shall make available to
Reorganized Communications any monies necessary for Reorganized Communications
to make timely payment of all Administrative Claims; provided, that in the
event the sum of Capped Administrative Claims and the costs and expenses of
the Standby Purchasers as provided in the Standby Purchase Commitment exceeds
$34,000,000, the number of Arch Common Shares constituting the Creditor Stock
Pool shall be reduced by a number of shares equal to (i) the excess of the sum
of (x) Capped Administrative Claims and (y) the costs and expenses of the
Standby Purchasers as provided in the Standby Purchase Commitment over
$34,000,000, divided by (ii) $25.315.
2.2 Priority Tax Claims. Unless otherwise agreed by the holder of an Allowed
Priority Tax Claim (in which event such other agreement shall govern), each
holder of an Allowed Priority Tax Claim against any of the Debtors shall, on
the Effective Date, receive, at Arch's option, either (a) cash equal to the
amount of such Allowed Priority Tax Claim or (b) a promissory note payable by
Reorganized Communications in a principal
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amount equal to the amount of such Allowed Priority Tax Claim on which
interest shall accrue from and after the Effective Date at the rate of 7% or
such higher or lower rate as is determined by the Bankruptcy Court to be
appropriate under section 1129(a)(9)(C) of the Code and shall be paid
semiannually in arrears; the principal amount of the promissory note shall be
paid in full on a date or dates six (6) years after the date of assessment of
such Allowed Priority Tax Claim.
CLASSIFIED CLAIMS AGAINST AND INTERESTS IN THE DEBTORS
2.3 Class 1 Claims (Priority Claims).
A. Classification. Class 1 consists of all Priority Claims against any of
the Debtors.
B. Allowance. Claims in Class 1 shall be allowed or disallowed in accordance
with Section 4.4(B) of this Plan and applicable provisions of the Code and
Bankruptcy Rules.
C. Treatment. Allowed Claims in Class 1 shall be paid in full in cash on the
later of the Effective Date and a date that is as soon as practicable after
the date upon which such Claim becomes an Allowed Priority Claim.
D. Impairment and Voting. Class 1 Claims are unimpaired and are not entitled
to vote on this Plan.
2.4 Class 2 Claims (Miscellaneous Secured Claims).
A. Classification. Class 2 consists of all Miscellaneous Secured Claims
against any of the Debtors, if any.
B. Allowance. Claims in Class 2 shall be allowed or disallowed in accordance
with Section 4.4(B) of this Plan and applicable provisions of the Code and
Bankruptcy Rules.
C. Treatment. The legal, equitable and contractual rights to which each
holder of an Allowed Claim in Class 2 is entitled shall be left unaltered or,
at the option of the Reorganized Debtors, shall be left unimpaired in the
manner described in section 1124(2) of the Code.
D. Impairment and Voting. Class 2 Claims are unimpaired and are not entitled
to vote on this Plan.
2.5 Class 3 Claims (Customer Refund Claims).
A. Classification. Class 3 consists of all Customer Refund Claims against
any of the Debtors not otherwise classified in Class 1 or Class 2.
B. Allowance. Claims in Class 3 shall be allowed or disallowed in accordance
with Section 4.4(B) of this Plan and applicable provisions of the Code and
Bankruptcy Rules.
C. Treatment. The legal, equitable and contractual rights to which each
holder of an Allowed Claim in Class 3 is entitled shall be left unaltered or,
at the option of the Reorganized Debtors, shall be left unimpaired in the
manner described in section 1124(2) of the Code.
D. Impairment and Voting. Class 3 Claims are unimpaired and are not entitled
to vote on this Plan.
2.6 Class 4 Claims (Claims arising under or related to the 1995 Credit
Agreement).
A. Classification. Class 4 consists of all Secured Claims against any of the
Debtors arising under or related to the 1995 Credit Agreement.
B. Allowance. Allowed Class 4 Claims shall consist of the following unpaid
obligations arising under the 1995 Credit Agreement, and shall be Allowed in
an aggregate amount equal to: (i) $649,000,000 minus the Net Tower Sale
Proceeds actually paid to the Pre-Petition Agent on behalf of the holders of
Allowed Class 4 Claims; (ii) reasonable accrued and unpaid commitment, letter
of credit and similar fees under the 1995 Credit
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Agreement, in an amount, as of the Petition Date, equal to $179,148.29,
together with any such amounts accrued after the Petition Date and unpaid as
of the Effective Date; (iii) the unpaid, reasonable costs and expenses of the
Pre-Petition Agent, to the extent provided in the 1995 Credit Agreement; and
(iv) the unpaid, reasonable costs and expenses of the members of the Steering
Committee for the Pre-Petition Lenders, other than the Pre-Petition Agent, up
to the aggregate amount of $1,000,000. Adequate protection payments in
connection with, and the costs and expenses of the Pre-Petition Agent arising
under, the 1995 Credit Agreement shall continue to be paid in cash through the
Effective Date at the rate and in the manner set forth under the DIP Approval
Orders. Class 4 Claims shall not include interest accrued at the default rate
under Section 5.4(c) of the 1995 Credit Agreement or otherwise.
C. Treatment. Each holder of an Allowed Claim in Class 4 shall receive, in
full satisfaction of its Claim, cash equal to the amount of its Allowed Claim,
payable in accordance with Section 4.3(a).
D. Impairment and Voting. Class 4 Claims are impaired and are entitled to
vote on this Plan.
2.7 Class 5 Claims (Claims arising under or related to the Dial Page Notes).
A. Classification. Class 5 consists of all Claims against any of the Debtors
arising under or related to the Dial Page Notes, the Dial Page Indenture and
related agreements, other than Note Litigation Claims.
B. Allowance. Class 5 Claims shall be Allowed Claims in the sum of: (i) the
outstanding principal amount of the Dial Page Notes; (ii) unpaid interest on
the Dial Page Notes accrued to the Effective Date calculated at the non-
default rate set forth in the Dial Page Notes; and (iii) the unpaid reasonable
fees and expenses of the trustee for the Dial Page Notes incurred prior to the
Petition Date, to the extent provided for in the Dial Page Indenture.
C. Treatment. Each holder of an Allowed Claim in Class 5 shall receive, in
full satisfaction of its Claim, cash equal to the full amount of its Allowed
Claim, payable in accordance with Section 4(3)(B).
D. Impairment and Voting. Class 5 Claims are impaired and are entitled to
vote on this Plan.
2.8 Class 6 Claims (Non-Priority Unsecured Claims).
A. Classification. Class 6 consists of all Non-Priority Unsecured Claims
against any of the Debtors, including the Subordinated Noteholder Claims.
B. Allowance. (i) Class 6 Claims other than Subordinated Noteholder Claims
and Personal Injury Claims shall be allowed or disallowed in accordance with
Section 4.4(B) and applicable provisions of the Code and Bankruptcy Rules,
(ii) Subordinated Noteholder Claims other than Claims of the indenture
trustees under the Subordinated Indentures shall be Allowed Claims in the sum
of: (x) the outstanding principal amount (or outstanding accreted principal
amount, as the case may be) of the Subordinated Notes and (y) unpaid interest
on the Subordinated Notes accrued prior to the Petition Date calculated at the
non-default rate set forth in the Subordinated Notes, (iii) Subordinated
Noteholder Claims for the indenture trustees under the Subordinated Indentures
shall be Allowed Claims in an amount equal to the unpaid reasonable fees and
expenses of each such indenture trustee incurred prior to and after the
Petition Date through the Effective Date, to the extent provided for in the
Subordinated Indentures, and (iv) Personal Injury Claims shall be liquidated
and allowed or disallowed in the district court in which the Cases are
pending, or in the district court in the district in which the claim arose, as
determined by the district court in which the Cases are pending.
C. Treatment.
1. Each holder of an Allowed Claim in Class 6 (other than the indenture
trustees under the Subordinated Indentures) shall receive:
a) for each holder of an Allowed Claim as of the Rights Offering Initial
Record Date, from Arch on the Rights Offering Commencement Date, its Rights
Offering Pro Rata Share of the Rights Offering Distribution Pool;
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(b) for each holder of a Claim that becomes an Allowed Claim after the
Rights Offering Initial Record Date but before the Rights Offering
Supplemental Record Date, (i) from Arch, as soon as practicable after the
Rights Offering Supplemental Record Date, an amount of Rights from the
Rights Reserve equal to the amount of Rights that would have been such
holder's Rights Offering Pro Rata Share of the Rights Offering Distribution
Pool if such holder's Claim had been an Allowed Claim as of the Rights
Offering Initial Record Date or, (ii) if the number of Rights in the Rights
Reserve on the Rights Offering Supplemental Record Date is insufficient to
make the distribution set forth in clause (i), from Arch, (x) its ratable
share (based on such holders' respective amounts of Allowed Class 6 Claims)
of the Rights in the Rights Reserve on such date and (y) its Cash
Equivalent of each Right (or portion thereof) that would have been
distributed pursuant to clause (i) if sufficient Rights had been available
in the Rights Reserve on the Rights Offering Supplemental Record Date;
(c) from Arch on the Effective Date, if such holder has exercised any or
all of its Rights in accordance with the terms and conditions thereof, for
each Right so exercised, a Unit;
(d) for each holder of a Claim in Class 6 that is not Allowed as of the
Rights Offering Supplemental Record Date, from Arch, instead of receiving
any Rights, as soon as reasonably practical after such Claim becomes an
Allowed Claim, (but no sooner than the Effective Date), its Cash
Equivalent;
(e) from the Exchange Agent (x) if such Claim is an Allowed Claim on the
Effective Date, on or as soon as practicable after the Effective Date, its
Class 6 Pro Rata Share of the Creditor Stock Pool or (y) if such Claim is
not an Allowed Claim on the Effective Date, on a later date after which the
Claim is Allowed, its Class 6 Pro Rata Share of the Creditor Stock Pool;
and
(f) from the Exchange Agent on the Final Distribution Date, its Class 6
Adjusted Pro Rata Share of the Arch Common Shares remaining in the Creditor
Stock Pool, if any, on such date; provided, that if there are fewer than
10,000 Arch Common Shares remaining in the Creditor Stock Pool on the Final
Distribution Date, no distribution will be made to holders of Allowed Class
6 Claims on such date, and the Arch Common Shares remaining in the Creditor
Stock Pool on such date shall be returned to Arch and become treasury
shares.
2. In lieu of the foregoing treatment, any holder of a Claim in Class 6 of
$1,000 or less may elect, by marking the appropriate box on the Ballot sent to
such holder, to receive cash equal to 50% of its Allowed Claim, or, if such
holder's claim is in excess of $1,000, such holder may elect to have its Claim
reduced to and Allowed at $1,000 and receive cash with respect to such reduced
Claim in accordance with this Section 2.8(C)(2).
3. On the Effective Date, the Reorganized Debtors shall pay to the indenture
trustees under the Subordinated Indentures cash equal to the amount of fees
and expenses of the indenture trustees (including the reasonable fees and
expenses of counsel retained by the indenture trustees), in accordance with
and to the extent provided for in the Subordinated Indentures, whether
incurred prior or subsequent to the Petition Date, without application by or
on behalf of the indenture trustees or their respective counsel to the
Bankruptcy Court.
D. Impairment and Voting. Class 6 Claims are impaired and are entitled to
vote on this Plan.
2.9 Class 7 Claims (Note Litigation Claims).
A. Classification. Class 7 consists of all Note Litigation Claims against
any of the Debtors.
B. Treatment. The holders of Claims in Class 7 shall not be entitled to
receive or retain any property pursuant to this Plan on account of their
Claims.
C. Impairment and Voting. Class 7 Claims are impaired and are deemed not to
have accepted this Plan.
2.10 Class 8 Claims and Interests (Common Stock Claims and Interests and
Subordinated Indemnification Obligation Claims).
A. Classification. Class 8 consists of all Interests arising from or related
to the Common Stock, all Common Stock Claims and all Subordinated
Indemnification Obligation Claims against any of the Debtors.
B. Treatment. Interests in Class 8 shall be canceled, and the holders of
Claims and Interests in Class 8 shall not be entitled to receive or retain any
property on account of their Claims and Interests.
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C. Impairment and Voting. Class 8 Claims and Interests are impaired and are
deemed not to have accepted this Plan.
2.11 Class 9 Claims and Interests (Subsidiary Claims and Interests).
A. Classification. Class 9 consists of all Subsidiary Claims and Subsidiary
Interests.
B. Treatment. The Interests in Class 9 shall be canceled, except that, in
accordance with Section 4.2(B), Reorganized Communications shall retain its
Interests in Reorganized MCCA, and the holders of Claims and Interests in
Class 9 shall not be entitled to receive or retain any property on account of
such Claims and Interests.
C. Impairment and Voting. Class 9 Claims and Interests are impaired and are
deemed not to have accepted this Plan.
ARTICLE III
Treatment of Executory Contracts and Unexpired Leases
3.1 Rejection. No later than 25 days prior to the Voting Deadline, the
Debtors, at the direction of Arch, shall prepare a schedule of the executory
contracts and unexpired leases to be rejected on the Effective Date (the
"Rejection Schedule"). The Rejection Schedule shall be filed and served on
each party to an executory contract or unexpired lease listed thereon to be
rejected by the Debtors no later than twenty days prior to the Voting
Deadline. Any claims for damages arising from the rejection of an executory
contract or unexpired lease listed on the Rejection Schedule must be filed by
the Voting Deadline and shall be determined, if necessary, at Confirmation.
The Rejection Schedule may be amended from and after the Confirmation Date for
sixty days thereafter (but in no event after the Effective Date) by the
Debtors at the direction of Arch and with notice to any party to an executory
contract or unexpired lease added to or removed from such schedule. Any claims
for damages arising from the rejection of an executory contract or unexpired
lease rejected after the Confirmation Date pursuant to this Section 3.1 must
be filed within 20 days after receipt of notice of rejection of such contract.
Any such Claims not filed within the applicable 20-day period shall be barred
and may not thereafter be asserted.
3.2 Assumption.
A. Assumed Contracts. Each executory contract or unexpired lease of the
Debtors that has not expired by its own terms prior to the Effective Date, has
not been rejected during the Cases prior to Confirmation, is not subject to a
notice of rejection and is not rejected under this Plan shall, by the terms of
this Plan, be assumed by Reorganized MCCA pursuant to sections 365 and
1123(b)(2) of the Code on the Effective Date. All such assumed contracts,
unexpired leases, franchises and permits, and any contracts or unexpired
leases assumed by the Debtors by order of the Bankruptcy Court prior to the
Confirmation Date, shall be vested in and continue in effect for the benefit
of the Reorganized Debtors.
B. Cure Payments and Release of Liability. The Debtors shall, at least
twenty days prior to the Voting Deadline, file and serve on all parties to
executory contracts and unexpired leases to be assumed as of the Effective
Date, and on the Pre-Petition Agent, the Committee and Arch a schedule setting
forth the amount of cure and compensation payments to be provided by the
Reorganized Debtors in accordance with section 365(b)(1) of the Code, which
schedule shall be acceptable to Arch. Objections to any such proposed cure
payment must be made by the Voting Deadline, and shall be determined, if
necessary, at the Confirmation Hearing. In the event the Debtors amend the
Rejection Schedule pursuant to Section 3.1 after the Confirmation Date to
remove an executory contract or unexpired lease therefrom, the Debtors shall,
within five days after such amendment to the Rejection Schedule, file and
serve on all parties to executory contracts and unexpired leases to be assumed
as a result of any such Schedule amendment, and on the Pre-Petition Agent, the
Committee and Arch, a supplemental schedule setting forth the amount of cure
and compensation payments to be provided by the Reorganized Debtors in
accordance with section 365(b)(1) of the Code, which supplemental schedule of
cure payments shall be reasonably acceptable to Arch. Objections to any
proposed cure payment set forth in the
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supplemental schedule must be made within 20 days after receipt thereof. A
party to an assumed executory contract or unexpired lease that has not filed
an appropriate pleading with the Bankruptcy Court on or before the applicable
20-day period shall be deemed to have waived its right to dispute such amount.
All unpaid cure and compensation payments under any executory contracts or
unexpired leases that are assumed or assumed and assigned under this Plan
(including, without limitation, Claims filed in the Cases or listed in the
Schedules and Allowed by order of the Bankruptcy Court prior to the
Confirmation Date that relate to executory contracts or unexpired leases that
are assumed or assumed and assigned under this Plan) shall be made by the
Reorganized Debtors as soon as practicable after the Effective Date, but not
later than thirty days after the Effective Date; provided, that, in the event
of a dispute regarding the amount of any cure and compensation payments, the
Reorganized Debtors shall make such cure and compensation payments as may be
required by section 365(b)(1) of the Code following the entry of a Final Order
resolving such dispute.
C. Continuation of Employment Agreements and Benefits Agreements. On the
Effective Date, the Debtors shall assume pursuant to sections 365 and
1123(b)(2) of the Code the employment and benefit agreements set forth on
Schedule 1.
3.3 Post-Petition Contracts and Leases. All contracts and leases entered
into by the Debtors after the Petition Date, including (a) the Tower Sale
Agreement and (b) the Master Lease between Communications and Pinnacle Towers
Inc. to be entered into pursuant to the Tower Sale Agreement, but excluding
the DIP Credit Agreement, shall be deemed assigned by the Debtors to
Reorganized MCCA on the Effective Date.
ARTICLE IV
Implementation of Plan
4.1 Actions Occurring Prior to the Effective Date.
A. Actions Occurring Before the Confirmation Date.
1. Rights Offering. Pursuant to the Merger Agreement, Arch will commence the
Rights Offering.
2. Standby Purchase Commitments. Each of the Standby Purchasers has executed
the Standby Purchase Commitment, copies of which are attached hereto as
Exhibits B-1 through B-6.
B. Actions Occurring Between the Confirmation Date and the Effective Date.
1. Management and Operation of Debtors. After the Confirmation Date and
until the Effective Date, the Debtors shall be managed by substantially the
same personnel that managed and operated the Debtors on the Confirmation Date,
subject to such changes as may be determined by the Board of Directors of a
Debtor in accordance with the Bylaws and Articles or Certificate of
Incorporation of such Debtor. During such period, the Debtors will conduct
their business in the usual, regular and ordinary course, in a manner
consistent with past practice, sound business practice and the terms of this
Plan and the Merger Agreement, and subject to their obligations as debtors-in-
possession pursuant to the Code.
2. Continuation of Committee. The Committee shall continue to exist after
the Confirmation Date until the Effective Date with the same power and
authority, and the same ability to retain and compensate professionals, as it
had prior to the Confirmation Date, and shall be dissolved on the Effective
Date.
3. Rights of Creditors and Committee. Between the Confirmation Date and the
Effective Date, the Committee, the holders of Claims against and Interests in
the Debtors and the indenture trustees for the Notes shall be parties-in-
interest in all proceedings in the Bankruptcy Court with the same rights to
participate in such proceedings as such persons had prior to Confirmation.
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4. Term of Injunctions or Stays. All injunction or stays, whether by
operation of law or by order of the Bankruptcy Court, provided for in the
Cases pursuant to sections 105 or 362 of the Code or otherwise that are in
effect on the Confirmation Date shall remain in full force and effect until
the Effective Date.
5. Sale of Rights Reserve. Arch shall select an agent independent of Arch
(as such term is defined in Regulation M promulgated under the Securities
Exchange Act of 1934), which independent agent shall be reasonably acceptable
to the Debtors and the Committee, to sell Rights from the Rights Reserve in
the over-the-counter market on a date or dates no more than five business days
in advance of the Rights Offering Expiration Date. All proceeds derived from
such sale shall be distributed to Arch.
4.2 Actions Occurring on the Effective Date.
A. Revesting of Assets. Except as provided in this Plan, all property of the
estate, to the full extent of section 541 of the Code, and any and all other
rights and assets of the Debtors of every kind and nature shall, on the
Effective Date of this Plan, revest in the Reorganized Debtors free and clear
of all Liens, Claims and Interests other than those Liens, Claims and
Interests retained or created pursuant to this Plan.
B. Merger. Effective as of the Effective Date but immediately following the
discharge of the Debtors described in Section 6.1, each of the following
transactions shall occur in the order listed: (i) MobileMedia shall contribute
all of its assets to Communications and thereafter immediately dissolve, at
which time the separate corporate existence of MobileMedia shall cease; (ii)
Communications shall merge with and into Merger Subsidiary, and the separate
corporate existence of Communications shall cease as contemplated by the
Merger Agreement; (iii) MCCA shall merge with and into Delaware Subsidiary
Co., a Delaware corporation originally a wholly owned direct subsidiary of
Communications and a wholly owned direct subsidiary of Merger Subsidiary as a
result of the merger described in clause (ii) of this Section 4.2(B), and the
separate corporate existence of MCCA shall cease; (iv) all wholly owned direct
subsidiaries of MCCA shall be merged with and into Delaware Subsidiary Co. (as
successor to MCCA); (v) Merger Subsidiary (as successor to Communications)
shall contribute its interest in the common stock of FWS Radio, Inc. to
Delaware Subsidiary Co. (as successor to MCCA), and FWS Radio, Inc. shall then
be merged with and into Delaware Subsidiary Co. (as successor to MCCA); (vi)
MobileComm of the West, Inc., a wholly owned direct subsidiary of Delaware
Subsidiary Co. (as successor to MCCA) as a result of the mergers described in
clause (iv) of this Section 4.2(B), shall be merged with and into Delaware
Subsidiary Co. (as successor to MCCA); (vii) Dial Page Southeast, Inc.,
MobileMedia Communications, Inc. (California), MobileMedia DP Properties,
Inc., MobileMedia Paging, Inc., MobileMedia PCS, Inc. and Radio Call Co. of
Virginia, Inc., all wholly owned direct subsidiaries of Merger Subsidiary (as
successor to Communications) shall be merged with and into Delaware Subsidiary
Co. (as successor to MCCA); (viii) Merger Subsidiary shall transfer its assets
(other than its shares of Delaware Subsidiary Co.) to Delaware Subsidiary Co.;
and (ix) Delaware Subsidiary Co. shall organize License Co. L.L.C. as a wholly
owned limited liability company of Delaware Subsidiary Co. and shall transfer
the Licenses then held by it to License Co. L.L.C. It is anticipated that
License Co. L.L.C. will be taxed as a branch of Delaware Subsidiary Co.
Notwithstanding the foregoing, Arch and the Reorganized Debtors retain their
right to make such changes in the post-Effective Date corporate structure of
Arch and the Reorganized Debtors as is determined in the business judgment of
Arch and Reorganized Communications.
C. Amended Certificates of Incorporation and Corporate Governance.
1. Certificates of Incorporation. As of the Effective Date, each Reorganized
Debtor's Certificate of Incorporation shall comply with section 1123(a)(6) of
the Code.
2. Bylaws. As of the Effective Date, the bylaws of Reorganized
Communications shall be the same as the bylaws of the Merger Subsidiary as in
effect immediately prior to the Effective Date (except that the name of the
corporation set forth therein shall be changed to "MobileMedia Communications,
Inc."), and the bylaws of Reorganized MCCA shall be the same as the by laws of
Delaware Subsidiary Co. as in effect immediately prior to the Effective Date
(except that the name of the corporation set forth therein shall be changed to
"Mobile
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Communications Corporation of America"). Each Reorganized Debtor's Bylaws will
be effective as of the Effective Date.
3. Corporate Governance. The directors and officers of each Debtor shall
continue to serve in such capacities until the Effective Date. As of the
Effective Date, the directors and officers of each Debtor that is not a
Reorganized Debtor will be terminated, the directors and officers of Merger
Subsidiary immediately prior to the Effective Date shall become the directors
and officers of Reorganized Communications, the directors of Merger Subsidiary
immediately prior to the Effective Date shall become the directors of
Reorganized MCCA and the officers of Delaware Subsidiary Co. immediately prior
to the Effective Date shall become the officers of Reorganized MCCA. The
Debtors shall file with the Bankruptcy Court no later than ten (10) Business
Days prior to the Voting Deadline a statement setting forth the office, the
names and affiliations of, and the compensation proposed to be paid to, the
individuals intended to serve as directors and officers of each Reorganized
Debtor, as well as of Arch, on and after the Effective Date. On and after the
Effective Date, each Reorganized Debtor shall be governed in accordance with
such Reorganized Debtor's Certificate of Incorporation and such Reorganized
Debtor's Bylaws.
4. Amendments after the Effective Date. After the Effective Date, each
Reorganized Debtor's Certificate of Incorporation, each Reorganized Debtor's
Bylaws and the officers and directors of each Reorganized Debtor shall be
subject to such amendments or changes as may be made by law, or by such
Reorganized Debtor's Certificate of Incorporation or such Reorganized Debtor's
Bylaws.
5. Estate Representative. Within 15 days after the Confirmation Date, the
Committee shall designate a person, subject to Arch's and the Debtors' consent
(which consent shall not be unreasonably withheld) (the "Estate
Representative"), who shall be responsible for the winding up of the Debtors'
estates after the Effective Date. The Estate Representative shall have the
authority to hire counsel and other advisors, to prosecute and settle Disputed
Claims, to oversee distributions by the Exchange Agent, to pursue any
preserved Causes of Action and otherwise to effect the closing of the Cases.
The Estate Representative shall be reimbursed for all reasonable expenses
incurred in the performance of his or her duties as Estate Representative by
Arch based on a monthly budget to be submitted to Arch no later than ten
Business Days prior to the end of each month after the Effective Date for the
succeeding month, which Budget shall set forth in reasonable detail the
proposed activities to be undertaken by the Estate Representative during such
month and the estimated costs and expenses therefor. If Arch does not object
to such Budget within five Business Days after receipt thereof, it shall be
the final budget for such month. At least once every calendar quarter, the
Estate Representative shall report to Arch on the material activities taken in
the prior quarter and to be taken in the succeeding quarter, which activities
shall be reasonably acceptable to Arch.
D. Cancellation of Stock. On and as of the Effective Date, the Common Stock,
and each share of capital stock of each Debtor other than MobileMedia not
owned, beneficially and of record, by MobileMedia or one of the other Debtors,
shall be canceled and rendered null and void.
4.3 Distributions Occurring On and After the Effective Date.
A. Distributions to Holders of Allowed Class 4 Claims. The cash distribution
to be made to the holders of Allowed Class 4 Claims shall be made by wire
transfer by Arch on the Effective Date or the first Business Day thereafter to
the Pre-Petition Agent, which shall, subject to the rights of the Pre-Petition
Agent, if any, against the other holders of Allowed Class 4 Claims under the
1995 Credit Agreement, promptly transmit to each such holder its Pro Rata
Share of the cash provided by Arch; provided, that, if requested by a Standby
Purchaser in writing at least two days prior to the Effective Date, any cash
to be distributed to the Standby Purchaser on account of such Standby
Purchaser's allowed Class 4 Claim shall, in accordance with the instructions
included in such written request, be applied on behalf of the Standby
Purchaser first to the payment of any amounts required to be paid by such
Standby Purchaser in accordance with its Standby Purchase Commitment.
B. Distributions to Holders of Dial Page Notes.
1. Exchange of Notes. The cash distribution to be made to the holders of
Allowed Class 5 Claims shall be made by Reorganized Communications to the Dial
Page Indenture Trustee on the Effective Date or the first
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Business Day thereafter, which shall, subject to the rights of such Dial Page
Indenture Trustee as against holders of the Dial Page Notes under the Dial
Page Indenture, transmit, upon surrender by a holder of its Dial Page Notes,
the cash to which such holder is entitled under Section 2.7(C). The reasonable
fees and expenses of the Dial Page Indenture Trustee incurred solely in
connection with making such distributions, unless otherwise paid hereunder,
shall be paid by Reorganized Communications to the extent so required by the
Dial Page Indenture or as otherwise agreed between Reorganized Communications,
the Dial Page Indenture Trustee and Arch, and in any case subject to required
approvals of the Bankruptcy Court, if any.
2. Lost Notes. If a holder of a Dial Page Note is unable to surrender such
Note because it has been destroyed, lost or stolen, such holder may receive a
distribution with respect to such Note upon request to the Dial Page Indenture
Trustee in an acceptable form with: (i) proof of such holder's title to such
Note; (ii) proof of the destruction or theft of such Note, or an affidavit to
the effect that the same has been lost and after diligent search cannot be
found; and (iii) such indemnification as may reasonably be required by the
Reorganized Debtors to indemnify Arch, the Reorganized Debtors, the Dial Page
Indenture Trustee and all other persons deemed appropriate by the Reorganized
Debtors, against any loss, action, suit or other claim whatsoever that may be
made as a result of such holder's receipt of a distribution on account of such
Dial Page Note under this Plan.
C. Distributions from Arch. Arch will distribute to each holder of an
Allowed Class 6 Claim and each Standby Purchaser that exercised its Rights in
accordance with the terms thereof (and, in the case of the Standby Purchasers,
in accordance with the terms of the Standby Purchase Commitment), on the
Effective Date, for each Right so exercised, the Arch Common Shares or Arch
Class B Shares, as applicable, and Arch Warrants together comprising the Units
subscribed for. Arch will distribute to each holder of an Allowed Class 6
Claim that was not Allowed as of the Rights Offering Supplemental Record Date,
as soon as practicable after such Claim is Allowed (but no sooner than the
Effective Date), its Cash Equivalent, as provided in Section 2.8(C)(1)(d). In
the event the exercise of Rights and the purchase of the Units would cause (i)
any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of
the Securities and Exchange Act of 1934) or (ii) the Standby Purchasers
collectively, on the Effective Date, in the aggregate, to beneficially own,
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
and Rule 13d-3 and 13d-5 promulgated thereunder (except that a Person shall be
deemed to have beneficial ownership of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time, (a) more than 49.0% of the number of shares of the
capital stock of Arch generally entitled to vote in the election of directors
or (b) more than 49.0% of the total voting power of the capital stock of Arch,
then, the "person" or "group" or the Standby Purchasers, shall receive in lieu
of the Arch Common Shares included in such Units, Arch Class B Common Shares
such that (x) such "person" or "group" or (y) the Standby Purchasers
collectively, on the Effective Date, in the aggregate, beneficially own,
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
and Rule 13d-3 and 13d-5 promulgated thereunder (except that a Person shall be
deemed to have beneficial ownership of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time) promulgated thereunder, (i) no more than 49.0% of the
number of shares of the capital stock of Arch generally entitled to vote in
the election of directors and (ii) no more than 49.0% of the total voting
power of the capital stock of Arch on the Effective Date. For purposes of
calculating the percentages referred to above, it will be assumed that no
additional Class 6 Claims are Allowed after the Effective Date and all of the
Arch Common Shares in the Creditor Stock Pool are distributed to the Allowed
Class 6 Claims as of the Effective Date.
D. Distributions from the Exchange Agent. On the Effective Date, Arch will
deliver to the Exchange Agent a certificate, in the name of the Exchange
Agent, for the number of Arch Common Shares comprising the Creditor Stock
Pool. Distributions to the holders of Allowed Class 6 Claims other than on
account of the Rights, on the Effective Date and thereafter, shall be made by
the Exchange Agent on behalf of Reorganized Communications from the Arch
Common Shares evidenced by the certificate so delivered by Arch.
1. Holders of the Subordinated Notes. As soon as practicable after the
Effective Date, Reorganized Communications shall cause the Exchange Agent to
send a notice and a transmittal form (which shall specify that delivery shall
be effected and risk of loss and title to the Subordinated Notes shall pass,
only upon delivery of the Subordinated Notes to the Exchange Agent, and shall
be in such form and have such other reasonable
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provisions as Arch may reasonably specify) to each holder of a Subordinated
Note advising such holder of the effectiveness of the Merger and this Plan and
the procedure for surrendering to the Exchange Agent such Subordinated Note in
exchange for the Arch Common Shares issuable to it pursuant to Section 2.8(C).
Commencing on the Effective Date, the Exchange Agent shall distribute to
each holder of an Allowed Claim that constitutes a Subordinated Noteholder
Claim, upon proper surrender of its Subordinated Notes, its Pro Rata Share of
the Creditor Stock Pool. Thereafter, on each Semi-Annual Distribution Date,
distributions of a holder's Pro Rata Share of the Creditor Stock Pool shall be
made to the holders of Allowed Class 6 Claims that constitute Subordinated
Noteholder Claims who have surrendered their Subordinated Notes since the
preceding Semi-Annual Distribution Date (or, with respect to the first Semi-
Annual Distribution Date, since the Effective Date). Final distributions of
Arch Common Shares shall be made on the Final Distribution Date to each holder
of an Allowed Class 6 Claim constituting a Subordinated Noteholder Claim based
on its Class 6 Adjusted Pro Rata Share of the remaining shares in the Creditor
Stock Pool (subject to Section 2.8(C)(1)(f)).
In the event of a transfer of ownership of Subordinated Notes that is not
registered on the transfer records of the indenture trustee for such
Subordinated Notes, the securities to be distributed may be distributed to a
transferee of the Subordinated Notes if an executed letter of transmittal in
form satisfactory to the Exchange Agent is presented to the Exchange Agent,
accompanied by such documents as are required to evidence and effect such
transfer and by evidence that any applicable transfer taxes have been paid.
After the Effective Date, there shall be no further registration of
transfers on the record books of Reorganized Communications of the
Subordinated Notes outstanding prior to the Effective Date. If, after the
Effective Date, the Subordinated Notes are presented to Reorganized
Communications for any reason, they shall be canceled and exchanged as
provided in this Section 4.3(D)(1).
If any Arch Common Shares are to be issued in the name of a person other
than the person in whose name the Subordinated Note surrendered in exchange
therefor is registered, it shall be a condition to the issuance of such Arch
Common Shares that (i) the Subordinated Note so surrendered shall be
transferable, and shall be properly assigned and endorsed, (ii) such transfer
shall otherwise be proper and (iii) the person requesting such transfer shall
pay to the Exchange Agent any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of the Exchange Agent that such
taxes have been paid or are not required to be paid. Notwithstanding the
foregoing, neither the Exchange Agent nor any Person shall be liable to a
holder of Subordinated Notes for any Arch Common Shares issuable to such
holder pursuant to Section 2.8(C) that are delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
No dividends or other distributions that are payable to the holders of
record of Arch Common Shares as of a date on or after the Effective Date shall
be paid to holders of Allowed Class 6 Claims entitled to receive Arch Common
Shares pursuant to Section 2.8(C) until such holders surrender their
Subordinated Notes in accordance with this Section 4.3(D)(1). Upon such
surrender, Arch shall pay or deliver to the persons in whose name the
certificates representing such Arch Common Shares are issued any dividends or
other distributions that have been paid or are payable to the holders of
record of Arch Common Shares as of a date on or after the Effective Date and
which were paid or delivered between the Effective Date and the time of such
surrender; provided, that no such person shall be entitled to receive any
interest on such interest payments, dividends or other distributions.
If a holder of a Subordinated Note is unable to surrender such Note because
it has been destroyed, lost or stolen, such holder may receive a distribution
with respect to such Note upon request to the Exchange Agent in an acceptable
form with: (i) proof of such holder's title to such Note; (ii) proof of the
destruction or theft of such Note, or an affidavit to the effect that the same
has been lost and after diligent search cannot be found; and (iii) such
indemnification as may reasonably be required by the Reorganized Debtors to
indemnify Arch, the Reorganized Debtors, the Exchange Agent and all other
persons deemed appropriate by the Reorganized Debtors against any loss,
action, suit or other claim whatsoever that may be made as a result of such
holder's receipt of a distribution on account of such Subordinated Note under
this Plan.
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2. Holders of Allowed Class 6 Claims other than the Subordinated Noteholder
Claims. On the Effective Date, the Exchange Agent shall distribute to each
holder of an Effective Date Allowed Claim other than a Subordinated Noteholder
Claim its Class 6 Pro Rata Share of the Creditor Stock Pool. Thereafter, on
each Semi-Annual Distribution Date, distributions of a holder's Pro Rata Share
of the Creditor Stock Pool shall be made to each holder of a Class 6 Claim
other than a Subordinated Noteholder Claim whose Claim has been Allowed (as
certified by the Estate Representative to the Exchange Agent) since the
preceding Semi-Annual Distribution Date (or, with respect to the first Semi-
Annual Distribution Date, since the Effective Date). Final distributions of
Arch Common Shares shall be made on the Final Distribution Date to each holder
of an Allowed Class 6 Claim other than a Subordinated Noteholder Claim based
on its Class 6 Adjusted Pro Rata Share of any shares remaining in the Creditor
Stock Pool (subject to Section 2.8(C)(1)(f)).
3. Fractional Interests. The Arch Capital Shares shall be issued and
distributed in whole shares, and not in fractional shares. To the extent that
any holder would be entitled to a fractional Arch Capital Share but for this
provision, such holder shall, at the Arch's option, (i) be paid by Reorganized
Communications cash in an amount equal to the fraction of said share
multiplied by the price of an Arch Capital Share on the Effective Date, or
(ii) receive the number of whole shares determined by rounding up to the next
whole number of shares. Arch Warrants shall be issued and distributed in whole
units, and not in fractional units. To the extent that any holder would be
entitled to a fractional Arch Warrant but for this provision, such holder
shall receive the number of whole warrants determined by rounding up to the
next whole number of warrants. For purposes of this Section 4.3(D), holders of
Allowed Claims under or evidenced by the Notes shall, in the case of Notes
held in street name, mean the beneficial holders thereof.
E. Undeliverable Distributions.
1. Method of Distribution. All property under this Plan to be distributed by
mail shall be sent to the latest mailing address filed of record 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 Schedules or, in the
case of the holder of Notes, 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. Holding and Investment of Undeliverable Distributions. If any Allowed
Claim holder's distribution is returned to the Debtors, Reorganized Debtors,
Arch or the Exchange Agent as undeliverable, no further distributions will be
made to such holder unless the Debtors, Reorganized Debtors, Arch or the
Exchange Agent, as applicable, are notified in writing of such holder's then-
current address. Undeliverable distributions will remain in the possession of
the Debtors, Reorganized Debtors, Arch or the Exchange Agent, as applicable,
pursuant to this Section 4.3(E)(2) until such time as a distribution becomes
deliverable. Undeliverable cash will be held in a segregated bank account in
the name of the Reorganized Debtors for the benefit of the potential claimants
of such funds and, until such time as such cash becomes property of Arch
pursuant to Section 4.3(E)(4), such cash will not constitute property of Arch.
The Reorganized Debtors will invest any undeliverable cash in a manner
consistent with the Reorganized Debtors' investment and deposit practices.
Undeliverable shares of newly-issued Arch Common Shares will be held by the
Exchange Agent for the benefit of the potential claimants of such securities
until the expiration of the time period set forth in Section 4.3(E)(4).
3. After Distributions Become Deliverable. On each Semi-Annual Distribution
Date and on the Final Distribution Date, the Debtors, Reorganized Debtors,
Arch or the Exchange Agent, as applicable, will make all distributions that
have, prior to such date, become deliverable to holders of Allowed Claims.
Each such distribution will include, to the extent applicable, dividends or
other distributions, if any, that would have been paid in respect of the
shares of Arch Common Shares or Arch Class B Common Shares distributed to such
holder from the Effective Date through the date of such distribution (without
any interest thereon).
4. Undistributed Property. Any property that remains undeliverable to the
holders of Allowed Claims as of the later of the Final Distribution Date and
the date that is two years after the Effective Date shall be delivered to, and
become the property of, Arch.
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F. Compliance with Tax Requirements.
1. In connection with this Plan, to the extent applicable, the Reorganized
Debtors will comply with all tax withholding and reporting requirements
imposed on them by any governmental unit, and all distributions pursuant to
this Plan that may be necessary or appropriate to comply with such withholding
and reporting requirements.
2. Notwithstanding any other provision of this Plan, each entity that has
received any distribution pursuant to this Plan will have sole and exclusive
responsibility for the satisfaction and payment of any tax obligation imposed
by any governmental unit, including income, withholding and other tax
obligations, on account of such distribution.
4.4 Procedure For Determination of Claims and Interests.
A. Bar Date For Administrative Claims.
1. All applications for compensation of professional persons employed by the
Debtors or the Committee pursuant to orders entered by the Bankruptcy Court
and on account of services rendered prior to the Confirmation Date and all
other requests for payment of administrative costs and expenses incurred prior
to the Confirmation Date pursuant to sections 507(a)(1) or 503(b) of the Code
(except for claims for taxes, trade debt and customer deposits and credits
incurred in the ordinary course of business after the Petition Date) shall be
served on the Reorganized Debtors, the DIP Agent, the Pre-Petition Agent, the
Committee and Arch, and filed with the Bankruptcy Court, no later than 15 days
after the Confirmation Date. Any such claim that is not filed and served
within this time shall be forever barred. Objections to any such application
must be filed within 15 days after receipt thereof; provided, that Arch shall
have no right to object to any such application for professional fees. From
and after the hearing on such applications, the Debtors (or the Reorganized
Debtors if the hearing is after the Effective Date) shall be authorized to pay
all of its and the Committee's professionals in full based on monthly
statements delivered to the Debtors subject to the final hearing described in
Section 4.4(A)(2).
2. All applications for final compensation of professional persons employed
by the Debtors or the Committee pursuant to orders entered by the Bankruptcy
Court and on account of services rendered on or after the Confirmation Date
and prior to the Effective Date and all other requests for payment of
administrative costs and expenses incurred on or after the Confirmation Date
and prior to the Effective Date pursuant to sections 507(a)(1) or 503(b) of
the Code (except for claims for taxes, trade debt and customer deposits and
credits incurred in the ordinary course of business after the Petition Date)
shall be served on the Reorganized Debtors, the DIP Agent, the Pre-Petition
Agent, the Committee and Arch, and filed with the Bankruptcy Court, no later
than 15 days after the Effective Date. Any such claim that is not served and
filed within this time shall be forever barred. Objections to any such
application must be filed within 15 days after receipt thereof; provided, that
Arch shall have no right to object to any such application for professional
fees.
B. Objections To Claims.
1. Objections to any Administrative Claim (other than Administrative Claims
governed by Section 4.4(A)) and to any other Claim (other than Class 6 Claims
governed by the next sentence of this Section 4.4(B)(1)) must be filed no
later than the Effective Date. Objections must be filed no later than the
Rights Offering Commencement Date as to any Class 6 Claim other than Class 6
Claims relating to the rejection of executory contracts or unexpired leases
pursuant to this Plan. Objections shall be served on the holder of any Claim
being objected to and counsel for each of Arch, the Pre-Petition Agent, the
DIP Agent and the Committee. No distribution shall be made on account of any
Claim that is not Allowed. To the extent any property is distributed to an
entity on account of a Claim that is not an Allowed Claim, such property shall
be held in trust for and shall promptly be returned to the Reorganized
Debtors.
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2. On and after the Effective Date, only the Estate Representative shall
have authority to continue to prosecute, settle or withdraw objections to
Claims. After the Effective Date, the Estate Representative shall be entitled
to compromise or settle any Disputed Claim without seeking approval of the
Bankruptcy Court. The Estate Representative shall be paid subject to the
budget described in Section 4.2(C)(5), but without seeking approval of the
Bankruptcy Court.
3. To the extent that a Disputed Claim ultimately becomes an Allowed Claim,
payments and distributions on account of such Allowed Claim shall be made in
accordance with the provisions of this Plan governing the Class of Claims to
which such Claim belongs. As soon as practicable after the date that the order
or judgment of the Bankruptcy Court allowing such Claim becomes a Final Order,
any property that would have been distributed prior to the date on which a
Disputed Claim becomes an Allowed Claim shall be distributed, together with
any dividends, payments or other distributions made on account of such
property from the date such distributions would have been due had such Claim
then been an Allowed Claim to the date such distributions are made (without
any interest thereon).
4.5 Issuance of Arch Capital Shares. On and as of the Effective Date, Arch
will issue the Arch Common Shares and, if applicable pursuant to Section
4.3(C), Arch Class B Common Shares to be distributed to the holders of Allowed
Class 6 Claims, to all persons that exercised Rights and, if applicable, the
Standby Purchasers.
4.6 Issuance of Arch Warrants. On and as of the Effective Date, Arch will
issue the Arch Warrants contemplated by this Plan, the Merger Agreement, the
Rights, the Standby Purchase Commitment and the Merger Agreement.
4.7 Issuance of Rights. On and as of the Rights Offering Commencement Date,
Arch will issue the Rights, the Merger Agreement, as contemplated by this Plan
and the Merger Agreement.
4.8 Exemption from Securities Laws. All notes, instruments, stock and other
securities distributed pursuant to this Plan (other than the Rights and the
Units) are entitled to the benefits and exemptions provided by section 1145 of
the Code.
4.9 Registration Rights Agreement. Each Person (other than the Standby
Purchasers) that, as a result of the transactions contemplated by this Plan,
becomes the beneficial owner (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934) of at least 10% of the outstanding Arch
Capital Shares, shall be entitled to become a party to the Registration Rights
Agreement.
4.10 Effectuating Documents; Further Transactions; Exemption From Certain
Transfer Taxes. The Chief Executive Officer, President, Chief Financial
Officer or any Vice President of Reorganized Communications or the Debtors, or
such other persons as the Bankruptcy Court may designate at the request of the
Debtors, will be authorized to execute, deliver, file or record such
contracts, instruments, releases, indentures and other agreements or documents
and take such actions as may be necessary or appropriate to effectuate and
implement the provisions of this Plan. The Secretary or any Assistant
Secretary of each Debtor or the Reorganized Debtors or such other persons as
the Bankruptcy Court may designate at the request of the Debtors will be
authorized to certify or attest to any of the foregoing actions.
Pursuant to section 1146(c) of the Code (a) the issuance, transfer or
exchange of Arch Capital Shares, (b) the creation of any mortgage deed or
trust or other security interest and (c) the making of any agreement or
instrument in furtherance of, or in connection with, this Plan, including any
merger agreements, agreements of consolidation, restructuring, disposition,
liquidation or dissolution, deeds, bills of sale, or assignments executed in
connection with the Merger Agreement, will not be subject to any stamp, real
estate transfer tax or similar tax.
4.11 Release of Security Interests. Within ten Business Days after the
Confirmation Date, the Pre-Petition Agent shall deliver to Communications UCC-
3 termination statements and such other documents as are
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reasonably requested by Communications to evidence the termination of the
security interests granted to the Pre-Petition Agent to secure amounts
outstanding under the 1995 Credit Agreement, which statements and other
documents shall be held by Communications in escrow and released for filing
only upon receipt by the Pre-Petition Agent of the distribution provided for
in Section 4.3(A).
ARTICLE V
Conditions to Effective Date
5.1 Conditions to Occurrence of Effective Date. Each of the following is a
condition to the Effective Date:
A. That the Confirmation Order has been entered by the Bankruptcy Court,
more than ten (10) days have elapsed since the Confirmation Date, no stay
of the Confirmation Order is in effect and the Confirmation Order has not
been reversed, modified or vacated;
B. That all conditions to the Closing under the Merger Agreement (other
than the condition set forth in Section 5.1(j) of the Merger Agreement)
have been satisfied or waived by the party entitled thereto, and the Merger
shall occur as contemplated by Section 4.2(B)(ii); and
C. The commitments under the DIP Credit Agreement shall have terminated,
all amounts owing under or in respect of the DIP Credit Agreement shall
have been paid in full in cash and any outstanding letters of credit issued
under and in connection with the DIP Credit Agreement or the 1995 Credit
Agreement shall have been terminated or satisfied, or the Debtors shall
have provided cash collateral therefor in accordance with the terms of the
DIP Credit Agreement or the 1995 Credit Agreement, as applicable.
5.2 Effect of Non-occurrence of Conditions to the Effective Date. If the
Merger Agreement is terminated in accordance with its terms, then the
Confirmation Order shall be vacated by the Bankruptcy Court unless the
Debtors, Arch or the Committee files a motion opposing the vacation of the
Confirmation Order within ten Business Days after termination of the Merger
Agreement. The Confirmation Order may not be vacated after all the conditions
to the Effective Date have either occurred or been waived.
5.3 Non-consensual Confirmation. Because Classes 7, 8 and 9 are deemed not
to have accepted this Plan pursuant to section 1126(g) of the Code, as to such
Classes and any other Class that votes to reject this Plan, the Debtors are
seeking confirmation of this Plan in accordance with section 1129(b) of the
Code either under the terms provided herein or upon such terms as may exist if
this Plan is modified in accordance with section 1127(d) of the Code. In the
event Class 4 votes to reject this Plan, the Debtors, the Committee and Arch
each reserves the right to contest all or any portion of the amount of the
Allowed Class 4 Claims as set forth in Section 2.6(B).
ARTICLE VI
Discharge, Termination, Injunction And Subordination Rights
6.1 Discharge of Claims and Termination of Interests.
A. Except as provided in the Confirmation Order, the rights afforded under
this Plan and the treatment of Claims and Interests under this Plan will be in
exchange for and in complete satisfaction, discharge and release of all Claims
and satisfaction or termination of all Interests, including any interest
accrued on Claims from the Petition Date. Except as provided in this Plan or
the Confirmation Order, Confirmation will, as of the Effective Date: (i)
discharge the Debtors from all Claims or other debts that arose before the
Effective Date, and all debts of the kind specified in sections 502(g), 502(h)
or 502(i) of the Code, whether or not (x) a proof of claim based on such debt
is filed or deemed filed pursuant to section 501 of the Code, (y) a Claim
based on such debt is allowed pursuant to section 502 of the Code, or (z) the
holder of a Claim based on such debt has accepted this Plan and (ii) satisfy
or terminate all Interests and other rights of equity security holders in the
Debtors.
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B. As of the Effective Date, except as provided in this Plan or the
Confirmation Order, all entities will be precluded from asserting against the
Debtors or the Reorganized Debtors, or their respective successors or
property, any other or further Claims, demands, debts, rights, causes of
action, liabilities or equity interests based upon any act, omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date. In accordance with the foregoing, except as provided in this
Plan or the Confirmation Order, the Confirmation Order will be a judicial
determination, as of the Effective Date, of discharge of all such Claims and
other debts and liabilities against the Debtors and satisfaction or
termination of all Interests and other rights of equity security holders in
the Debtors, pursuant to sections 524 and 1141 of the Bankruptcy Code, and
such discharge will void any judgment obtained against the Debtors or the
Reorganized Debtors at any time, to the extent that such judgment relates to a
discharged Claim.
6.2 Injunctions.
A. Except as provided in this Plan or the Confirmation Order, as of the
Effective Date, all entities that have held, currently hold or may hold a
Claim or other debt or liability that is discharged or an Interest or other
right of an equity security holder that is terminated pursuant to the terms of
this Plan are permanently enjoined from taking any of the following actions on
account of any such discharged Claims, debts or liabilities or terminated
Interests or rights: (i) commencing or continuing in any manner any action or
other proceeding against the Debtors or the Reorganized Debtors or Arch or its
subsidiaries or their respective property; (ii) enforcing, attaching,
collecting or recovering in any manner any judgment, award, decree or order
against the Debtors or the Reorganized Debtors or Arch or its subsidiaries or
their respective property; (iii) creating, perfecting or enforcing any lien or
encumbrance against the Debtors or the Reorganized Debtors or Arch or its
subsidiaries or their respective property; (iv) asserting a setoff, right of
subrogation or recoupment of any kind against any debt, liability or
obligation due to the Debtors or the Reorganized Debtors or Arch or its
subsidiaries or their respective property; and (v) commencing or continuing
any action, in any manner, in any place that does not comply with or is
inconsistent with the provisions of this Plan.
B. As of the Effective Date, all entities that have held, currently hold or
may hold a claim, demand, debt, right, cause of action or liability that is
released pursuant to this Plan are permanently enjoined from taking any of the
following actions on account of such released claims, demands, debts, rights,
causes of action or liabilities: (i) commencing or continuing in any manner
any action or other proceeding; (ii) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or order; (iii) creating,
perfecting or enforcing any lien or encumbrance; (iv) asserting a setoff,
right of subrogation or recoupment of any kind against any debt, liability or
obligation due to any released entity; and (v) commencing or continuing any
action, in any manner, in any place that does not comply with or is
inconsistent with the provisions of this Plan.
C. By accepting a distribution pursuant to this Plan, each holder of an
Allowed Claim receiving such distribution pursuant to this Plan will be deemed
to have specifically consented to the injunctions set forth in this Section
6.2.
6.3 Termination of Subordination Rights and Settlement of Related Claims and
Controversies.
A. The classification and manner of satisfying all Claims and Interests
under this Plan takes into consideration all contractual, legal and equitable
subordination and turnover rights, whether arising under general principles of
equitable subordination, section 510(c) of the Code or otherwise, that a
holder of a Claim or Interest or the Debtors may have against other Claim
holders with respect to any distribution made pursuant to this Plan. On the
Effective Date, all contractual, legal, equitable subordination and turnover
rights that a holder of a Claim or Interest or the Debtors may have with
respect to any distribution to be made pursuant to this Plan will be
discharged and terminated, and all actions related to the enforcement of such
subordination rights will be permanently enjoined. Accordingly, distributions
pursuant to this Plan to holders of Allowed Claims will not be subject to
payment to a beneficiary of such terminated subordination rights, or to levy,
garnishment, attachment or other legal process by a beneficiary of such
terminated subordination rights.
B. Pursuant to Bankruptcy Rule 9019 and in consideration for the
distributions and other benefits provided under this Plan, the provisions of
this Plan will constitute a good faith compromise and settlement of all claims
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or controversies relating to the enforcement or termination of all
contractual, legal and equitable subordination and turnover rights that a
holder of a Claim or Interest or the Debtors may have with respect to any
Allowed Claim or Interest, or any distribution to be made pursuant to this
Plan on account of such Claim. The entry of the Confirmation Order will
constitute the Bankruptcy Court's approval of the compromise or settlement of
all such claims or controversies and the Bankruptcy Court's finding that such
compromise or settlement is in the best interests of the Debtors and the
Reorganized Debtors and their respective property and Claim and Interest
holders, and is fair, equitable and reasonable.
ARTICLE VII
Miscellaneous
7.1 Retention of Jurisdiction. Following the Effective Date, the Bankruptcy
Court shall retain such jurisdiction as is set forth in this Plan. Without in
any manner limiting the scope of the foregoing, the Bankruptcy Court shall
retain jurisdiction for the following purposes:
A. To determine the allowability, classification, priority or
subordination of Claims and Interests upon objection, or to estimate,
pursuant to section 502(c) of the Code, the amount of any Claim that is or
is anticipated to be contingent or unliquidated as of the Effective Date,
or to hear proceedings to subordinate Claims or Interests brought by any
party in interest with standing to bring such objection or proceeding;
B. To construe and to take any action authorized by the Code and
requested by the Reorganized Debtors or any other party in interest to
enforce this Plan and the documents and agreements filed in connection with
this Plan, issue such orders as may be necessary for the implementation,
execution and consummation of this Plan, including, without limiting the
generality of the foregoing, orders to expedite regulatory decisions for
the implementation of this Plan and to ensure conformity with the terms and
conditions of this Plan, such documents and agreements and other orders of
the Bankruptcy Court, notwithstanding any otherwise applicable non-
bankruptcy law;
C. To determine any and all applications for allowance of compensation
and expense reimbursement of professionals retained by the Debtors, the
Reorganized Debtors or the Committee, and for members of the Committee, for
periods on or before the Effective Date, and to determine any other request
for payment of administrative expenses;
D. To determine all matters that may be pending before the Bankruptcy
Court on or before the Effective Date;
E. To resolve any dispute regarding the implementation or interpretation
of this Plan, the Merger Agreement or any related agreement or document
that arises at any time before the Cases are closed, including
determination, to the extent a dispute arises, of the entities entitled to
a distribution within any particular Class of Claims and of the scope and
nature of the Reorganized Debtors' obligations to cure defaults under
assumed contracts, leases, franchises and permits;
F. To determine any and all applications pending on the Confirmation Date
for the rejection, assumption or assignment of executory contracts or
unexpired leases entered into prior to the Petition Date, and the allowance
of any Claim resulting therefrom;
G. To determine all applications, adversary proceedings, contested
matters and other litigated matters that were brought or that could have
been brought on or before the Effective Date;
H. To determine matters concerning local, state and federal taxes in
accordance with sections 346, 505 and 1146 of the Code, and to determine
any tax claims that may arise against the Debtors or Reorganized Debtors as
a result of the transactions contemplated by this Plan;
I. To resolve any dispute arising out of actions taken by the Estate
Representative;
J. To modify this Plan pursuant to section 1127 of the Code, or to remedy
any apparent nonmaterial defect or omission in this Plan, or to reconcile
any nonmaterial inconsistency in this Plan so as to carry out its intent
and purposes; and
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K. For such other purposes as may be provided for in the Confirmation
Order.
Prior to the Effective Date, the Bankruptcy Court shall retain jurisdiction
with respect to each of the foregoing items and all other matters that were
subject to its jurisdiction prior to the Confirmation Date.
7.2 Retention and Enforcement Of Causes Of Action. Pursuant to section
1123(b)(3)(B) of the Code, but subject to Sections 7.3 and 7.4 of this Plan,
the Reorganized Debtors, on behalf of themselves and holders of Allowed Claims
and Interests, shall retain all Causes of Action that the Debtors had or had
power to assert immediately prior to the Effective Date, and may commence or
continue in any appropriate court or tribunal any suit or other proceeding for
the enforcement of such Causes of Action. All Causes of Action shall remain
the property of the Reorganized Debtors. Nothing contained in this Plan shall
constitute a waiver of the rights, if any, of the Debtors or the Reorganized
Debtors to a jury trial with respect to any Cause of Action or objection to
any Claim or Interest.
7.3 Limitation of Liability. None of the Debtors, the Reorganized Debtors,
Arch or any affiliate thereof, the Committee, the Pre-Petition Agent, the Pre-
Petition Lenders, the DIP Agent, the DIP Lenders, the Standby Purchasers, the
indenture trustees for the Notes, Arch's financing sources, nor any of their
respective officers, directors, employees, members, agents, underwriters or
investment bankers, nor any other professional Persons employed by any of them
(collectively, the "Exculpated Persons"), shall have or incur any liability to
any Person for any act taken or omission made in good faith in connection with
or related to formulating, negotiating, implementing, confirming or
consummating this Plan, the Disclosure Statement or any contract, instrument,
release or other agreement or document created in connection with this Plan.
The Exculpated Persons shall have no liability to any Debtor, holder of a
Claim, holder of an Interest, other party in interest in the Cases or any
other Person for actions taken or not taken under this Plan, in connection
herewith or with respect hereto, or arising out of their administration of
this Plan or the property to be distributed under this Plan, in good faith,
including, without limitation, failure to obtain Confirmation of this Plan or
to satisfy any condition or conditions, or refusal to waive any condition or
conditions, to the occurrence of the Effective Date, and in all respects such
Exculpated Persons shall be entitled to rely upon the advice of counsel with
respect to their duties and responsibilities under this Plan.
7.4 Releases.
A. On the Effective Date, the Reorganized Debtors, on their own behalf and
as representatives of the Debtors' estates, in consideration of services
rendered in the Cases and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, release unconditionally, and
are deemed to release unconditionally, each of the Debtors' (1) present
officers and directors, (2) former officers and directors (other than those
former officers and directors considered or determined as of the Effective
Date by the FCC to be alleged or actual wrongdoers for purposes of the FCC
Proceeding), (3) the entities that elected such directors to the extent they
are or may be liable for the actions or inactions of such directors and (4)
their respective professional advisers (collectively, the "Officer and
Director Releasees"), from any and all claims, obligations, suits, judgments,
damages, rights, causes of action and liabilities whatsoever (including,
without limitation, those arising under the Code), whether known or unknown,
foreseen or unforeseen, existing or hereafter arising, in law, equity or
otherwise, based in whole or in part on any act, omission, transaction, event
or other occurrence taking place before, on or after the Petition Date up to
the Effective Date, in any way relating to the Debtors (before, on or after
the Petition Date), the Cases or this Plan (collectively, the "Released
Matters"); provided, that the foregoing release shall not apply to any action
or omission that constitutes actual fraud or criminal behavior; and provided,
further, that such release shall not be granted to any Officer or Director
Releasee who has a Disputed Claim as of the Effective Date.
B. On the Effective Date, the Reorganized Debtors, on their own behalf and
as representatives of the Debtors' estates, in consideration of services
rendered in the Cases and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, release unconditionally, and
are deemed to release unconditionally, each of (1) the Pre-Petition Lenders,
the Pre-Petition Agent, the DIP Lenders and the DIP Agent
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and (2) their respective professional advisers (collectively, the "Lender
Releasees"), from the Released Matters; provided, that the foregoing release
shall not apply to any action or omission that constitutes actual fraud or
criminal behavior.
C. On the Effective Date, the Reorganized Debtors, on their own behalf and
as representatives of the Debtors' estates, in consideration of services
rendered in the Cases and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, release unconditionally, and
are deemed to release unconditionally, (1) each member of the Committee, the
Committee and their respective present or former members, officers, directors,
employees, affiliates, advisors, attorneys or agents (collectively, the
"Representatives"), (2) the Standby Purchasers and their Representatives, and
(3) their respective professional advisers (collectively, the "Creditor
Releasees"), from the Released Matters; provided, that the foregoing release
shall not apply to any action or omission that constitutes actual fraud or
criminal behavior.
D. On the Effective Date, the Reorganized Debtors, on their own behalf and
as representatives of the Debtors' estates, in consideration of services
rendered in the Cases and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, release unconditionally, and
are deemed to release unconditionally, Arch, any affiliate of Arch, or Arch's
financing sources, agents, underwriters and investment bankers and their
respective professional advisers (collectively, the "Arch Releasees") from the
Released Matters; provided, that the foregoing release shall not apply to any
action or omission that constitutes actual fraud or criminal behavior.
E. On the Effective Date, Arch and its subsidiaries shall be deemed to have
unconditionally released the Officer and Director Releasees, the Lender
Releasees and the Creditor Releasees from the Released Matters; provided, that
the foregoing release shall not apply to any action or omission that
constitutes actual fraud or criminal behavior; and provided, further, that
such release shall not be granted to any Officer or Director Releasee who has
a Disputed Claim as of the Effective Date.
F. On the Effective Date, each holder of a Claim that is entitled to vote on
this Plan shall be deemed to have unconditionally released the Officer and
Director Releasees, the Lender Releasees, the Creditor Releasees and the Arch
Releasees from the Released Matters; provided, that the foregoing release
shall not apply to any action or omission that constitutes actual fraud or
criminal behavior and shall not constitute a release of any recovery such
holder would be entitled to as a plaintiff or putative plaintiff in the
Securities Actions or any action initiated after the date hereof based upon
similar factual allegations or alleging similar causes of action to the
Securities Actions; and provided, further, that a holder (other than Arch) may
elect, by checking the appropriate box or boxes provided on the Ballot, not to
grant such release as to the Officer and Director Releasees, the Lender
Releasees, the Creditor Releasees or the Arch Releasees, or all of them.
G. The Confirmation Order shall contain a permanent injunction to effectuate
the releases granted in the foregoing Sections 7.4(A) (B), (C), (D), (E) and
(F). Any release granted pursuant to the foregoing Sections 7.4(A), (B), (C),
(D), (E) and (F) shall be ineffective and null and void automatically and
immediately upon the assertion by any released party of any claim in any
manner or in any forum against any party that granted the release, and all
Causes of Action that the Debtors had or had the power to assert immediately
prior to the Effective Date with respect to any such party shall be preserved
and become the property of the Reorganized Debtors pursuant to Section 7.2.
7.5 Indemnification Obligations; Directors' and Officers' Liability
Insurance.
A. Director Indemnification Obligations and Excluded Indemnification
Obligations shall be deemed to be, and shall be treated as if they are,
executory contracts that are rejected pursuant to section 365 of the Code. Any
Claims arising out of the rejection of the Indemnification Obligations
pursuant to this Section 7.5(A) shall be subordinated in full under sections
510(b) and 510(c) of the Code.
B. Benefit Plan Indemnification Obligations and Indemnification Obligations
with respect to officers and employees who are officers and employees of the
Debtors as of the Effective Date (other than Excluded
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Indemnification Obligations) shall be deemed to be, and shall be treated as
though they are, executory contracts that are assumed agreements under this
Plan and such obligations (subject to any defenses thereto) shall remain
unaffected and shall not be discharged or impaired hereby, and any Claim for
indemnification filed by any such party shall not be an Allowed Claim
hereunder; provided, that the foregoing assumption shall not affect any
release of any such obligation given in writing to the Debtors before the
Effective Date or to the Reorganized Debtors on or after the Effective Date or
any other releases under Section 7.4.
C. On the Effective Date, the Reorganized Debtors shall purchase a "run-off"
policy for the Debtors' current and former directors and officers (other than
those former officers and directors considered or determined as of the
Effective Date by the FCC to be alleged or actual wrongdoers for purposes of
the FCC Proceeding), which policy shall provide for aggregate coverage up to
$40 million (or such lesser amount as can be purchased for a premium of
$750,000) for claims made during a period of at least three (3) years
following the Effective Date based on alleged "wrongful acts" through the
Effective Date, and shall contain such other usual and customary terms and
conditions as are approved by the Board of Directors of MobileMedia.
D. As of the Effective Date, Arch shall make available up to an aggregate
amount of $1,000,000 (the "Defense Fund") to be used by present and former
officers and directors (other than those former officers and directors
considered or determined as of the Effective Date by the FCC to be alleged or
actual wrongdoers for purposes of the FCC Proceeding) of the Debtors solely
for the costs and expenses (including reasonable attorneys' fees and expenses)
of defending the Securities Actions not otherwise covered by the Debtors'
insurance. The Defense Fund is being provided by Arch at its election and not
in exchange for any Claim or Interest by any officer or director. Provision of
the Defense Fund hereunder shall not negate, constitute a waiver or
modification of or otherwise impair the discharge of the Debtors and the
Reorganized Debtors under sections 524 and 1141 of the Code and this Plan. As
a condition to any officer or director obtaining amounts from the Defense
Fund, such officer or director shall deliver to Arch, at Arch's request, a
release, in form and substance reasonably acceptable to Arch, confirming the
unconditional release and discharge of the Arch Releasees and the Reorganized
Debtors from the Released Matters. Any officer or director shall be required
to reimburse Arch for any amounts obtained from the Defense Fund that are
subsequently covered by insurance.
7.6 Terms Binding. Upon the entry of the Confirmation Order, all provisions
of this Plan, including all agreements, instruments and other documents filed
in connection with this Plan and executed by the Debtors, Arch or the
Reorganized Debtors in connection with this Plan, shall be binding upon the
Debtors, Arch, the Reorganized Debtors, all Claim and Interest holders and all
other entities that are affected in any manner by this Plan. All agreements,
instruments and other documents filed in connection with this Plan shall have
full force and effect, and shall bind all parties thereto as of the entry of
the Confirmation Order, whether or not such exhibits actually shall be
executed by parties other than the Debtors or the Reorganized Debtors, or
shall be issued, delivered or recorded on the Effective Date or thereafter.
7.7 Additional Terms of Securities and Other Instruments. Any modification
of the Merger Agreement, the Arch Warrants, Arch Common Shares and Arch Class
B Common Shares, and all other securities or agreements issued or entered into
pursuant to this Plan after the Voting Deadline, shall be treated as a Plan
modification and shall be governed by section 1127 of the Code.
7.8 Post-Consummation Effect of Evidences of Claims or Interests. Notes,
stock certificates and other evidence of Claims against or Interests in the
Debtors shall, effective on the Effective Date, represent only the right to
participate in the distributions contemplated by this Plan.
7.9 Payment Dates. Whenever any payment to be made under this Plan is due on
a day other than a Business Day, such payment shall instead be made, without
interest, on the next succeeding Business Day.
7.10 Successors and Assigns. The rights, benefits and obligations of any
person named or referred to in this Plan shall be binding upon, and shall
inure to the benefit of, the heir, executor, administrator, successor or
assignee of such person.
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7.11 Inconsistencies. In the event that there is any inconsistency between
this Plan and the Disclosure Statement, any exhibit to this Plan or any other
instrument or document created or executed pursuant to this Plan, this Plan
shall govern.
7.12 Compliance with Applicable Law. It is intended that the provisions of
this Plan (including the implementation thereof) shall be in compliance with
applicable law, including, without limitation, the Code, the Delaware General
Corporation Law, as amended, the Communications Act of 1934, as amended, the
Securities Act of 1933, as amended, and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, as well as, in each case, any rules and
regulations promulgated thereunder. If the Debtors shall conclude that this
Plan may not comply with any of the foregoing, then and in such event the
Debtors intend to amend this Plan in such respects as they deem necessary to
bring this Plan into compliance therewith.
7.13 Governing Law. Except to the extent that the Code or any other federal
law is applicable or to the extent the law of a different jurisdiction is
validly elected by the Debtors, the rights, duties and obligations arising
under this Plan shall be governed in accordance with the substantive laws of
the United States of America and, to the extent federal law is not applicable,
the laws of the State of Delaware.
7.14 Severability. If the Bankruptcy Court determines at the Confirmation
Hearing that any material provision of this Plan is invalid or unenforceable,
such provision, to the extent the Debtors, Arch and the Committee agree, but
subject to section 1127 of the Code, shall be severable from this Plan and
null and void, and, in such event, such determination shall in no way limit or
affect the enforceability or operative effect of any or all other portions of
this Plan.
7.15 Incorporation by Reference. Each Exhibit or Schedule hereto is
incorporated herein by reference.
MOBILEMEDIA COMMUNICATIONS, INC.
MOBILEMEDIA CORPORATION
MOBILEMEDIA COMMUNICATIONS, INC.
(CALIFORNIA)
MOBILEMEDIA DP PROPERTIES, INC.
MOBILEMEDIA PCS, INC.
DIAL PAGE SOUTHEAST, INC.
RADIO CALL COMPANY OF VA. INC.
MOBILEMEDIA PAGING, INC.
MOBILE COMMUNICATIONS CORPORATION OF
AMERICA
MOBILECOMM OF THE SOUTHEAST, INC.
MOBILECOMM OF THE NORTHEAST, INC.
MOBILECOMM NATIONWIDE OPERATIONS,
INC.
MOBILECOMM OF TENNESSEE, INC.
MOBILECOMM OF THE SOUTHEAST PRIVATE
CARRIER OPERATIONS, INC.
MOBILECOMM OF THE SOUTHWEST, INC.
MOBILECOMM OF FLORIDA, INC.
MOBILECOMM OF THE MIDSOUTH, INC.
FWS RADIO, INC.
MOBILECOMM OF THE WEST, INC.
Debtors and Debtors-in-Possession
By:__________________________________
Joseph A. Bondi
Chairman--Restructuring of
MobileMedia Corporation
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J. Ronald Trost
James D. Johnson
Shelley C. Chapman
Lee M. Stein
SIDLEY & AUSTIN
875 Third Avenue
New York, New York 10022
(212) 906-2000
James L. Patton, Jr. (No. 2202)
Joel A. Waite (No. 2925)
YOUNG CONAWAY STARGATT & TAYLOR, LLP
11th Floor--Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899
(302) 571-6600
COUNSEL TO DEBTORS AND DEBTORS-IN-POSSESSION
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