<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ARCH COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 31-1358569
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL) (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
(508) 870-6700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
C. EDWARD BAKER, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ARCH COMMUNICATIONS GROUP, INC.
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
(508) 870-6700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
DAVID A. WESTENBERG, ESQ.
C/O HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 526-6000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the effective registration statement for the same
offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED(1) REGISTERED(1) PER UNIT(2) PRICE(3) FEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rights.................
- ---------------------------------------------------------------------------------
Units..................
- ---------------------------------------------------------------------------------
Common Stock, $.01 par
value(4)..............
- ---------------------------------------------------------------------------------
Class B Common Stock,
$.01 par value(4).....
- ---------------------------------------------------------------------------------
Warrants(4)............
- ---------------------------------------------------------------------------------
Total.................. $377,000,000 $377,000,000 $111,215.00(5)
</TABLE>
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- -------------------------------------------------------------------------------
(1) The number of securities of each class to be registered will be determined
on the basis of a formula described in the Prospectus contained herein,
based upon future market prices of the Registrant's Common Stock. In
connection with a plan of reorganization filed in accordance with the
United States Bankruptcy Code, the Registrant will grant to unsecured
creditors of MobileMedia Corporation, MobileMedia Communications, Inc. and
certain subsidiaries subscription rights ("Rights") to purchase units
("Units") consisting of one share of the Registrant's Common Stock or (in
certain circumstances) Class B Common Stock and a fraction of one Warrant.
Such creditors will receive Rights for their allowed unsecured claims
("Unsecured Claims"), at a distribution ratio to be determined in
accordance with a formula described in the Prospectus contained herein.
Certain of such creditors have agreed to subscribe for up to specified
numbers of Units in the event such number of Units remain unsubscribed
after the expiration of the subscription period. This Registration
Statement also covers re-sales of such Rights. It is intended that resales
of the Common Stock, Class B Common Stock and Warrants comprising the
Units and the Common Stock and Class B Common Stock underlying the
Warrants will be made pursuant to a separate registration statement.
(2) The maximum offering price per Unit will be determined on the basis of a
formula described in the Prospectus contained herein.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
Regardless of the number of securities of each class to be issued, the
aggregate consideration to be received by the Registrant for all such
securities will consist of (i) discharge of an indeterminate portion of
$480,000,000 of Unsecured Claims having a maximum value, for the purpose
of calculating the registration fee pursuant to Rule 457(f)(2), of
$160,000,000, and (ii) $217,000,000 in cash, representing the aggregate
exercise price of the Rights.
(4) Included in the Units.
(5) A filing fee of $32,000.00, calculated on the basis of the $480,000,000 of
discharged Unsecured Claims referred to in note (3) above, was previously
paid in connection with the filing of the Registrant's preliminary proxy
materials on August 20, 1998 pursuant to Rule 14(a)-6(i) under the
Securities Exchange Act of 1934, as amended. Accordingly, $79,215.00 is
paid herewith.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 25, 1998
PROSPECTUS
[ ] SHARES OF COMMON STOCK AND CLASS B COMMON STOCK [ ] STOCK PURCHASE
WARRANTS AND [ ] TRANSFERABLE RIGHTS TO PURCHASE SUCH STOCK AND WARRANTS
OF
(LOGO)
ARCH COMMUNICATIONS GROUP, INC.
Arch Communications Group, Inc. a Delaware corporation ("Arch"), is offering
the securities described herein (the "Securities") to unsecured creditors of
MobileMedia Communications, Inc., a Delaware corporation ("MMC" and, together
with its subsidiaries, "MobileMedia") and MMC's parent company, MobileMedia
Corporation ("Parent"), in the manner described herein (the "Rights Offering"),
subject to certain conditions.
The Securities consist of a maximum of shares (subject to adjustment) and
a minimum of shares (subject to adjustment) of Arch's Common Stock, $.01 par
value per share ("Common Stock"), a maximum of shares (subject to
adjustment) and a minimum of zero shares of its Class B Common Stock, $.01 par
value per share ("Class B Common Stock"; together with the Common Stock,
"Stock"), for a total of shares (subject to adjustment) of such Stock,
Stock Purchase Warrants to acquire up to additional shares of Stock
("Warrants"), and transferable subscription rights to acquire such Stock and
Warrants (the "Rights"). Each Right will entitle its holder to purchase, for
$6.75(/1/) in cash (subject to adjustment) (the "Subscription Price"), one unit
(a "Unit") consisting of one share of Stock and of one Warrant. Each Warrant
will entitle its holder to purchase one share of Stock for $8.19 (the "Warrant
Exercise Price"), payable solely in cash. The Warrants will be exercisable
(continued on next page)
- -----
(1) Based upon the midpoint of a range under the formula described under "The
MobileMedia Plan of Reorganization--Calculation of Shares". See "Risk
Factors--Uncertainties Related to the Transaction--Use of Pro Forma
Assumptions".
-----------
SEE "RISK FACTORS", BEGINNING ON PAGE 13, FOR A DISCUSSION OF CERTAIN FACTORS
(INCLUDING SUBSTANTIAL DILUTION) THAT INVESTORS SHOULD CONSIDER IN CONNECTION
WITH THIS OFFERING AND AN INVESTMENT IN THE SECURITIES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
SUBSCRIPTION DISCOUNTS AND PROCEEDS TO
PRICE COMMISSIONS ARCH (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit................................ $6.75(1) None $6.75(1)
- --------------------------------------------------------------------------------
Total................................... $217,000,000 None $217,000,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See note (1) above
(2) Before deducting offering expenses payable by Arch estimated at $ and
assuming that none of the Warrants is exercised. A holder of Rights or its
assignee need not exercise any minimum number of Rights. There are no
underwriting arrangements with any underwriter or broker-dealer or other
person with respect to any of the Securities offered hereby. The Standby
Purchasers (as defined herein) have entered into binding written
commitments to exercise Rights distributable to them to purchase Units
and to subscribe for up to an additional unsubscribed Units. There are
no other agreements or understandings regarding the distribution of Rights
and no agreements or understandings regarding the exercise of Warrants by
the Standby Purchasers and no assurance can be given that any Warrants will
be exercised.
Arch intends to issue certificates evidencing the shares of Common Stock,
Class B Common Stock and Warrants to subscribers as soon as possible after
consummation of the Rights Offering. It is expected that such consummation will
occur simultaneously with consummation of the Merger (as defined herein) and as
soon as practicable after the Expiration Date (as defined herein) and the date
that the FCC Grant (as defined herein) has become final, but in no event later
than June 30, 1999.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
(continued from previous page)
from date of issuance through September 1, 2001. The terms of the Warrants and
the other Securities are described in detail under "Description of
Securities".
MobileMedia and Parent, operating as debtors-in-possession (the "Debtors"),
have filed an amended plan of reorganization dated August 18, 1998 (the
"Amended Plan") with the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"), proposing a reorganization of MobileMedia
(the "Reorganization") in connection with the pending insolvency proceedings
of MobileMedia and Parent (the "Insolvency Proceedings") under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code"). The Plan
contemplates a merger of MMC with a subsidiary of Arch (the "Merger") at the
time the Amended Plan becomes effective (the "Effective Time"). 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 Merger is conditioned upon (i) entry by the Bankruptcy Court of a
Confirmation Order (as defined herein) for the Amended Plan ("Confirmation")
(ii) receipt of all other necessary governmental approvals, including approval
by the Federal Communications Commission (the "FCC") in the form of an FCC
Grant (as defined herein) and (iii) satisfaction of various other conditions
(collectively, the "Closing Conditions"). As provided in the Plan, each holder
of a general unsecured claim against the Debtors which is not disputed as of
the Confirmation Date, as defined in the Amended Plan (the "Unsecured
Creditors") will be entitled to receive a distribution consisting of one Right
for each $ of Unsecured Claims held by it (the "Distribution Ratio"). The
Subscription Price has been determined based upon a price (the "Arch Common
Stock Price") which is equal to 80% of average trading prices for Common Stock
on eight randomly selected trading days during a 20 trading-day period ending
September 22, 1998, with the two highest and two lowest prices disregarded
(the "Measurement Period"), provided that the Arch Common Stock Price shall
not be less than $6.25 nor greater than $10.625. See "The MobileMedia Plan of
Reorganization--Calculation of Shares". The Rights will be evidenced by
transferable certificates which will be mailed to each holder of undisputed
Unsecured Claims on the date described herein promptly following the effective
date of the registration statement of which this Prospectus is a part (the
"Registration Statement"). The Rights will expire at 5:00 p.m., New York City
time, on a date that is selected by Arch and MobileMedia which is at least 15
days after all Closing Conditions (other than the finality of the FCC Grant
and other conditions which by their terms cannot be satisfied until the
Effective Time) are first satisfied or, if legally permissible, waived (the
"Expiration Date"). See "The Rights Offering--Terms of the Rights Offering".
Any Rights which remain unexercised at the close of business on the Expiration
Date will no longer be exercisable.
Certain Unsecured Creditors (the "Standby Purchasers") have entered into
binding written commitments (i) to subscribe for the full number of Units
subject to Rights which they are entitled to receive based upon their
Unsecured Claims (a total of Units) and (ii) subject to certain
conditions, to act as standby purchasers of any and all additional
unsubscribed Units at the Subscription Price (a maximum of Units). See
"The Rights Offering--Standby Purchase Agreements". The Standby Purchasers who
purchase unsubscribed Units pursuant to such commitments may from time to time
re-offer the Securities underlying the Units through ordinary brokerage
transactions on the Nasdaq National Market, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices. In consideration of the Standby Purchasers' commitments, Arch has
agreed to issue to the Standby Purchasers at the Effective Time warrants,
which are identical in all respects to the Warrants offered hereby, to acquire
a total of shares of Common Stock at an exercise price of $8.19 per share
(the "Standby Purchasers' Warrants") and has granted certain registration
rights with respect to the Stock to be held by the Standby Purchasers at the
Effective Time and the Stock underlying the Standby Purchasers' Warrants.
Votes in favor of Plan Approval are being solicited pursuant to an
Disclosure Statement dated August 25, 1998 (the "Disclosure Statement") which
is expected to be mailed to the creditors of MobileMedia and Parent on or
about August 25, 1998 and which has been filed as an exhibit to the
Registration Statement and is attached hereto as Annex A. The Bankruptcy Court
has approved the Disclosure Statement as containing adequate information with
respect to the Amended Plan in accordance with Section 1125 of the Bankruptcy
Code.
(continued on next page)
ii
<PAGE>
(continued from previous page)
Holders of Rights may subscribe for Units in the Rights Offering in the
manner described under "The Rights Offering--Method of Exercise of Rights".
All subscriptions will be irrevocable. Subscriptions for Units received by
Arch will be accepted subject to Arch's right to reject any subscription and
subject to satisfaction or, if legally permissible, waiver of the Closing
Conditions and consummation of the Merger. Subscription documents and
subscribed funds will be held in escrow by The Bank of New York (the
"Subscription Agent") pending receipt of subscriptions for all of the Units.
If the Rights Offering is not fully subscribed or the Merger does not take
place by June 30, 1999, the Subscription Agent will promptly return all
subscribed funds to subscribers without interest. Any and all interest earned
on subscribed funds will be remitted to Arch.
All purchasers of Units will acquire shares of Common Stock and Warrants to
purchase Common Stock, except that Standby Purchasers or others will instead
acquire shares of Class B Common Stock and Warrants to purchase Class B Common
Stock to the extent described under "The Rights Offering--Standby Purchasers"
if they would otherwise hold in the aggregate more than 49.0% of the
securities of Arch entitled to vote in the election of directors or securities
having more than 49.0% of the total voting power of Arch's outstanding capital
stock. Shares of Common Stock and Class B Common Stock are identical except
that holders of Common Stock are entitled to vote on the election of directors
and cast one vote per share on all other matters while holders of Class B
Common Stock are not entitled to vote on the election of directors and are
entitled to cast 1/100th of one vote per share on all other matters. Shares of
Class B Common Stock are convertible into shares of Common Stock at a one-for-
one ratio in specified circumstances. See "Description of Securities".
The Common Stock, Class B Common Stock and Warrants included in the Units
will be transferable separately, commencing immediately after issuance. Arch
has agreed to use its best efforts to cause such Common Stock, Class B Common
Stock and Warrants and the Common Stock and Class B Common Stock underlying
the Warrants to be approved for quotation on the Nasdaq National Market. Prior
to this Rights Offering there has been no market for the Rights, the Units,
the Class B Common Stock or the Warrants; it is unlikely that a market for the
Rights, the Units or the Class B Common Stock will develop and uncertain
whether a market for the Warrants will develop. Arch's Common Stock is quoted
on the Nasdaq National Market under the symbol "APGR". On August 18 , 1998
(the last day prior to public announcement of the existence of negotiations
regarding the proposed Merger) the high and low reported sale prices for the
Common Stock on the Nasdaq National Market were $4.00 and $3.375 per share,
respectively. On August , 1998 the last reported sale price for the Common
Stock was $ per share. The terms of the Rights Offering, including the
formulas and other methods for determining the Distribution Ratio, the
Subscription Price, the Arch Common Stock Price, the number of Units and the
Warrant Exercise Price have been determined by negotiation among Arch the
Debtors and certain unsecured creditors and are not necessarily related to
Arch's assets, net worth, results of operations or other recognized criteria
of value, although Arch and such Unsecured Creditors considered the trading
prices of the Common Stock prior to August , 1998, as well as recent
operating results of Arch and MobileMedia, projected combined operating
results of Arch and MobileMedia and pricing practices customary in
transactions of this type, when negotiating the formulas and other methods for
determining the Distribution Ratio, the Subscription Price, the Arch Common
Stock Price, the number of Units and the Warrant Exercise Price.
The Amended Plan provides for distribution of additional shares of Common
Stock to Unsecured Creditors at the Effective Time as further consideration
for discharge of their Unsecured Claims. These additional shares are described
in the Disclosure Statement. Unsecured Creditors should carefully read this
Prospectus for an understanding of Arch's securities and the Disclosure
Statement for an understanding of other matters relating to the Amended Plan
and to Plan Approval.
Rights, Units and the Stock and Warrants which comprise the Units may be
resold without registration under the Securities Act of 1933, as amended (the
"Securities Act"), by Unsecured Creditors and their assignees who are not
affiliates (as defined herein) of Arch or underwriters within the meaning of
the Securities Act. The Standby Purchasers and any other Unsecured Creditors
who acquire 10% or more of the Common Stock may be deemed to be statutory
underwriters with respect to the Securities they have committed to purchase. A
person deemed to be a statutory underwriter under the Securities Act may be
subject to certain liabilities in connection with the Registration Statement,
including liabilities under the Securities Act. Arch intends to file a
separate registration statement or statements covering exercises of the
Warrants and certain resales of the Stock and Warrants by affiliates, the
Standby Purchasers or others.
iii
<PAGE>
THE RIGHTS OFFERING IS NOT BEING MADE TO, NOR WILL ARCH ACCEPT SUBSCRIPTIONS
FROM, PERSONS IN ANY JURISDICTION IN WHICH THE RIGHTS OFFERING OR THE
ACCEPTANCE OF SUCH SUBSCRIPTION WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE RIGHTS OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
OR THE ACCOMPANYING SUBSCRIPTION CERTIFICATE, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ARCH OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING SUBSCRIPTION CERTIFICATE, NOR ANY SUBSCRIPTION
MADE HEREUNDER SHALL, 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 ANY INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO ITS DATE.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
OFFERING TRANSACTIONS IN THE RIGHTS OFFERING MAY BE REQUIRED TO DELIVER A
PROSPECTUS IN CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS.
----------------
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. 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.
Arch has filed with the Commission the Registration Statement on Form S-4
under the Securities Act with respect to the Securities offered hereby. (The
term "Registration Statement" includes all amendments, exhibits,
iv
<PAGE>
annexes and schedules thereto. As permitted by the rules and regulations of
the Commission, this Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. For further information
with respect to Arch and the Securities offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. Statements contained
in this Prospectus as to the contents of any contract or other document are
not necessarily complete, and in each instance reference is made to the copy
of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
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.
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 1
The Companies........................................................... 1
Arch.................................................................. 1
MobileMedia........................................................... 2
The Combined Company.................................................... 3
The Merger and the Reorganization....................................... 3
Stockholdings Before and After the Merger............................. 4
Board of Directors of Arch upon the Merger............................ 5
Effective Time of the Merger.......................................... 5
Regulatory Approvals.................................................. 5
Certain Federal Income Tax Consequences of the Merger................. 5
Accounting Treatment.................................................. 6
Termination; Amendment and Waiver..................................... 6
Interests of Certain Persons in the Merger............................ 7
Risk Factors............................................................ 7
The Rights Offering..................................................... 7
FORWARD-LOOKING STATEMENTS................................................ 11
RISK FACTORS.............................................................. 13
Uncertainties Related to the Merger and the Reorganization.............. 13
Challenges of Business Integration.................................... 13
Certain Risks Associated with the Merger.............................. 13
Transaction Costs..................................................... 13
Substantial Amortization Charges...................................... 14
Use of Pro Forma Assumptions.......................................... 14
Risks Common to Arch and MobileMedia.................................... 14
Growth and Acquisition Strategy....................................... 14
Future Capital Needs; Uncertainty of Additional Funding............... 14
Competition and Technological Change.................................. 15
Government Regulation, Foreign Ownership and Possible Redemption...... 15
High Degree of Leverage After the Merger.............................. 17
Subscriber Turnover................................................... 17
Dependence on Third Parties........................................... 18
Possible Acquisition Transactions..................................... 18
Dependence on Key Personnel........................................... 18
Impact of the Year 2000 Issue......................................... 18
No Dividends.......................................................... 19
History of Losses..................................................... 19
Volatility of Trading Price........................................... 20
Risks Relating to the Unaudited Combined Company Projections.......... 20
Certain Federal Income Tax Considerations; Possible Loss of Corporate
Tax Benefits......................................................... 20
Risks Related to Arch................................................... 21
Arch's Indebtedness and High Degree of Leverage....................... 21
Lender Approval and Merger Cash Requirements.......................... 21
API Credit Facility, Bridge Facility and Indenture Restrictions....... 22
Possible Fluctuations in Revenues and Operating Results............... 22
Divisional Reorganization of Arch..................................... 22
Anti-Takeover Provisions.............................................. 23
Risks Related to MobileMedia............................................ 23
Disruption of Operations Prior to and Following Bankruptcy Filing..... 23
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Assumptions Regarding Value of MobileMedia Assets....................... 23
Risks Related to the Rights Offering..................................... 23
Market Risks in Exercising Rights....................................... 23
Absence of Trading Market for the Rights, Units, Class B Common Stock
and Warrants........................................................... 24
Dilution................................................................ 24
Class B Common Stock.................................................... 24
Possible Adverse Effect on Market Price of Common Stock of Shares
Eligible for Future Sale............................................... 24
Possible Inability to Exercise Warrants................................. 24
THE RIGHTS OFFERING....................................................... 25
Background.............................................................. 25
Terms of the Rights Offering............................................ 25
Standby Purchase Agreements............................................. 26
Subscription Agent...................................................... 29
Information Agent....................................................... 29
Method of Exercise of Rights............................................ 29
Payment for Units....................................................... 30
No Revocation........................................................... 31
Method of Transferring Rights........................................... 31
Procedures for Book Entry Transfer Facility Participants................ 32
Foreign and Certain Other Holders....................................... 32
The Rights Offering -- Certain Federal Income Tax Consequences.......... 32
The Receipt of Rights by Unsecured Creditors for Unsecured Claims....... 32
Sale of the Rights...................................................... 34
Expiration of Unexercised Rights........................................ 34
Exercise of the Rights and Acquisition of the Units..................... 34
Tax Basis and Holding Period of the Warrants and Stock.................. 34
Sale of the Warrants or Stock........................................... 34
Exercise of the Warrants................................................ 34
Lapse of the Warrants................................................... 34
Constructive Distributions with Respect to the Warrants................. 34
Distributions on the Stock Acquired Through the Exercise of Rights or
Warrants............................................................... 34
Backup Withholding...................................................... 35
USE OF PROCEEDS........................................................... 36
DILUTION.................................................................. 36
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA--ARCH....... 37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA--
MOBILEMEDIA.............................................................. 39
UNAUDITED SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA.................. 41
COMPARATIVE PER SHARE DATA................................................ 42
MARKET PRICE INFORMATION AND DIVIDEND POLICY.............................. 43
THE MERGER AND THE REORGANIZATION......................................... 44
Background of the Merger................................................ 44
Arch Reasons for the Merger............................................. 46
Interests of Certain Persons in the Merger.............................. 47
Accounting Treatment.................................................... 47
Certain Federal Income Tax Consequences................................. 47
Regulatory Approvals.................................................... 48
FCC Approval.......................................................... 48
State Approvals....................................................... 49
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Antitrust............................................................ 49
Federal Securities Law Consequences.................................... 50
Nasdaq National Market Listing......................................... 50
THE MERGER AGREEMENT..................................................... 51
The Merger............................................................. 51
Effect of the Merger................................................... 51
Representations and Warranties......................................... 51
Certain Covenants and Agreements....................................... 51
Conditions............................................................. 60
Termination............................................................ 63
Amendment and Waiver................................................... 64
Related Agreements..................................................... 64
Related Matters After the Merger....................................... 65
THE MOBILEMEDIA PLAN OF REORGANIZATION................................... 66
The Amended Plan....................................................... 66
Executory Contracts.................................................... 68
Implementation of Plan................................................. 68
Conditions to Effectiveness of the Plan................................ 68
Discharge.............................................................. 69
Releases and Indemnification........................................... 69
Jurisdiction........................................................... 69
Calculation of Shares.................................................. 69
THE COMBINED COMPANY..................................................... 71
Overview............................................................... 71
Strategy............................................................... 71
Unaudited Financial Projections and Operational Cost Synergies......... 72
UNAUDITED COMBINED COMPANY PROJECTED BALANCE SHEETS...................... 74
UNAUDITED COMBINED COMPANY PROJECTED STATEMENTS OF OPERATION............. 75
UNAUDITED COMBINED COMPANY PROJECTED STATEMENTS OF CASH FLOW............. 76
ESTIMATED RANGE OF ANNUAL OPERATIONAL EXPENSE REDUCTIONS BASED ON CURRENT
COSTS................................................................... 77
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ......... 78
ARCH COMMUNICATIONS GROUP, INC. UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET.............................................. 79
ARCH COMMUNICATIONS GROUP, INC. UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS.................................... 80
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.............................................................. 82
INDUSTRY OVERVIEW........................................................ 84
General................................................................ 84
Paging and Messaging Services.......................................... 85
Competition............................................................ 85
Regulation............................................................. 86
Federal Regulation................................................... 86
State Regulation..................................................... 89
Future Regulation.................................................... 89
BUSINESS................................................................. 90
Arch................................................................... 90
Business Strategy.................................................... 90
Paging and Messaging Services, Products and Operations............... 91
Investments in Narrowband PCS Licenses............................... 93
Subscribers and Marketing............................................ 94
Competition.......................................................... 95
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Regulation............................................................ 95
Sources of Equipment.................................................. 95
Employees............................................................. 95
Trademarks............................................................ 95
Properties............................................................ 95
Litigation............................................................ 96
Arch Management......................................................... 96
Directors and Executive Officers...................................... 96
Board Committees...................................................... 98
Indemnification and Director Liability................................ 98
Arch Executive Compensation............................................. 99
Summary Compensation Table............................................ 99
Executive Retention Agreements........................................ 100
Stock Option Grants................................................... 100
Option Exercises and Year-End Option Table............................ 101
Compensation Committee Interlocks and Insider Participation........... 101
Principal Stockholders.................................................. 102
Stockholdings Before and After the Merger............................... 104
Arch Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 105
Overview.............................................................. 105
Shift in Operating Focus.............................................. 105
Divisional Reorganization............................................. 106
ACE/USAM Merger....................................................... 106
Results of Operations................................................. 107
Six Months Ended June 30, 1998 Compared with Six Months Ended June
30, 1997........................................................... 107
Year Ended December 31, 1997 Compared with Year Ended December 31,
1996............................................................... 108
Year Ended December 31, 1996 Compared with Year Ended December 31,
1995............................................................... 110
Liquidity and Capital Resources....................................... 111
Recent and Pending Accounting Pronouncements.......................... 113
MobileMedia............................................................. 114
Business Strategy..................................................... 114
Paging and Messaging Services Products and Operations................. 114
Networks and Licenses................................................. 115
Sales and Marketing................................................... 116
Competition........................................................... 117
Regulation............................................................ 117
Sources of Equipment.................................................. 117
Employees............................................................. 118
Trademarks............................................................ 118
Properties............................................................ 118
Events Leading Up To MobileMedia's Bankruptcy Filings................. 119
Litigation............................................................ 120
MobileMedia Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 123
Presentation of Financial Condition and Results of Operations......... 123
Overview.............................................................. 123
Pending FCC Action Against MobileMedia................................ 124
Results of Operations................................................. 126
Six Months Ended June 30, 1998 Compared with Six Months Ended June
30, 1997........................................................... 126
Year Ended December 31, 1997 Compared with Year Ended December 31,
1996............................................................... 128
Year Ended December 31, 1996 Compared with Year Ended December 31,
1995............................................................... 130
Liquidity and Capital Resources....................................... 132
New Authoritative Accounting Pronouncements........................... 136
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................ 136
DESCRIPTION OF SECURITIES................................................ 137
Rights................................................................. 137
Units.................................................................. 137
Warrants............................................................... 137
Common Stock........................................................... 137
Class B Common Stock................................................... 138
Preferred Stock........................................................ 138
Series C Preferred Stock............................................... 138
Foreign Ownership Restrictions......................................... 139
Anti-Takeover Provisions............................................... 139
Rights Plan.......................................................... 139
Classified Board of Directors........................................ 140
Stockholder Actions and Meetings..................................... 140
Amendment of Certain Provisions of The Arch Certificate and Arch By-
laws................................................................ 140
Consideration of Non-Economic Factors in Acquisitions................ 140
Restrictions on Certain Purchasers of Stock by Arch.................. 141
"Blank Check" Preferred Stock........................................ 141
Delaware Anti-Takeover Statute....................................... 141
Director Liability and Indemnification............................... 142
Transfer Agent and Registrar........................................... 142
Registration Rights.................................................... 142
DESCRIPTION OF CERTAIN ARCH INDEBTEDNESS................................. 143
API Credit Facility.................................................... 143
Bridge Facility........................................................ 143
ACI 9 1/2% Notes....................................................... 144
ACI 14% Notes.......................................................... 146
ACI 12 3/4% Notes...................................................... 147
Arch Discount Notes.................................................... 148
Arch Convertible Debentures............................................ 150
LEGAL MATTERS............................................................ 152
EXPERTS.................................................................. 152
INDEX TO FINANCIAL STATEMENTS............................................ F-1
ANNEX A: DISCLOSURE STATEMENT TO DEBTORS' FIRST AMENDED JOINT PLAN OF
REORGANIZATION.......................................................... A-1
ANNEX B: AGREEMENT AND PLAN OF MERGER.................................... B-1
ANNEX C: MOBILEMEDIA PLAN OF REORGANIZATION.............................. C-1
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PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. Reference is made to, and this Summary is qualified in its entirety
by, the more detailed information contained in this Prospectus and the Annexes
hereto. Unless otherwise defined herein, capitalized terms used in this Summary
have the respective meanings ascribed to them elsewhere in this Prospectus.
Stockholders are urged to read this Prospectus 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
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
2
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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
Bankruptcy Court. During the pendency of the Insolvency Proceedings,
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 Debtors filed the Amended Plan, which constitutes the First Amended Joint
Plan of Reorganization, with the Bankruptcy Court on August 18, 1998. The
Amended Plan provides for consummation of the Merger in accordance with the
terms set forth in the Merger Agreement dated as of August 18, 1998 among Arch,
MMC, Parent and Farm Team Corp. (the "Merger Subsidiary"), a wholly owned
subsidiary of Arch (the "Merger Agreement"). The Amended Plan also requires
Arch to (i) contribute approximately $479.0 million for distribution to certain
secured creditors of Parent and MobileMedia in consideration of the discharge
of their claims against MobileMedia, (ii) issue shares of Common Stock to
the Unsecured Creditors in consideration of the discharge of their claims
against MobileMedia, which shares will represent approximately 25.7%(/1/) of
the total number of shares of Arch's Common Stock (on an as-converted basis)
outstanding immediately following the
- --------
(1) Based upon the midpoint of a range under the formula described under "The
Merger and the Reorganization--Calculation of Shares". See "Risk Factors--
Uncertainties Related to the Transaction--Use of Pro Forma Assumptions."
3
<PAGE>
Merger (the "Directly Distributed Creditor Stock Pool"), (iii) distribute the
Rights to the Unsecured Creditors and issue, pursuant to exercises of Rights or
purchases pursuant to the Standby Purchaser Agreements, the Stock and Warrants
which will represent approximately 41.4%(/1/) and 2.5%, respectively, of the
total number of shares of Stock outstanding immediately following the Merger on
an as-converted basis, in the case of the Stock, and in the case of the
Warrants on an as-converted basis and after giving further effect to the
issuance of Stock upon exercise of all warrants issued in connection with the
Merger and the Reorganization (a "Fully Diluted Basis"), (iv) distribute the
Standby Purchaser Warrants, which will represent approximately 2.5% of the
total number of shares of Common Stock outstanding immediately following the
Merger (a "Fully Diluted Basis"), and (v) distribute to the holders of shares
of Common Stock and Series C Preferred Stock outstanding immediately prior to
the Merger warrants to acquire additional shares of Common Stock which will
represent approximately 7.0% of the total number of shares of Common Stock (on
a Fully Diluted Basis) outstanding immediately following the Merger. The
Amended Plan also 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. 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 Insolvency Proceedings), 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 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 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".
STOCKHOLDINGS BEFORE AND AFTER THE MERGER
The number of shares of Stock and Warrants to be issued in the Merger will be
determined by reference to the Arch Common Stock Price. 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 Stock immediately prior to the Effective Time will own,
on an as-converted basis, approximately 31% to 34% of the outstanding 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 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".
- --------
(1) Based upon the midpoint of a range under the formula described under "The
Merger and the Reorganization--Calculation of Shares." See "Risk Factors--
Uncertainties Related to the Transaction--Use of Pro Forma Assumptions."
4
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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".
EFFECTIVE TIME OF THE MERGER
The Effective Time will occur, and 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 at such later time as
may be specified in the Certificate of Merger. It is anticipated that the
Merger will become effective as promptly as practicable after FCC approval has
been obtained, the Rights Offering has been fully subscribed 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".
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".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Arch will not recognize gain or loss for federal income tax purposes as a
result of the Merger. 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
5
<PAGE>
(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 Company. See "The
MobileMedia Proposal--Accounting Treatment".
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; (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 of Arch's stockholders called for
the purpose of approving the Merger and related transactions (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 transactions to be considered and
approved at the Special Meeting or (B) at the Special Meeting such transactions
are 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.
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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.
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".
RISK FACTORS
In considering an investment in the Combined Company, participants in the
Rights Offering should consider, among other risks, the risks associated with
the proposed integration of the businesses of Arch and MobileMedia through the
Merger, 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. Participation in the Rights Offering involves
certain market risks, illiquidity in certain of the Securities being offered
and substantial dilution. See "Risk Factors".
THE RIGHTS OFFERING
Securities Offered.......... transferable Rights. Each Right entitles its
holder to subscribe for and purchase one Unit
consisting of one share of Stock and of one
Warrant.
Distribution Ratio.......... One Right for each $ of each Unsecured Credi-
tor's allowed Unsecured Claims in the Insolvency
Proceeding. No fractional Rights will be distrib-
uted.
Allocation of Rights........ A total of Rights has been allocated and dis-
tributed on the basis of Unsecured Claims allowed
to date. If additional Unsecured Claims are al-
lowed prior to the Confirmation Date, additional
Rights will be allocated and distributed to the
holders of such Unsecured Claims; any unallocated
Rights will be sold by Arch for cash (or in such
other manner as Arch reasonably determines) for
the account of holders of Unsecured Claims al-
lowed thereafter, or as otherwise provided in the
Amended Plan.
Subscription Price.......... $6.75(/1/) per Unit in cash (subject to adjust-
ment)
Oversubscription None, except incident to the commitments of the
Privileges................. Standby Purchasers
Standby Purchasers.......... The Standby Purchasers have made binding written
commitments, subject to certain conditions,
(i) to subscribe for the full number of Units
subject to Rights which
- --------
(1) Based upon the midpoint of a range under the formula described under "The
MobileMedia Plan of Reorganization--Calculation of Shares". See "Risk
Factors--Uncertainties Related to the Transaction--Use of Pro Forma
Assumptions".
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<PAGE>
they are entitled to receive based upon their
Unsecured Claims (a total of Units) and (ii)
to act as standby purchasers of any and all
unsubscribed Units at the Subscription Price (a
maximum of Units). See "The Rights Offering--
Standby Purchasers".
Common Stock and Class B
Common Stock...............
All purchasers of Units will acquire shares of
Common Stock and Warrants to purchase Common
Stock, except that Standby Purchasers will in-
stead acquire shares of Class B Common Stock and
Warrants to purchase Class B Common Stock to the
extent described under "The Rights Offering--
Standby Purchase Agreements" if they would other-
wise hold more than 49.0% of the securities of
Arch entitled to vote on the election of direc-
tors or 49% of the total voting power of the se-
curities of Arch. Shares of Common Stock and
Class B Common Stock are identical except that
holders of Common Stock are entitled to vote on
the election of directors and cast one vote per
share on all other matters while holders of Class
B Common Stock are not entitled to vote on the
election of directors and are entitled to cast
1/100th of one vote per share on all other mat-
ters. Shares of Class B Common Stock are convert-
ible into an equal number of shares of Common
Stock in specified circumstances. See "Descrip-
tion of Securities".
Warrants.................... Each Warrant will entitle its holder to purchase
one share of Stock for $8.19, payable solely in
cash. The Warrants will be exercisable from date
of issuance through September 1, 2001.
Equity Securities to be
Outstanding Following the
Rights Offering............ shares of Common Stock (including for this pur-
pose Class B Common Stock), 250,000 shares of Se-
ries C Convertible Preferred Stock that are cur-
rently convertible into 4,545,455 shares of Com-
mon Stock, and warrants (including the Warrants)
and options to purchase shares of Common
Stock.
Expiration Date............. 5:00 p.m., New York City time, on a date selected
by Arch and MobileMedia which is at least 15 days
after all Closing Conditions (other than consum-
mation of the Exchange Offer, the finality of the
FCC Grant and certain other conditions which by
their terms cannot be satisfied until the Effec-
tive Time) are first satisfied or, if legally
permissible, waived. Rights not exercised prior
to the Expiration Date will be void and will no
longer be exercisable by any Rights holder.
Subscription Agent.......... The Bank of New York will serve as Subscription
Agent for the Rights Offering.
Information Agent........... will serve as Information Agent for the
Rights Offering.
Method of Exercise of Unsecured Creditors or their transferees may sub-
Rights..................... scribe by properly completing and signing the
Subscription Certificate evidencing the
8
<PAGE>
Rights (each, a "Subscription Certificate"), and
forwarding such Subscription Certificate (or by
following the guaranteed delivery procedures),
together with payment in good funds of the Sub-
scription Price for each Unit subscribed for, to
the Subscription Agent, on or prior to the Expi-
ration Date. In forwarding Subscription Certifi-
cates by mail, it is recommended that insured,
registered mail be used. See "The Rights Offer-
ing--Method and Exercise of Rights".
NO REVOCATION............... ONCE A HOLDER OF RIGHTS HAS SUBSCRIBED, SUCH SUB-
SCRIPTION MAY NOT BE REVOKED. SEE "THE RIGHTS OF-
FERING--NO REVOCATION".
Exercise Through Others..... Persons holding Unsecured Claims beneficially and
receiving Rights issuable with respect thereto,
through a broker, dealer, commercial bank, trust
company or other nominee, as well as persons
holding Rights directly who would prefer to have
such institutions effect transactions relating to
the Rights on their behalf, should contact the
appropriate institution or nominee and request it
to effect such transaction for them. See "The
Rights Offering--Method Exercise of Rights".
Foreign Holders............. Subscription Certificates will not be mailed to
holders whose addresses are outside the United
States, but will be held by the Subscription
Agent for their accounts. To exercise the Rights
represented thereby, such holders must notify the
Subscription Agent and take all other steps which
are necessary to exercise the Rights on or prior
to 5:00 p.m., New York City time, on the Expira-
tion Date. See "The Rights Offering--Foreign and
Certain Other Holders".
Transfer.................... The Rights are transferable, although it is not
expected that they will trade on the Nasdaq Na-
tional Market, the Electronic Bulletin Board or
elsewhere. It is not expected that a market for
the Rights will develop or that, if a market de-
velops, the market will remain available through-
out the period during which the Rights may be ex-
ercised, or that the Rights will trade at any
particular price levels. See "The Rights Offer-
ing--Method of Transferring Rights".
Escrow of Funds............. Subscribed funds will be held in a segregated ac-
count pending conclusion of the offering. No in-
terest will be paid to subscribers on their sub-
scribed funds.
Federal Income Tax For United States federal income tax purposes
Considerations............. ("tax purposes"), Unsecured Creditors may recog-
nize income, gain or loss in connection with the
distribution of Rights to them, depending upon
their particular circumstances, including whether
their Unsecured Claims are properly treated as
securities for tax purposes, what items of income
and deduction they have previously taken into ac-
count for tax purposes with respect to such
claims, and whether their receipt of Rights is
treated as part of a "reorganization" for tax
purposes. Unsecured Creditors generally will not
recognize any gain or loss in connection with the
exercise of Rights or Warrants. Unsecured
9
<PAGE>
Creditors may recognize income, gain or loss upon
the sale or other taxable disposition of Rights,
Stock or Warrants or the receipt of distributions
with respect to Stock. See "The Rights Offering--
Certain Federal Income Tax Consequences."
Use of Proceeds............. Arch intends to use the net proceeds of the
Rights Offering to pay a portion of the cash con-
sideration payable to secured creditors of
MobileMedia pursuant to the Amended Plan.
Trading Symbol.............. Arch's Common Stock is traded on the Nasdaq Na-
tional Market under the symbol "APGR". Arch has
filed applications to have the Common Stock and
Warrants that are included in the Units and the
Common Stock underlying the Warrants approved for
quotation on the Nasdaq National Market. No as-
surance can be given that such applications will
be approved. Arch does not intend for the Rights,
the Units or the Class B Common Stock to be so
quoted.
Resale...................... The Securities may be resold without registration
under the Securities Act by Unsecured Creditors
and their assignees who are not affiliates (as
defined herein) of Arch. The Standby Purchasers
may be deemed to be statutory underwriters with
respect to the Securities they have committed to
purchase. Arch intends to file a separate regis-
tration statement or statements covering exer-
cises of the Warrants and certain resales of the
Stock and Warrants by affiliates, Standby Pur-
chasers or others.
Right to Terminate Rights Arch expressly reserves the right, in its sole
Offering................... and absolute discretion, at any time prior to the
delivery of the Units offered hereby, to termi-
nate the Rights Offering if the Rights Offering
is prohibited by law or regulation [or to the ex-
tent permitted by the Merger Agreement, Arch's
Board of Directors concludes, in its sole judg-
ment, that it is not in Arch's best interests to
complete the Rights Offering under the circum-
stances.] If the Rights Offering is terminated,
all funds received pursuant to the Rights Offer-
ing will be promptly refunded, without interest.
10
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus 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 unaudited combined company projections (the "Unaudited 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
RIGHTS OFFERING, THE MERGER AGREEMENT AND THE AMENDED PLAN IS SUBJECT TO
ADJUSTMENT BASED UPON THE ARCH COMMON SHARES PRICE 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 COMMON
STOCK WAS $3.75 PER SHARE ON AUGUST 24, 1998. FOR PURPOSES OF PREPARING THE
PROJECTIONS, ARCH HAS ASSUMED THE ARCH COMMON STOCK PRICE TO BE $8.4375. IN THE
EVENT THAT THE ARCH COMMON STOCK PRICE AT THE RELEVANT TIME FOR DETERMINING
SUCH PRICE IS BELOW $8.4375, ADDITIONAL SHARES OF 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 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, NOR MOBILEMEDIA OR PARENT, ON THE
OTHER HAND, MAKES ANY EXPRESS OR IMPLIED
11
<PAGE>
REPRESENTATION OR WARRANTY AS TO THE ATTAINABILITY OF THE PROJECTED FINANCIAL
INFORMATION SET FORTH IN THE UNAUDITED 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".
12
<PAGE>
RISK FACTORS
In evaluating the Rights Offering, prospective investors should carefully
consider the following factors, as well as the other information included in
this Prospectus and the Annexes hereto.
UNCERTAINTIES RELATED TO THE MERGER AND THE REORGANIZATION
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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<PAGE>
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 Arch
Common Stock Price Stock over the Measurement Period as set forth in the
Amended Plan. For purposes of presenting the pro forma condensed consolidated
financial statements included in this Prospectus, Arch has assumed the Arch
Common Stock Price to be $8.4375. On August 24, 1998, the closing market price
of Common Stock was $3.75. In the event that the Arch Common Stock Price
during the Measurement Period is below $8.4375, additional shares of 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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<PAGE>
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
15
<PAGE>
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 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 Common Stock is subject to significant fluctuation.
Between July 1, 1997 and June 30, 1998, the reported sale price of 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 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 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 UNAUDITED COMBINED COMPANY PROJECTIONS
The managements of Arch and MobileMedia have jointly prepared the Unaudited
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 Unaudited Combined Company Projections assume that the
Merger, the Amended Plan and the transactions contemplated thereby will be
implemented in accordance with their terms. The assumptions and estimates
underlying such Unaudited 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 Unaudited 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 Unaudited 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 Unaudited 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 Credit
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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 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
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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 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".
RISKS RELATED TO THE RIGHTS OFFERING
MARKET RISKS IN EXERCISING RIGHTS
The Subscription Price and the Warrant Exercise Price have been determined
by negotiation among Arch, the Debtors and certain Unsecured Creditors and are
not necessarily related to Arch's assets, net worth, results
23
<PAGE>
of operations or other recognized criteria of value. There can be no assurance
that the market value of the Common Stock or Class B Common Stock and Warrants
comprising a Unit or the Common Stock or Class B Common Stock for which the
Warrants may be exercised will not be below the valuation therefor implied by
the Subscription Price, the Warrant Exercise Price and trading prices for
Rights, as the case may be, between the time a holder exercises a Right and
the time the holder takes delivery of the Securities or at any time
thereafter. Arch has reserved the right to extend the Expiration Date to as
late as , 1999. The exercise of a Right is irrevocable. Subscribed funds
may not be withdrawn and no interest will be paid thereon to the subscribers.
See "The Rights Offering--Terms of the Rights Offering".
ABSENCE OF TRADING MARKET FOR THE RIGHTS, UNITS, CLASS B COMMON STOCK AND
WARRANTS
Prior to the Rights Offering, there has been no market for the Rights,
Units, Class B Common Stock or Warrants and there can be no assurance that a
market will develop or if developed, that it will be sustained. The Stock and
Warrants are immediately detachable from each other, will be represented by
separate certificates and will be separately tradeable. Arch will not apply
for quotation of the Rights, Units or Class B Common Stock on the Nasdaq
National Market and, although it is possible that some broker-dealers may seek
to have such Securities listed on the NASD Electronic Bulletin Board or in the
National Quotation Bureau's pink sheets at some time in the future, such
Securities are not likely to be subject to regular quotation. Although Arch
has applied for inclusion of the Warrants in the Nasdaq National Market, such
inclusion depends upon the willingness of a specified number of broker-dealers
to make a market in the Warrants; accordingly, there can be no assurance that
the Warrants will be quoted for trading on the Nasdaq National Market or on
any other market. If any market does develop, the market price of these
securities might be volatile. See "--Risks Common to Arch and MobileMedia--
Volatility of Trading Price".
DILUTION
The Subscription Price per Unit will exceed the net tangible book value per
share of Common Stock, which is a negative number. See "Dilution".
Accordingly, subscribers in the Rights Offering will experience immediate and
substantial dilution.
CLASS B COMMON STOCK
The number of shares of Class B Common Stock (if any) to be received by the
Standby Purchasers in lieu of Common Stock will depend on the number of Rights
which are not exercised by other Unsecured Creditors and cannot be predicted.
Shares of Class B Common Stock have reduced voting power in comparison to
shares of Common Stock and may only be converted into shares of Common Stock
upon the transfer of such shares to a non-affiliate of the Standby Purchasers.
See "Description of Securities--Warrants".
POSSIBLE ADVERSE EFFECT ON MARKET PRICE OF COMMON STOCK OF SHARES ELIGIBLE FOR
FUTURE SALE
Upon consummation of the Rights Offering, a total of approximately shares
of Common Stock will be issued and a total of approximately shares of Stock
will be issuable upon exercise of the Warrants, the Standby Purchasers'
Warrants and other outstanding warrants and options. The issuance of such
Stock, together with the issuance of Common Stock under other Arch
compensation plans, would result in the issuance of a substantial amount of
Common Stock, thereby diluting the proportionate equity interests of the
holders of the Common Stock. No prediction can be made as to the effect, if
any, that future sales of Common Stock, or the availability of shares for
future sales, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon exercise of warrants or options), or the perception that
such sales could occur, could adversely affect prevailing market prices of the
Common Stock.
POSSIBLE INABILITY TO EXERCISE WARRANTS
A current prospectus covering the Stock issuable upon exercise of the
Warrants must be in effect before Arch may accept Warrant exercises. There can
be no assurance Arch will be able to have a prospectus in effect when this
Prospectus is no longer current, notwithstanding Arch's commitment to do so.
See "The Merger Agreement--Related Agreements--Registration Rights Agreement".
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<PAGE>
THE RIGHTS OFFERING
Arch is offering the Securities described herein to Unsecured Creditors of
MobileMedia through the Rights Offering in the manner described herein,
subject to certain conditions.
BACKGROUND
The Debtors have filed the Amended Plan with the Bankruptcy Court in
connection with MobileMedia's Insolvency Proceeding under Chapter 11 of the
Bankruptcy Code (case number 97-174 (PJW)). See "The Merger--The MobileMedia
Plan of Reorganization". The Plan contemplates the Merger of MMC with or into
one or more subsidiaries of Arch at the Plan's Effective Time. 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--The Merger Agreement". The Merger is conditioned upon
satisfaction of the Closing Conditions, including (i) entry by the Bankruptcy
Court of 4th Confirmation Order and to the extent required by the Merger
Agreement, such order has become a final order, (ii) receipt of all other
necessary governmental approvals and expiration of all waiting periods under
the HSR Act and (iii) satisfaction of various other conditions. The Amended
Plan provides for distribution of cash to certain secured creditors and
distribution of the shares of Common Stock in the Directly Distributed
Creditor Stock Pool to Unsecured Creditors at the Effective Time. These shares
are described in the Disclosure Statement. The Amended Plan also contemplates
the issuance and sale of Securities in the Rights Offering for approximately
$217 million in cash, which will be used to Fund a portion of the cash payment
to secured creditors.
Votes in favor of Plan Approval are being solicited pursuant to the
Disclosure Statement, which [was mailed/is expected to be mailed] to the
creditors of MobileMedia and Parents on or about , 1998 and which has been
filed as an exhibit to the Registration Statement. The Bankruptcy Court has
approved the Disclosure Statement as containing adequate information with
respect to the Plan in accordance with Section 1125 of the Bankruptcy Code. At
a hearing on Confirmation of the Plan held on , 1998, the Bankruptcy
Court . The approval of Arch's stockholders to the Merger is expected to
occur at the Special Meeting on , 1998.
TERMS OF THE RIGHTS OFFERING
Each Unsecured Creditor will receive a distribution at a Distribution Ratio
of one Right for each $ of Unsecured Claims held by it (other than certain
holders of small Unsecured Claims who elect to receive cash). A total of
Rights has been allocated on the basis of undisputed Unsecured Claims allowed
as of , 1998. If additional Unsecured Claims are allowed prior to the
Confirmation Date, additional Rights will be allocated to the holders of such
Unsecured Claims. The Distribution Ratio is based upon the ratio which each
unsecured claim bears to the sum of allowed Unsecured Claims and an estimate
of the amount for which disputed Unsecured Claims and Unsecured Claims arising
from the rejection of executory contracts and unexpired leases (the "Disputed
Claims") will be allowed. The Rights allocable to Disputed Claims which are
not allowed prior to the Confirmation Date will be sold by Arch for cash (or
in such other manner as Arch reasonably determines) for the account of holders
of Unsecured Claims allowed thereafter, or as otherwise provided in the
Amended Plan. When a disputed claim is resolved, and to the extent such claim
is allowed, the holder of such claim will receive 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. No fractional Rights
or cash in lieu thereof will be issued; instead, Arch will round the number of
Rights distributed to each Unsecured Creditor up or down to the nearest whole
number.
The Rights will be evidenced by transferable certificates which will be
mailed to each Unsecured Creditor promptly following the effective date of the
Registration Statement or, if later, the date of allowance of its Unsecured
Claims. The Rights will expire at 5:00 p.m., New York City time, on the
Expiration Date, which will be a date selected by Arch and MobileMedia which
is at least 15 days after all Closing Conditions (other than the condition set
forth in Section 5.1(e) of the Merger Agreement relating to the finality of
the FCC Grant, and certain other conditions which by their terms cannot be
satisfied until the Effective Time) are first satisfied or, if legally
permissible, waived. Any Rights which remain unexercised at the close of
business on the Expiration Date will no longer be exercisable and will cease
to have any value.
25
<PAGE>
Holders of Rights may subscribe for Units in the Rights Offering in the
manner described under "--Method of Exercise of Rights". All subscriptions
will be irrevocable. Subscriptions for Units received by Arch will be accepted
subject to Arch's right to reject any subscription and subject to satisfaction
or waiver of the Closing Conditions and consummation of the Merger.
Subscription documents and subscribed funds will be held in escrow by the
Subscription Agent, pending receipt of subscriptions for all of the Units. If
the Rights Offering is not fully subscribed by the Expiration Date or the
Merger does not take place by June 30, 1999, the Subscription Agent will
promptly return all subscribed funds to subscribers without interest. Any and
all interest earned on subscribed funds will be remitted to Arch.
All purchasers of Units will acquire shares of Common Stock and Warrants to
purchase Common Stock, except that Standby Purchasers or others who are deemed
to be part of a "group" with such Standby Purchasers under Rule under the
Exchange Act will instead acquire shares of Class B Common Stock and Warrants
to purchase Class B Common Stock to the extent described under "--Standby
Purchasers" if they would otherwise hold more than 49.0% of the securities of
Arch entitled to vote in the election of directors. Shares of Common Stock and
Class B Common Stock are identical except that holders of Common Stock are
entitled to cast one vote per share while holders of Class B Common Stock are
entitled to cast 1/100th of one vote per share. Shares of Class B Common Stock
are convertible into an equal number of shares of Common Stock in specified
circumstances. See "Description of Securities". The Common Stock, Class B
Common Stock and Warrants included in the Units will be transferable
separately, commencing immediately after issuance.
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, ("Northwest Mutual") 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, have each entered into separate Standby Purchase
Agreements to become Standby Purchasers and, in such capacity, to purchase, in
the aggregate and at the Subscription Price per share, any and all of the
remaining shares of Stock in the Rights Offering that are not purchased by
other Unsecured Creditors, for an aggregate purchase price of up to
approximately $217.0 million. Each Standby Purchaser is obligated to exercise
the portion of the Rights allocable to them on account of their Unsecured
Claims 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 Unsecured Claims in respect of
which the Rights are distributed. However, any such acquisition or disposition
will not relieve the Standby Purchasers' commitment to purchase shares of
Stock to the extent they are not purchased 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 Rights, if at all, prior to the Expiration Date.
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) (the complete text of which is set forth in Annex A) may be
waived without the written consent of the Standby Purchaser; (iii) the Shelf
Registration Statement covering the resale of Stock, Class B Common Stock and
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
26
<PAGE>
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 Common Stock,
shares of Class B Common Stock and 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 (as defined herein)
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 HSR Act shall have expired or been
terminated early. The obligation of the Standby Purchaser is also 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 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 which would 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 have each made certain representations and
warranties about itself to the Standby Purchasers, including (i) due
organization, valid existence and good standing, with all requisite corporate
power and authority to perform its obligations under the Standby Commitment
Agreement, (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 (as defined herein) or Company
Material Adverse Change (as defined herein), and (x) the due authorization,
valid issuance, nonassessability and absence of preemptive rights with respect
to the Stock issued in the transaction. Each Standby Purchaser has represented
(i) as to its organization, qualification, corporate power and authority to
enter into and perform its obligations under the Standby Purchase Agreement;
(ii) the taking of all required corporate action on the part of the Standby
Purchaser, (iii) the validity and enforceability of the Standby Purchase
Agreement, (iv) the compliance of the transactions contemplated by the Standby
Purchase Agreement 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.
Each of Arch and MobileMedia also covenants to provide the Committee (as
defined herein) notices of all information to be made available to Arch by the
Committee. Each Standby Purchaser and/or its counsel have the ability to
review and comment on the registration statement to be filed on behalf of such
Standby Purchaser. Arch has undertaken, should the transaction close, to
reimburse reasonable fees incurred by each Standby Purchaser in negotiating
and documenting this transaction, up to a maximum of $100,000 per Standby
Purchases. In addition, each Standby Purchaser has covenanted not to engage in
any transactions that would have an adverse effect on the market share price
of Common Stock and has committed to vote for acceptance of the Amended Plan
all Unsecured Claims held by it.
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<PAGE>
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 Stock which will constitute
approximately 2.5% of all outstanding Common Stock immediately following the
Merger 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 "The Merger--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 beneficially
own, within the meaning of Sections 13(d)(3) of the Exchange Act, more than
49.0% of the securities of Arch entitled to vote in the election of directors
or more than 49% of the total voting power of the securities of Arch, the
Standby Purchasers will receive instead, proportionate to their obligations to
purchase Units and in lieu of shares of 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 normally entitled to vote in the election
of directors or more than 49% of the total voting power of the securities of
Arch. The Class B Common Stock will be identical in all respects to 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--Class B Common Stock".
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>
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<PAGE>
None of the Standby Purchasers is required to purchase more than the number
of Units identified as its Total Commitment set forth opposite its name above.
SUBSCRIPTION AGENT
Arch has appointed The Bank of New York as Subscription Agent for the Rights
Offering. For its services in processing the exercise of Rights, the
Subscription Agent will receive a fee from Arch estimated to be $ and
reimbursement for all out-of-pocket expenses relating to the Rights Offering.
The Subscription Agent is also Arch's transfer agent and registrar.
INFORMATION AGENT
Arch has appointed as Information Agent for the Rights Offering. The
Information Agent will receive a fee estimated to be $ and reimbursement
for all out-of-pocket expenses related to the Rights Offering. Any questions
or requests for additional copies of this Prospectus, the instructions to the
Subscription Agreement (the "Instructions") or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the following address and
telephone number:
Arch has not employed any brokers, dealers or underwriters in connection
with the solicitation of exercises of Rights in the Rights Offering, and,
except as described above, no other commissions, fees or discounts will be
paid in connection with such solicitation. Certain directors and officers of
Arch may answer questions or solicit responses from Rights holders, but such
directors and officers will not receive any commissions or compensation for
such services other than their normal employment compensation.
METHOD OF EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate and mailing it in the envelope provided. In addition,
Rights may be exercised by delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment for the Units as
described below under "Payment for Units". Rights may also be exercised
through a Rights holder's broker, or other nominee if such shareholder's
shares of Common Stock are held in such broker's or nominee's name. Such
brokers or nominees may charge a servicing fee for exercising such Rights.
Completed Subscription Certificates must be received by the Subscription
Agent prior to 5:00 p.m., New York City time, on the Expiration Date (unless
payment is effected by means of a notice of guaranteed delivery as described
below under "Payment for Units"). The Subscription Certificate and payment
should be delivered to the offices of the Subscription Agent by one of the
methods described below:
(1)By mail:
The Bank of New York
Tender and Exchange Department
P.O. Box 11248
Church Street Station
New York, New York 10286-1248
(2)By Hand, Express Mail or Overnight Courier:
The Bank of New York
Tender and Exchange Department
101 Barclay Street
Receive and Delivery Window-Street Level
New York, New York 10286
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<PAGE>
PAYMENT FOR UNITS
Holders of Rights who acquire Units may choose between the following methods
of payment.
(1) A subscription will be accepted by the Subscription Agent if, prior to
5:00 p.m., New York City time, on the Expiration Date, the Subscription Agent
has received a completed and executed notice of guaranteed
delivery by facsimile (telecopy) or otherwise from a bank, a trust company or
a NYSE member, guaranteeing delivery of (i) payment of the full Subscription
Price for the Units subscribed for and (ii) a properly completed and executed
Subscription Certificate. The Subscription Agent will not honor a notice of
guaranteed delivery if a properly completed and executed Subscription
Certificate and full payment is not received by the Subscription Agent by the
close of business on the third business day after the Expiration Date. The
notice of guaranteed delivery may be delivered to the Subscription Agent in
the same manner as Subscription Certificates at the addresses set forth above,
or may be transmitted to the Subscription Agent together with a completed
Subscription Certificate by facsimile transmission (telecopy number (212) 815-
6213; confirm by telephone (800) 507-9357).
(2) Alternatively, a holder of Rights can send the Subscription Certificate
together with payment in the form of a check for the Units subscribed for. To
be accepted, payment, together with the executed Subscription Certificate,
must be received by the Subscription Agent at its Tender and Exchange
Department, P.O. Box 11248, Church Street Station, New York, New York 10286-
1248 or its Tender and Exchange Department, 101 Barclay Street, Receive and
Delivery Window--Street Level, New York, New York 10286 prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Subscription Agent will
deposit all stock purchase checks received by it prior to the final due date
into a segregated interest-bearing account (which interest will accrue solely
to the benefit of Arch) pending the consummation of the Rights Offering.
A PAYMENT PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY
ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES. PAYMENT MUST BE
PAYABLE TO , AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE FOR
SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. THE SUBSCRIPTION AGENT WILL NOT
ACCEPT CASH AS A MEANS OF PAYMENT FOR SHARES.
Whichever of the two methods described above is used, issuance and delivery
of certificates for the Units purchased are subject to collection of any
checks or money orders and actual payment pursuant to any notice of guaranteed
delivery. Payment of the Subscription Price will be deemed to have been
received by the Subscription Agent only upon (a) clearance of any uncertified
check, (b) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a U.S. bank or of any postal, telegraphic or express money
order or (c) receipt of good funds in the Subscription Agent's account
designated above.
Holders who hold Rights for the account of others, such as brokers, trustees
or depositaries for securities, should notify the respective beneficial owners
of such shares as soon as possible to ascertain such beneficial owners'
intentions and to obtain instructions with respect to the Rights. If the
beneficial owner so instructs, the record holder of such Rights should
complete Subscription Certificates and submit them to the Subscription Agent
with the proper payment. In addition, beneficial owners of Rights held through
such a holder should contact the holder and request the holder to effect
transactions in accordance with the beneficial owner's instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES OR
PAYMENTS TO ARCH.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL
CHECKS MAY TAKE SEVERAL BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY
ORDER.
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<PAGE>
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by Arch, whose determination will be
final and binding. Arch, in its sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as Arch determines
in its sole discretion. Neither Arch nor the Subscription Agent will be under
any duty to give notification of any defect or irregularity in connection with
the submission of Subscription Certificates or incur any liability for failure
to give such notification.
Certificates representing Securities purchased will be delivered to the
purchaser as soon as practicable after the Effective Time and after all
allocations have been effected. It is expected that such certificates will be
available for delivery within business days following the Expiration Date.
If either the number of Rights being exercised is not specified on a
Subscription Certificate, or the payment delivered is not sufficient to pay
the full aggregate Subscription Price for all Units stated to be subscribed
for, the Rights holder will be deemed to have exercised the maximum number of
Rights that could be exercised for the amount of the payment delivered by such
Rights holder. If the payment delivered by the Rights holder exceeds the
aggregate Subscription Price for the number of Rights evidenced by the
Subscription Certificate(s) delivered by such Rights holder, any excess
payment will be returned to the Rights holder as soon as practicable by mail,
without interest or deduction.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions
or the Notice of Guaranteed Delivery should be directed to the Information
Agent, , at its address set forth on the back cover page of this
Prospectus.
NO REVOCATION
AFTER A HOLDER OF RIGHTS HAS SUBSCRIBED, SUCH SUBSCRIPTION MAY NOT BE
REVOKED BY SUCH RIGHTS HOLDER.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold in private transactions. It is not
anticipated that the Rights will be quoted for trading on the Nasdaq National
Market or quoted by broker-dealers on the Electronic Bulletin Board or
elsewhere.
The Rights evidenced by a single Subscription Certificate may be transferred
in whole by endorsing the Subscription Certificate for transfer in accordance
with the Instructions. A portion of the Rights evidenced by a single
Subscription Certificate may be transferred by delivering to the Subscription
Agent a Subscription Certificate properly endorsed for transfer, with
instructions to register such portion of the Rights evidenced thereby in the
name of the transferee (and to issue a new Subscription Certificate to the
transferee evidencing such transferred Rights). In such event, a new
Subscription Certificate evidencing the balance of the Rights will be issued
to the Rights holder or, if the holder so instructs, to an additional
transferee.
Rights holders wishing to sell all or a portion of their Rights should allow
a sufficient amount of time prior to the Expiration Date for (a) the transfer
instructions to be received and processed by the Subscription Agent, (b) a new
Subscription Certificate to be issued and transmitted to the transferee or
transferees with respect to transferred Rights, and to the transferor with
respect to retained Rights, if any, and (c) the Rights evidenced thereof.
Neither Arch nor the Subscription Agent shall have any liability to a
transferee or transferor if Subscription Certificates are not received in time
for exercise or sale prior to the Expiration Date.
Except for fees charged by the Subscription Agent (which will be paid by
Arch as described herein), all commissions, fees and other expenses (including
brokerage commissions and transfer taxes) incurred in
31
<PAGE>
connection with the purchase, sale or exercise of Rights will be for the
account of the transferor of the Rights, and none of such commissions, fees or
expenses will be paid by Arch or the Subscription Agent.
PROCEDURES FOR BOOK ENTRY TRANSFER FACILITY PARTICIPANTS
Arch anticipates that the Rights will be eligible for transfer through, and
that the exercise of the Rights may be effected through, the facilities of
Depository Trust Company ("DTC").
FOREIGN AND CERTAIN OTHER HOLDERS
Subscription Certificates will not be mailed to Unsecured Creditors or other
holders whose addresses are outside the United States, but will be held by the
Subscription Agent for each such holder's account. To exercise their Rights,
such persons must notify the Subscription Agent at or prior to 5:00 p.m., New
York time, on the Expiration Date. Such holders' Rights will expire at the
Expiration Date.
THE RIGHTS OFFERING--CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes certain United States ("U.S.") federal
income tax consequences relating to the Rights, Stock and Warrants generally
applicable to Unsecured Creditors who hold the Rights, Stock or Warrants as
"capital assets" within the meaning of Section 1221 of the U.S. Internal
Revenue Code of 1986, as amended (the "Code") and who are U.S. individuals,
partnerships, corporations, estates or trusts, subject to U.S. federal income
tax on their worldwide income ("U.S. Persons"). Persons other than U.S.
Persons ("Non-U.S. Persons") should consult their own tax advisors about the
U.S. and foreign tax consequences of the receipt, ownership and disposition of
Rights, Stock and Warrants. This summary is intended to be descriptive only
and does not purport to be a complete analysis or listing of all potential tax
effects relevant to the ownership of Rights, Stock or Warrants. This summary
discusses certain tax consequences of the receipt of Warrants upon the
exercise of Rights but does not address the receipt of Standby Purchasers'
Warrants by Standby Purchasers as consideration for entering into certain
commitments, and such Standby Purchasers should consult their tax advisors
regarding the tax consequences of such commitments and any related
consideration they receive. Additionally, this summary does not address the
U.S. federal income tax consequences that might be relevant to holders of
Rights, Stock or Warrants that receive special treatment under the Code, such
as Non-U.S. Persons, individual retirement accounts and other tax deferred
accounts, financial institutions, life insurance companies and tax-exempt
organizations, and does not discuss the effect of state, local, foreign or
other tax laws. Further, this summary is based on interpretations of existing
law as of the date hereof and contained in the Code, applicable current and
proposed Treasury Regulations, judicial decisions and published administrative
positions of the Internal Revenue Service (the "IRS"), all of which are
subject to change either prospectively or retroactively.
THE RECEIPT OF RIGHTS BY UNSECURED CREDITORS FOR UNSECURED CLAIMS
The federal income tax consequences of the receipt of Rights to a holder of
an Unsecured Claim who receives such rights (in addition to Stock) in exchange
for such Unsecured Claim will depend, in part, on whether such holder's
Unsecured Claim constitutes a "security" of MMC for federal income tax
purposes. The term "security" is not defined in the Code or in the Treasury
regulations issued thereunder, and there is no clear standard for determining
whether a particular obligation is a security under the Code. Holders of
Unsecured Claims should consult their tax advisors as to whether any such
claim constitutes a security for federal income tax purposes.
All holders of Unsecured Claims, whether or not their Unsecured Claims
constitute "securities" for federal income tax purposes, will recognize
ordinary interest income to the extent that the amount received is allocable
to unpaid interest that has accrued on or after the beginning of the holder's
holding period and was not previously included in income, and will recognize
ordinary income to the extent, if any, of the reimbursement of any costs, fees
and charges that such holder previously deducted. No income is realized from a
payment attributable to unpaid interest that was previously included in
income.
32
<PAGE>
(a) Receipt of Rights by Holders of Unsecured Claims not Constituting
"Securities." A holder of an Unsecured Claim that does not constitute a
"security" for federal income tax purposes will recognize gain or loss (or
ordinary income, as described above) upon the receipt of Rights and other
consideration. The "amount realized" in respect of such an Unsecured Claim
will include the fair market value of the Rights and any other property
received in exchange for the Unsecured Claim. Taxable gain or loss will
generally consist of excess of the amount realized (other than any portion
thereof required to be treated as ordinary income) over the holder's adjusted
tax basis in its Unsecured Claim (not attributable to a claim for accrued
interest). Each holder should consult its own tax advisor concerning the
amount and the character of any gain or loss recognized as long-term or short-
term capital gain or loss or as ordinary income or loss, which will be
determined by a number of factors, including the tax status of the holder,
whether the Unsecured Claim has been held for more than 1 year, whether the
Unsecured Claim was purchased at a discount, and whether and to what extent
the holder has previously claimed a bad debt deduction.
(b) Receipt of Rights by Holders of Unsecured Claims Constituting
"Securities." It is intended that the holders of Unsecured Claims that
constitute "securities" of MMC for federal income tax purposes be treated as
having such Unsecured Claims satisfied pursuant to a "reorganization"
qualifying under section 368(a)(2)(D) of the Tax Code. However, no ruling has
been requested from the IRS nor has any opinion of counsel been sought as to
the federal income tax treatment of the Plan, and no assurance can be given
that the IRS will not assert that the Rights were not received pursuant to the
"reorganization" but rather were received in a separate taxable transaction.
Unsecured Creditors should consult their tax advisors regarding the federal
income tax consequences of such alternative characterization. Rights received
by Unsecured Creditors who are not treated under the Code as holders of
securities of MMC cannot be treated by such Unsecured Creditors as received
pursuant to a reorganization, and therefore the receipt of such Rights
generally will require the recognition of income, gain or loss.
The remainder of this Section (b) describes the federal income tax
consequences of treatment of the satisfaction of the Unsecured Claims as a
"reorganization" under section 368(a) of the Code insofar as it relates to the
Rights. A holder of an Unsecured Claim that constitutes a "security" of MMC
will not recognize loss on the exchange of its Unsecured Claim for
consideration, other than ordinary loss to the extent of any accrued interest
claimed that was previously included in its gross income with respect to which
consideration is not received. Such holder will not recognize gain upon the
receipt of Stock and Rights in satisfaction of its Unsecured Claim but may
recognize gain upon receipt of certain other consideration.
Such a holder's aggregate tax basis in Stock and Rights received in
satisfaction of its Unsecured Claim will equal the holder's adjusted tax basis
in its Claim (including any claim for accrued interest), decreased by the sum
of (i) the cash and fair market value of any other property received and (ii)
the amount of any loss recognized in respect of its Unsecured Claim for
accrued interest previously included in income that is not satisfied, and
increased by the amount of any gain or income recognized in respect of its
Unsecured Claim (including interest income and income relating to
reimbursement). This aggregate tax basis will be allocated in proportion to
the fair market values of each class of Stock and the Rights received. A
holder's holding period for the Stock and Rights received will include the
holder's holding period for the Unsecured Claim, except to the extent that
such Stock or Rights were issued in respect of a claim for accrued interest or
as reimbursement for costs, fees or charges which the holder previously
deducted. A holder's holding period for any other property issued in exchange
for an Unsecured Claim, including Stock or Rights issued in respect of a claim
for accrued interest or for reimbursement of previously deducted costs, will
begin on the day after the issuance thereof.
With respect to a holder of an Unsecured Claim that constitutes a "security"
and has accrued market discount, regulations may be promulgated by the
Treasury Department under Section 1276(c) of the Code pursuant to which any
accrued market discount not treated as ordinary income upon any exchange of
the Unsecured Claim will carry over to the Stock and Rights received in
exchange therefor. If such regulations are promulgated and applicable to the
Plan, a subsequent disposition of such consideration received in exchange for
the holder's Unsecured Claim would give rise to ordinary income to the extent
of any accrued market discount
33
<PAGE>
with respect to such Claim not previously included in income, and the tax
consequences described in Sections 2, 3 and 4 below would differ accordingly.
In general, a debt instrument will have accrued "market discount" if such debt
instrument was acquired after its original issuance at a discount to its
adjusted issue price.
SALE OF THE RIGHTS. A holder will recognize gain or loss upon the sale of
the Rights in an amount equal to the difference between the amount realized
upon the sale and the holder's tax basis in the Rights. Such gain or loss will
be a capital gain or loss and will be considered long-term capital gain or
loss if the holder's holding period for the Rights is more than one year.
EXPIRATION OF UNEXERCISED RIGHTS. If a holder allows the Rights to expire
without exercise, loss will be recognized by such holder on the expiration of
such Rights in an amount equal the holder's tax basis in the Rights. Such loss
will be a capital loss and will be considered long-term capital loss if the
Rights were held for more than one year.
EXERCISE OF THE RIGHTS AND ACQUISITION OF THE UNITS. No gain or loss will be
recognized by a holder upon the purchase of the Units pursuant to the exercise
of the Rights.
TAX BASIS AND HOLDING PERIOD OF THE WARRANTS AND STOCK. If the Rights are
exercised, the tax basis of the Units purchased thereby will be equal to the
sum of the price for the Units and the amount, if any, allocated to the tax
basis of the Rights as described above. The tax basis of each Unit will be
allocated between the shares of Stock and the applicable fraction of the
Warrant comprising such Unit in proportion to their respective fair market
values on the date of issuance. The holding period of the shares of Stock and
Warrants acquired upon exercise of the Rights will begin on the date such
Rights are exercised.
SALE OF THE WARRANTS OR STOCK. Gain or loss will be recognized by a holder
upon the sale of the Warrants or shares of Stock in an amount equal to the
difference between the amount realized on the sale and the tax basis of the
Warrants or shares of the Stock sold. Such gain or loss will be a capital gain
or loss and will be considered long-term capital gain or loss if the holder's
holding period for the Warrants or shares of Stock is more than one year.
EXERCISE OF THE WARRANTS. No gain or loss will be recognized by a holder of
Warrants upon the exercise thereof. If the Warrants are exercised, the
holder's tax basis in the shares of Stock received pursuant to such exercise
will be equal to the sum of the tax basis of the Warrants exercised and the
exercise price thereof.
LAPSE OF THE WARRANTS. If the Warrants are allowed to expire without
exercise, loss will be recognized by the holder thereof in an amount equal to
such holder's tax basis in the Warrants, as described above. Such loss will be
capital loss and will be considered long-term capital loss if the holder's
holding period for the Warrants is more than one year.
CONSTRUCTIVE DISTRIBUTIONS WITH RESPECT TO THE WARRANTS. Under Section 305
of the Code, adjustments to the exercise price or conversion ratio of the
Warrants which may occur under certain circumstances, or the failure to make
such adjustments, may result in the receipt of taxable constructive dividends
by a Warrant holder to the extent of the Company's current or accumulated
earnings and profits, regardless of whether there is a distribution of cash or
property.
DISTRIBUTIONS ON THE STOCK ACQUIRED THROUGH THE EXERCISE OF RIGHTS OR
WARRANTS. A holder of Stock who receives a distribution thereon will be
treated as having received, on the dividend payment date, a dividend taxable
as ordinary income to the extent of the Company's current and accumulated
earnings and profits allocable to such stock in the year in which such
distribution is made. Corporate holders will generally be eligible for the
dividends received deduction as set forth in Section 243 of the Code with
respect to distributions that constitute dividends. There can be no assurance
that the Company will have sufficient earnings and profits to make any
distributions treated as dividends under the Code, and the Company does not
presently anticipate the payment of cash dividends in the foreseeable future.
The amount of any distribution described above will be the
34
<PAGE>
amount of cash plus the fair market value of any property received. To the
extent that the amount of any distribution exceeds the Company's current and
accumulated earnings and profits allocable to such distribution, such excess
will first be applied against and reduce the recipient's adjusted tax basis in
the shares with respect to which such distribution is made and second, to the
extent that such excess is greater than the recipient's adjusted tax basis,
generally will be treated as capital gain.
Corporate holders of Stock otherwise entitled to the dividends received
deduction should consider the minimum holding period requirements of Section
246(c) of the Code, the "debt-financed portfolio stock" rules of Section 246A
of the Code, and the "extraordinary dividend" provisions of Section 1059 of
the Code, the effects of which are to reduce or eliminate the benefit of the
dividends received deductions with respect to Stock subject to such rules.
Corporate holders of Stock should also consider whether any dividends received
deduction allowed for dividends received on such Stock may either cause or
increase the holder's liability for the alternative minimum tax.
BACKUP WITHHOLDING. A holder may be subject to backup withholding at the
rate of 31% with respect to distributions paid on Stock and gross proceeds
from the sale or exchange of Rights, Warrants or Stock unless such holder (a)
is a corporation or comes within certain other exempt categories and, when
required, demonstrates and/or certifies this fact, or (b) provides a correct
taxpayer identification number, along with certain required certifications,
and otherwise complies with applicable requirements of the backup withholding
rules. Holders who receive such distributions or choose to transfer their
Rights, Warrants or Stock and who do not provide the appropriate withholding
agent with their correct taxpayer identification number in the manner required
may be subject to penalties imposed by the IRS in addition to backup
withholding. Any amount withheld under these rules is not an additional tax;
it will be creditable against the holder's U.S. federal income tax liability,
provided that the required information is furnished to the IRS.
Holders should consult their own tax advisers concerning tax consequences of
the acquisition, holding or disposition of the Rights, Stock and Warrants
under applicable state and local laws. Holders that are Non-U.S. Persons
should also consult their tax advisors regarding the United States and foreign
tax consequences of the acquisition, holding or disposition of the Rights,
Stock and Warrants.
35
<PAGE>
USE OF PROCEEDS
The net proceeds of the Rights Offering are expected to be $ million,
after payment of estimated offering expenses in connection with the Rights
Offering (estimated at $ million). Such net proceeds will be applied in
their entirety towards payment of a portion of the amounts payable to secured
creditors under the Amended Plan. See "The MobileMedia Plan of
Reorganization--The Amended Plan".
DILUTION
Arch currently has a negative tangible net worth. The negative tangible net
book value of the shares of Common Stock as of June 30, 1998 was approximately
($829.9 million) or ($39.4 million) per share. This negative tangible net book
value would be ($ million) or ( ) per share after giving effect to
consummation of the Merger as if it had occurred on such date but without
giving effect to the Rights Offering. "Net tangible book value" per share
represents the amount of total tangible assets (total assets less intangible
assets) less total liabilities, divided by the number of shares of Common
Stock outstanding. After giving effect to the sale by Arch of shares of
Common Stock in the Rights Offering (treating shares of Class B Common Stock
as shares of Common Stock and ascribing no value to the Warrants for the
purpose of such calculation) for gross proceeds of $217 million, and after
deducting estimated offering expenses of $ million, the pro forma negative
net tangible book value of Arch as of June 30, 1998 would have been
approximately ($ million), or ($ ) per share, representing an immediate
and substantial dilution of ($ ) per share, in respect of the Subscription
Price for shares of Stock purchased pursuant to the Rights Offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C>
Subscription Price........................................... $6.75(/1/)
Net tangible book value per share before Rights Offering, as
adjusted for the Merger.....................................
Increase per share attributable to the Rights Offering.......
-----
Pro forma net tangible book value per share after Rights
Offering....................................................
-----
Dilution to persons exercising Rights........................
=====
</TABLE>
36
<PAGE>
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 Prospectus.
<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> <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>
37
<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 the losses of 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.
38
<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> <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> <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>
39
<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 (as defined herein) 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.
40
<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 (as defined herein) 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 ex-
traordinary 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.
41
<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 Stock were issued with a
market price of $8.4375 per share. See "Risk Factors--Uncertainties Related to
the Merger and the Reorganization--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: (2)
Pro forma Consolidated--Arch and MobileMedia (3):
Income (loss) before extraordinary item........... (4.31) (2.12)
Extraordinary item................................ -- (0.02)
Net income (loss)................................. (4.31) (2.14)
Book value (4).................................... 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 Stock
outstanding at the end of the period.
(2) 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.
(3) 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
Stock after giving effect to the issuance of Stock in the Merger, at an
assumed market price of $8.4375 per share, having an aggregate value of
approximately $439.7 million.
(4) Pro forma consolidated book value per share is computed by dividing pro
forma consolidated stockholders' equity (deficit) by the number of shares
of Stock outstanding after giving effect to the issuance of Stock in the
Merger, at an assumed market price of $8.4375 per share, having an
aggregate value of approximately $439.7 million.
42
<PAGE>
MARKET PRICE INFORMATION AND DIVIDEND POLICY
Arch's 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. 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 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
Common Stock on the Nasdaq National Market were $4.00 and $3.375,
respectively, on August 18, 1998 and were $4.75 and $3.8125, respectively, on
August 19, 1998. The last reported sale price per share of the Common Stock on
August 24, 1998 was $3.75. Based upon the last reported sale price of Common
Stock on August 24, 1998, and assuming an equivalence in value between Common
Stock and Class B Common Stock, the shares of Stock to be issued in connection
with the Merger would have a market value of $195.4 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 Stock to be issued
in connection with the Merger would have a market value of $439.7 million.
Because the market price of Common Stock is subject to fluctuation, the market
value of the shares of 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 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 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".
43
<PAGE>
THE MERGER AND THE REORGANIZATION
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 Common Stock which would have
represented approximately 32% of the outstanding shares of 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 Arch's board of directors (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
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 Common Stock equivalent to 70% of the pro forma Combined Company,
and warrants to purchase 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
44
<PAGE>
purchase of 8.5% of the pro forma 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, Northwestern Mutual, 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 Common Stock
equivalent to 67.05% of the pro forma Combined Company, and warrants to
purchase 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.
45
<PAGE>
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 Stock and 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.
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.
46
<PAGE>
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, Arch will not recognize gain or loss as a result of the
Merger.
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 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.
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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.
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
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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 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
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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 Common Stock, Class B Common Stock and 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.
Arch has agreed to register the Rights to be issued in connection with the
Rights Offering, together with the shares of Stock, and the 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. The shares of
Stock to be distributed from the Directly Distributed 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. 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.
See "The Merger Agreement--Related Agreements--Registration Rights
Agreements".
NASDAQ NATIONAL MARKET LISTING
Arch intends to file an application to have the shares of Common Stock and
Warrants to be issued in connection with the Rights Offering and the Merger
approved for quotation on the Nasdaq National Market.
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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 B to this Prospectus 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. Prospective investors in the
Rights Offering 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 Insolvency Proceedings
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
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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 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".
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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, 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
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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 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
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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 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
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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 (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 (see "The MobileMedia Plan of Reorganization--The Amended
Plan"), 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
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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").
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 Common Stock (and such Common Stock issuable upon conversion of
Arch's Class B Common Stock and exercise of the Warrants) and 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
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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 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 Merger and related proposals 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 Merger and the related proposals
and to take all other actions necessary or advisable to secure the vote or
consent of stockholders required to approve the Merger and related proposals.
PREPARATION OF PROSPECTUS AND DISCLOSURE STATEMENT
The Merger Agreement requires Arch to prepare, file and distribute a proxy
statement for the Special Meeting and obligates MobileMedia to provide all
information (including financial information) as Arch may reasonably request
in connection therewith. 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
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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 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,
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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 Whippoorwill to 26%, 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 Common Stock or
Class B Common Stock and of one Arch Warrant.
MobileMedia and Arch have entered into a Standby Purchase Agreement with
each Standby Purchaser, as defined in "The Rights Offering--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 is required to file the Registration Statement with the Commission
under the Securities Act to effect the Rights Offering as contemplated hereby
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) the
Merger and certain related proposals 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
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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 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); 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
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
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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 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
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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 (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 Merger and related proposals at the Special Meeting or (B) at
the Special Meeting the Merger and related proposals are 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
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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.
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".
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 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 Common Stock and Warrants
and the issuance and resale of the Stock issuable upon exercise of the
Warrants, the Class B Common Stock and the 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 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.
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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 Warrants. The Warrant Agreement will govern the terms relating to the
issuance, form, registration, exercise, transfer and exchange of the Warrants,
as well as certain adjustment provisions. Each Warrant will initially
represent the right to purchase one share of Stock. The 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.
Arch will be required to maintain an effective registration statement
registering the issuance of Stock upon exercise of 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 Prospectus 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. Prospective investors in the Rights Offering
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 Stock representing 17.2% to 31.3% (with
the exact amount to be determined based on the share price of 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, 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 Common Stock constituting the Directly
Distributed 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 Insolvency Proceedings), 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 Insolvency Proceedings, 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 Directly Distributed
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 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 Stock and the Warrants purchased through the exercise of Rights and of the
Directly Distributed Creditor Stock Pool from Arch and the Exchange Agent. The
Directly Distributed 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 Directly Distributed Creditor Stock Pool
sufficient shares of 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 Directly Distributed 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 Common Stock equal to what
the claimant would have received had the claim been allowed when the original
distribution of 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 Directly Distributed
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, the Exchange Agent will make a final distribution
of then remaining shares in the Directly Distributed 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 Directly Distributed 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
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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, if legally permissible, 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.
CALCULATION OF SHARES
The number of shares of Stock and Warrants to be issued pursuant to the
Merger Agreement and the Amended Plan will be determined by reference to the
Arch Common Stock Price, which will be equal to the average per share closing
sales price of Common Stock in the Nasdaq National Market for four randomly
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selected days over the period from 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 Stock to be issued pursuant to the Amended
Plan will range from approximately 48.8 million shares at an Arch Common Stock
Price of $10.625 to 57.7 million shares at an Arch Common Stock 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 Directly Distributed Creditor Stock
Pool. The number of shares of 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 Warrants shall be determined by reference to the number of
shares of Common Stock issued (on an as-converted basis,) as of the record
date plus the number of shares to be issued pursuant to the Merger Agreement
and the Amended Plan. The Warrants issued in the Rights Offering, the Standby
Purchasers' Warrants and the warrants issued to Arch stockholders will be
equal to approximately 2.5%, 2.5% and 7.0%, respectively, of the total number
of shares of Common Stock on a Fully Diluted Basis after giving effect to the
Warrants. The 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.
71
<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 COMMISSION, OR (C)
OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
72
<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.
73
<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>
74
<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.
75
<PAGE>
UNAUDITED COMBINED COMPANY PROJECTED STATEMENTS 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
76
<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>
77
<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 Stock in connection with the Merger and the payment of
$262.0 million in cash by Arch. 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 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 Arch Common Stock Price. 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 Arch Common Stock Price 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 Arch Common Stock Price at the
relevant time for determining such adjustment is below $8.4375, additional
shares of 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".
78
<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
79
<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
80
<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
81
<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 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 Stock pursuant to the
Merger Agreement and the exercise of the Rights to purchase 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>
82
<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 Arch Common Stock Price
during the Measurement Period. 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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<PAGE>
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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<PAGE>
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 Wireless electronic mail allows the user to
Service......................... 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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<PAGE>
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 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 Common Stock,
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(ii) mandatorily on April 8, 2000, at the then prevailing market price of
Stock, or (iii) automatically at an exchange price of $13.00 per share, if the
market price of 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 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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<PAGE>
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.
100
<PAGE>
(2) The exercise price is equal to the fair market value of Common Stock on
the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for the
options if exercised at the end of the option terms. These gains are
based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the 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 Arch 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 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 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 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 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 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 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 principal
shareholders thereof, Franklin Advisers, Inc. and Franklin Management,
Inc. disclaim beneficial
102
<PAGE>
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.
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<PAGE>
STOCKHOLDINGS BEFORE AND AFTER THE MERGER
The number of shares of Stock and Warrants to be issued in the Merger will
be determined by reference to the Arch Common Stock Price. 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 Common Stock immediately prior to the Effective
Time will own, on an as-converted basis, approximately 31% to 34% of the
outstanding 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 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.
104
<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 Prospectus.
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
105
<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").
106
<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
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<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".
Arch 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 Arch'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 Arch'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 Arch'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 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 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. Arch 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 Insolvency Proceedings, 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
Insolvency Proceedings. 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 Prospectus.
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
124
<PAGE>
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 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.
125
<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 ex-
penses.................. 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.
126
<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%
127
<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.
128
<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
129
<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
130
<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).
131
<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.
132
<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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Arch will not recognize gain or loss for federal income tax purposes as a
result of the Merger. 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".
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DESCRIPTION OF SECURITIES
The authorized capital stock of Arch consists of 75,000,000 shares of Common
Stock, $.01 par value per share, and 10,000,000 shares of Preferred Stock,
$.01 par value per share. As of , 1998, there were 21,067,110 outstanding
shares of 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 a proposal presented at the Special Meeting, 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 Common Stock to 160,000,000 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 the Rights, Units, Warrants,
Common Stock, Class B 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.
RIGHTS
The Rights consist of transferable Stock Purchase Rights evidenced by
Subscription Certificates. Each Right entitles its holder to purchase, for the
Subscription Price, one Unit in the manner described under "The Rights
Offering--Method of Exercise of Rights". The Rights will expire at 5:00 p.m.,
New York City time, on the Expiration Date.
UNITS
The Units offered in the Rights Offering each consist of one share of Stock
and of one Warrant. The Warrants are immediately detachable, transferable
and separately tradeable from the Stock with which they are issued. The Units
will be evidenced by separate certificates for the Stock and the Warrants
which comprise the Units.
WARRANTS
Each Warrant will entitle the holder to purchase one share of Common Stock
or (in the case of the Standby Purchasers under certain circumstances) one
share of Class B Common Stock at the Warrant Exercise Price of $8.19 per
share, payable solely in cash and not by tender of Stock. The Warrants are
exercisable at any time, upon days' prior written notice to Arch and tender
of the Warrant Exercise Price, from date of issuance through 5:00 p.m., New
York City time, on September 1, 2003. The Warrant Exercise 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
smaller number of shares of Stock, reclassification of outstanding shares of
Stock, distribution of capital stock of a subsidiary, and issuance of rights,
options, or warrants to Arch stockholders at a below market price. Fractional
shares will not be issued upon exercise of Warrants; instead, the number of
shares of Stock to be received will be rounded up or down to the nearest whole
number.
The terms of the Standby Purchasers' Warrants and the warrants to be
distributed to Arch's stockholders will be identical to the terms of the
Warrants.
COMMON STOCK
Holders of 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 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
Common Stock will have no preemptive, subscription, redemption or conversion
rights. All shares of Common Stock issued in the Merger will be fully paid and
nonassessable. The holders of Common Stock do not have cumulative voting
rights.
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CLASS B COMMON STOCK
The Class B Common Stock will be identical in all respects to 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 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 the securities of Arch generally entitled to vote in the
election of directors or more than 49% of the total voting power of the
securities of Arch, 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 Common Stock. Class B
Common Stock is being used so that the issuance of 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".
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 Series C
Preferred Stock currently outstanding.
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 Common Stock at
an initial conversion price of $5.50 per share, subject to certain
adjustments.
Dividends. The Series C Preferred Stock earns dividends at an annual rate of
8.0% payable when declared quarterly in cash or, at Arch's option, through the
issuance of shares of Common Stock valued at 95% of the then prevailing market
price 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 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 Common Stock valued at 95% of the
then prevailing market price of 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 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 Common Stock. In the event
that the assets of Arch are insufficient to permit full payment to the holders
of
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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 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 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
Common Stock.
The Rights are not exercisable or transferable separately from the shares of
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 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 Common Stock.
In the event that any person or entity becomes an Acquiring Person (except
pursuant to an offer for all outstanding shares of 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 Common Right other than the Acquiring
Person will thereafter have the right to receive, upon exercise, that number
of shares of 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 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.
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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 Directly Distributed
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 Stock (but in
no event more than a total of 26% of such outstanding stock in the case of
W.R. Huff, 23% in the case of Whippoorwill or 22% in the case of 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 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
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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 Common Stock and, under
certain circumstances, be used as a means of discouraging, delaying or
preventing a change of control in Arch.
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.
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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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the 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 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
148
<PAGE>
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
149
<PAGE>
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
150
<PAGE>
purchase by Arch of beneficial ownership in shares of its Common Stock if such
purchase would result in a default under any senior debt agreements to which
Arch is a party; or (v) certain distributions by Arch of 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.
151
<PAGE>
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for Arch
by Hale and Dorr LLP, 60 State Street, Boston, Massachusetts.
EXPERTS
The financial statements of Arch included in this Prospectus 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 Prospectus 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.
152
<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 De-
bentures 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
Stock on a .8020-for-one basis (an aggregate of 7,599,493 shares of 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 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 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 Stock at a conversion price of $16.75 per share
and received approximately 843,000 shares of 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
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 extraordi-
nary 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.
/s/ 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 ex-
pense.............. (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.
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>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
MobileMedia Communications, ) Case No. 97-174 (PJW)
Inc., et al., )
-- --- )
) (Jointly Administered)
Debtors. )
DISCLOSURE STATEMENT TO DEBTORS' FIRST
AMENDED JOINT PLAN OF REORGANIZATION
AUGUST 25, 1998
J. Ronald Trost James L. Patton, Jr. (No. 2202)
James D. Johnson Joel A. Waite (No. 2925)
Shelley C. Chapman YOUNG CONAWAY STARGATT
Lee M. Stein & TAYLOR, LLP
SIDLEY & AUSTIN 11th Floor - Rodney Square North
875 Third Avenue P.O. Box 391
New York, New York 10022 Wilmington, Delaware 19899
(212) 906-2000 (302) 571-6600
Co-Counsel to Debtors and
Debtors-in-Possession
<PAGE>
SUBMITTED BY: 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
<PAGE>
FORWARD-LOOKING STATEMENTS
NOTICE
11 U.S.C. (S) 1125(b) PROHIBITS THE SOLICITATION OF AN ACCEPTANCE OR
REJECTION OF A PLAN OF REORGANIZATION FROM A HOLDER OF A CLAIM OR INTEREST WITH
RESPECT TO SUCH CLAIM OR INTEREST UNLESS, AT THE TIME OF OR BEFORE SUCH
SOLICITATION, THERE IS TRANSMITTED TO SUCH HOLDER SUCH PLAN OR A SUMMARY OF SUCH
PLAN AND A WRITTEN DISCLOSURE STATEMENT APPROVED, AFTER NOTICE AND HEARING, BY
THE BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION.
[THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
BANKRUPTCY COURT.] THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR
DISAPPROVED BY, AND THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH
OR APPROVED OR RECOMMENDED BY, THE SECURITIES AND EXCHANGE COMMISSION OR ANY
SECURITIES REGULATORY AUTHORITY OF ANY STATE. NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS DISCLOSURE STATEMENT OR THE STATEMENTS OR
INFORMATION CONTAINED HEREIN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
ANYTHING HEREIN TO THE CONTRARY NOTWITHSTANDING, THIS DISCLOSURE
STATEMENT AND THE STATEMENTS AND INFORMATION CONTAINED HEREIN DO NOT CONSTITUTE
AND SHALL NOT BE DEEMED TO CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY OR A PROSPECTUS OR OTHER OFFERING DOCUMENT RELATING TO (I) THE
SUBSCRIPTION RIGHTS OF ARCH COMMUNICATIONS GROUP, INC. ("ARCH") REFERRED TO
HEREIN, (II) THE ARCH COMMON SHARES, ARCH CLASS B COMMON SHARES OR THE ARCH
WARRANTS ISSUABLE UPON EXERCISE OF SUCH SUBSCRIPTION RIGHTS OR THE UNITS OF ARCH
ISSUABLE UPON SUCH EXERCISE CONSISTING OF SUCH ARCH COMMON SHARES OR ARCH CLASS
B COMMON SHARES AND SUCH ARCH WARRANTS, OR (III) THE ARCH COMMON SHARES ISSUABLE
UPON EXERCISE OF SUCH ARCH WARRANTS OR CERTAIN OTHER ARCH WARRANTS ISSUED IN
CONNECTION WITH THE PLAN OF REORGANIZATION ATTACHED HERETO AND DATED AS OF
AUGUST 18, 1998. ANY SUCH OFFER SHALL BE MADE ONLY BY A PROSPECTUS FILED AS
PART OF A REGISTRATION STATEMENT FILED BY ARCH WITH THE SECURITIES AND EXCHANGE
COMMISSION.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This Disclosure Statement contains forward-looking statements that are
made pursuant to the safe harbor provisions of 11 U.S.C. (S) 1125 and of the
Private Securities Litigation Reform Act of 1995. Any statements contained
herein (including, without limitation, statements to the effect that Arch, the
Debtors 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, the Debtors, 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 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.
The Combined Company Projections attached hereto as Exhibit E have
---------
been prepared jointly by Arch and the Debtors 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 the Debtors have any control. No assurance
can be given that any of the assumptions on which the projections are based will
prove to be correct. The unaudited Combined Company projections attached hereto
as Exhibit E (the "Combined Company Projections") were not prepared with a
---------
view to public disclosure or compliance with (i) published guidelines of the
Securities and Exchange 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 the Debtors, 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 the
Debtors 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 the Debtors.
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<PAGE>
NEITHER ARCH, ON THE ONE HAND, NOR THE DEBTORS, ON THE OTHER HAND, MAKE 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.
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<PAGE>
INTRODUCTORY STATEMENT
----------------------
THIS DISCLOSURE STATEMENT CONTAINS A SUMMARY OF CERTAIN PROVISIONS OF
THE DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION DATED AS OF AUGUST 18,
1998 (THE "PLAN"), PROPOSED BY MOBILEMEDIA CORPORATION, MOBILEMEDIA
COMMUNICATIONS, INC. AND THE SUBSIDIARIES OF MOBILEMEDIA COMMUNICATIONS, INC.,
AS DEBTORS AND DEBTORS-IN-POSSESSION (COLLECTIVELY, THE "DEBTORS"), AND
SUMMARIES OF CERTAIN OTHER DOCUMENTS RELATING TO THE CONSUMMATION OF THE PLAN OR
THE TREATMENT OF CERTAIN PARTIES IN INTEREST, AND CERTAIN FINANCIAL INFORMATION
RELATING THERETO. THE PLAN REFLECTS THE PROPOSED MERGER OF MOBILEMEDIA
COMMUNICATIONS, INC. WITH AND INTO A NEWLY-FORMED WHOLLY OWNED SUBSIDIARY OF
ARCH PURSUANT TO AN AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 18, 1998
(THE "MERGER AGREEMENT"). THIS DISCLOSURE STATEMENT SUPERSEDES THE DISCLOSURE
STATEMENT PREVIOUSLY FILED WITH THE BANKRUPTCY COURT ON FEBRUARY 2, 1998, AND
THE PLAN ATTACHED HERETO SUPERSEDES THE PLAN PREVIOUSLY FILED WITH THE
BANKRUPTCY COURT ON JANUARY 27, 1998 (THE "INITIAL PLAN").
WHILE THE DEBTORS BELIEVE THAT THE SUMMARIES CONTAINED HEREIN PROVIDE
ADEQUATE INFORMATION WITH RESPECT TO THE DOCUMENTS SUMMARIZED, SUCH SUMMARIES
ARE QUALIFIED TO THE EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH
DOCUMENTS. BEFORE CASTING A BALLOT, EACH HOLDER OF AN IMPAIRED CLAIM SHOULD
REVIEW THE ENTIRE PLAN AND THE MERGER AGREEMENT ATTACHED HERETO, AS WELL AS THE
REGISTRATION STATEMENT FILED BY ARCH ON AUGUST 25, 1998 WITH THE SECURITIES AND
EXCHANGE COMMISSION IN CONNECTION WITH THE RIGHTS OFFERING THAT IS BEING
UNDERTAKEN BY ARCH ('THE REGISTRATION STATEMENT"). THE TERMS OF THE PLAN AND
THE MERGER AGREEMENT GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THE SUMMARIES
CONTAINED IN THIS DISCLOSURE STATEMENT.
OTHER THAN INFORMATION PROVIDED BY ARCH IN THE REGISTRATION STATEMENT
IN CONNECTION WITH THE RIGHTS OFFERING BEING UNDERTAKEN BY ARCH THAT IS
DESCRIBED BELOW, NO PARTY IS AUTHORIZED BY THE DEBTORS TO PROVIDE ANY
INFORMATION WITH RESPECT TO THE PLAN OTHER THAN THAT CONTAINED IN THIS
DISCLOSURE STATEMENT. OTHER THAN AS SET FORTH IN THE REGISTRATION STATEMENT AND
THIS DISCLOSURE STATEMENT, THE DEBTORS HAVE NOT AUTHORIZED ANY REPRESENTATIONS
CONCERNING THE DEBTORS, THEIR ANTICIPATED FINANCIAL POSITION OR OPERATIONS AFTER
CONFIRMATION OF THE PLAN OR THE VALUE OF THEIR BUSINESS AND PROPERTY. TO THE
EXTENT INFORMATION IN THIS DISCLOSURE
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<PAGE>
STATEMENT RELATES TO THE DEBTORS, THE DEBTORS OR THEIR ADVISORS HAVE PROVIDED
THE INFORMATION IN THIS DISCLOSURE STATEMENT. TO THE EXTENT INFORMATION IN THIS
DISCLOSURE STATEMENT RELATES TO ARCH, ARCH OR ITS ADVISORS HAVE PROVIDED THE
INFORMATION IN THIS DISCLOSURE STATEMENT.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED SOLELY
FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN OR OBJECTING TO
CONFIRMATION. NOTHING IN THIS DISCLOSURE STATEMENT MAY BE USED BY ANY PERSON OR
ENTITY FOR ANY OTHER PURPOSE.
THE DEADLINE FOR VOTING TO ACCEPT OR REJECT THE PLAN IS 5:00 P.M., NEW
YORK CITY TIME, ON _______, 1998, UNLESS EXTENDED.
NOTHING CONTAINED IN THIS DISCLOSURE STATEMENT, EXPRESS OR IMPLIED, IS
INTENDED TO GIVE RISE TO ANY COMMITMENT OR OBLIGATION OF THE DEBTORS OR CONFERS
UPON ANY PERSON ANY RIGHTS, BENEFITS OR REMEDIES OF ANY NATURE WHATSOEVER (OTHER
THAN AS SET FORTH IN THE PLAN), NOR SHOULD THE CONTENTS OF THIS DISCLOSURE
STATEMENT BE CONSTRUED AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL OR TAX
ADVICE. HOLDERS OF CLAIMS AND INTERESTS SHOULD CONSULT WITH THEIR OWN ADVISORS.
EXCEPT AS HEREAFTER NOTED, THE INFORMATION CONTAINED HEREIN IS
GENERALLY INTENDED TO DESCRIBE FACTS AND CIRCUMSTANCES ONLY AS OF __________,
1998, AND NEITHER THE DELIVERY OF THE DISCLOSURE STATEMENT NOR THE CONFIRMATION
OF THE PLAN WILL CREATE ANY IMPLICATION, UNDER ANY CIRCUMSTANCES, THAT THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT OR COMPLETE AT ANY TIME AFTER
THE DATE HEREOF OR THEREOF, OR THAT THE DEBTORS ARE OR WILL BE UNDER ANY
OBLIGATION TO UPDATE SUCH INFORMATION IN THE FUTURE.
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<PAGE>
TABLE OF CONTENTS
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I. INTRODUCTION............................................................................ 1
A. General Background................................................................... 1
B. The Debtors; Events Leading up to the Filings........................................ 2
C. The Disclosure Statement; Voting Requirements........................................ 5
D. Sources of Information............................................................... 7
E. Summary of the Plan.................................................................. 7
1. General Terms of the Plan of Reorganization and the............................... 7
----------------------------------------------------
2. Classification and Treatment of Claims and Interests.............................. 9
----------------------------------------------------
3. Conditions to Effectiveness of the Plan........................................... 10
---------------------------------------
4. Securities Being Issued in Connection With the Plan; Post-
---------------------------------------------------------
Merger Capital Structure of Arch.................................................. 11
--------------------------------
II. DESCRIPTION OF THE DEBTORS.............................................................. 12
A. Background Information Regarding the Debtors......................................... 12
1. Overview of the Debtors' History and Operations................................... 13
-----------------------------------------------
2. Networks and Licenses............................................................. 17
---------------------
3. Paging and Messaging Services and Products........................................ 18
------------------------------------------
4. Sales and Marketing............................................................... 19
-------------------
5. Suppliers and Equipment Vendors................................................... 21
-------------------------------
6. Assets of the Debtors............................................................. 21
---------------------
7. Material Litigation and Claims against the Debtors................................ 22
--------------------------------------------------
8. Regulatory Matters................................................................ 25
------------------
9. Trademarks........................................................................ 27
----------
B. The Debtors' Operations in Chapter 11................................................ 28
1. Overview of the Debtors' Operations............................................... 28
-----------------------------------
2. Retention of Professionals and Appointment of Committee........................... 28
-------------------------------------------------------
3. Operating Results During Chapter 11............................................... 29
-----------------------------------
4. Summary of Significant Orders Entered and Other Actions
-------------------------------------------------------
Taken During the Cases............................................................ 29
----------------------
III. BUSINESS OF ARCH........................................................................ 34
IV. ACQUISITION OF THE DEBTORS BY ARCH AND FUTURE BUSINESS OF THE
REORGANIZED DEBTORS..................................................................... 34
A. Attempts to Sell Debtors' Business................................................... 34
B. Capitalization and Structure of the Reorganized Debtors.............................. 36
C. Composition of Management and Directors of the Reorganized Debtors................... 36
D. Summary of the Merger Agreement...................................................... 37
1. The Merger........................................................................ 37
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</TABLE>
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2. Funding for the Plan and Merger Agreement........................................ 37
-----------------------------------------
3. Effective Date................................................................... 40
--------------
4. Representations and Warranties................................................... 40
------------------------------
5. Certain Covenants and Agreements................................................. 41
--------------------------------
6. No Solicitation by the Debtors................................................... 42
------------------------------
7. FCC Approval..................................................................... 43
------------
8. Additional Agreements............................................................ 43
---------------------
9. Employees and Employee Benefit Plans............................................. 44
------------------------------------
10. Conditions to the Merger......................................................... 44
------------------------
11. Termination...................................................................... 47
-----------
12. Effect of Termination; Payment of Fees........................................... 48
--------------------------------------
E. Business of the Reorganized Debtors.................................................. 49
1. Projected Revenues............................................................... 50
------------------
2. Projected Capital Expenditures................................................... 50
------------------------------
3. Interest Expense................................................................. 50
----------------
F. General Description of Regulatory Matters Relating to the Plan....................... 50
1. SEC Matters...................................................................... 51
-----------
2. FCC and State Regulatory Matters................................................. 51
--------------------------------
G. Information Relevant to the Risks Posed to Creditors Under the Plan.................. 51
1. Risk of Delay or Non-Occurrence of the Confirmation Date and
------------------------------------------------------------
the Effective Date............................................................... 52
------------------
2. Challenges of Business Integration............................................... 52
----------------------------------
3. Certain Risks Associated with Arch's Existing Debt and
------------------------------------------------------
Contracts........................................................................ 52
---------
4. Transaction Costs................................................................ 53
-----------------
5. Substantial Amortization Charges................................................. 53
--------------------------------
6. Growth and Acquisition Strategy.................................................. 53
-------------------------------
7. Future Capital Needs; Uncertainty of Additional Funding.......................... 54
-------------------------------------------------------
8. Competition and Technological Change............................................. 54
------------------------------------
9. Government Regulation, Foreign Ownership and Possible
-----------------------------------------------------
Redemption....................................................................... 55
----------
10. High Degree of Leverage After the Merger......................................... 58
----------------------------------------
11. Subscriber Turnover.............................................................. 58
-------------------
12. Dependence on Third Parties...................................................... 59
---------------------------
13. Possible Acquisition Transactions................................................ 59
---------------------------------
14. Dependence on Key Personnel...................................................... 60
---------------------------
15. Impact of the Year 2000 Issue.................................................... 60
-----------------------------
16. No Dividends..................................................................... 61
------------
17. History of Losses................................................................ 61
-----------------
18. Volatility of Trading Price...................................................... 62
---------------------------
19. Risks Relating to the Combined Company Projections............................... 62
--------------------------------------------------
20. Certain Federal Income Tax Considerations; Possible Loss of Corporate Tax
-------------------------------------------------------------------------
Benefits......................................................................... 62
---------
</TABLE>
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21. Arch's Amended Credit Facility and Indenture Restrictions.................... 63
---------------------------------------------------------
22. Significant Fluctuations in Revenues and Operating Results................... 63
----------------------------------------------------------
23. Divisional Reorganization of Arch............................................ 64
---------------------------------
24. Anti-Takeover Provisions..................................................... 64
------------------------
V. SUMMARY OF THE PLAN OF REORGANIZATION................................................. 65
A. Description and Classification of Claims and Interests........................... 65
1. Description of Claims Generally.............................................. 65
-------------------------------
2. Estimated Amount of Allowed Claims........................................... 65
----------------------------------
3. Description of Claims and Interests; Summary of
-----------------------------------------------
Classification Scheme........................................................ 66
---------------------
B. Treatment of Claims and Interests................................................ 74
1. Treatment of Claims and Interests Generally.................................. 74
-------------------------------------------
2. Treatment of Administrative Claims and Priority Tax Claims................... 75
----------------------------------------------------------
3. Treatment of Classes Not Impaired Under Plan................................. 76
--------------------------------------------
4. Treatment of Classes Impaired Under Plan..................................... 76
----------------------------------------
C. Conditions to Effective Date..................................................... 79
D. Means for Implementation of Plan................................................. 79
1. Implementation of the Plan................................................... 79
--------------------------
2. FCC and State Regulatory Approval............................................ 80
---------------------------------
3. Amendments to Certificates of Incorporation.................................. 80
-------------------------------------------
E. Agreements Between the Debtors and Various Third Parties......................... 81
1. Distributions Occurring On and After the Effective Date...................... 81
-------------------------------------------------------
2. Continuation of Employment Agreements and Benefits
--------------------------------------------------
Agreements................................................................... 86
----------
F. Effect of Plan Confirmation.................................................. 86
1. Revesting of Assets.......................................................... 86
-------------------
2. Discharge of Claims and Termination of Interests............................. 86
------------------------------------------------
3. Post-Consummation Effect of Evidences of Claims or Interests................. 87
------------------------------------------------------------
4. Term of Injunctions or Stays................................................. 87
----------------------------
G. Executory Contracts and Unexpired Leases......................................... 88
1. Rejected Contracts........................................................... 88
------------------
2. Assumed Contracts............................................................ 88
-----------------
3. Post-Petition Contracts and Leases........................................... 89
----------------------------------
H. Other Plan Provisions............................................................ 89
1. Management and Operation of the Debtors...................................... 89
---------------------------------------
2. Estate Representative........................................................ 90
---------------------
3. Continuation of Committee.................................................... 90
-------------------------
4. Rights of Creditors and Committee............................................ 90
---------------------------------
5. Termination of Subordination Rights and Settlement of
-----------------------------------------------------
Related Claims and Controversies............................................. 91
--------------------------------
6. Cancellation of Stock........................................................ 91
---------------------
7. Sale of Rights Reserve....................................................... 91
----------------------
</TABLE>
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8. Release of Security Interests.............................................. 92
-----------------------------
9. Retention and Enforcement of Causes of Action.............................. 92
---------------------------------------------
10. Limitation of Liability.................................................... 92
-----------------------
11. Releases................................................................... 93
--------
12. Indemnification Obligations; Directors' and Officers'
----------------------------------------------------
Liability Insurance........................................................ 95
-------------------
13. Terms Binding.............................................................. 96
-------------
14. Effectuating Documents, Further Transactions, Exemptions from Certain
---------------------------------------------------------------------
Transfer Taxes............................................................. 96
--------------
15. Additional Terms of Securities and Other Instruments....................... 96
----------------------------------------------------
16. Payment Dates.............................................................. 97
-------------
17. Successors and Assigns..................................................... 97
----------------------
18. Compliance with Law; Governing Law......................................... 97
----------------------------------
19. Severability............................................................... 97
------------
I. Ownership and Resale of Plan Securities; Exemption
From Securities Laws............................................................. 97
1. Bankruptcy Code Exemption From Registration Requirements................... 98
--------------------------------------------------------
2. Registration Rights........................................................ 101
-------------------
J. Certain Terms of Reorganization Securities Issued Under Plan..................... 101
1. General Provisions of the Arch Common Shares............................... 102
--------------------------------------------
2. General Provisions of the Arch Class B Common Shares....................... 102
----------------------------------------------------
3. General Provisions of the Rights........................................... 102
--------------------------------
4. General Provisions of the Arch Warrants.................................... 104
---------------------------------------
K. Claims Reconciliation and Objection Process...................................... 105
1. Bar Date for Administrative Claims......................................... 105
----------------------------------
2. Objections to Claims....................................................... 105
--------------------
L. Retention of Jurisdiction........................................................ 106
VI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 108
A. General Tax Considerations....................................................... 108
B. Tax Consequences to the Debtors.................................................. 108
1. Cancellation of Debt....................................................... 109
--------------------
2. Limitations on NOL Carryforwards and Other Tax Attributes.................. 109
---------------------------------------------------------
3. Merger of Communications with and into Merger Subsidiary................... 110
--------------------------------------------------------
4. Contribution of All of MobileMedia's Assets to Communications.............. 111
-------------------------------------------------------------
5. Merger of MCCA with and into Delaware Subsidiary........................... 111
------------------------------------------------
6. Mergers of Subsidiaries of MCCA, Contributions by Merger
Subsidiary to MCCA, and Contributions to License Co. LLC
pursuant to Section 4.2(B)
of the Plan................................................................ 111
-----------
C. Federal Income Tax Consequences to Arch.......................................... 111
D. Federal Income Tax Consequences to Holders of Claims and Interests............... 112
1. Allowed Claims in Class 1, Class 2 and Class 3............................. 112
----------------------------------------------
2. Allowed Class 4 Claims and Class 5 Claims.................................. 112
-----------------------------------------
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3. Allowed Class 6 Claims..................................................... 113
----------------------
4. Class 8 Claims and Interests............................................... 115
----------------------------
E. Withholding...................................................................... 116
VII. FEASIBILITY OF THE PLAN............................................................... 116
VIII. ALTERNATIVES TO THE PLAN.............................................................. 117
IX. CONDITIONS PRECEDENT TO CONFIRMATION OF THE PLAN
UNDER THE CODE........................................................................ 118
A. The Confirmation Hearing and Objections.......................................... 118
B. Confirmation Requirements........................................................ 118
C. Satisfaction of Conditions Precedent to
Confirmation Under the Code...................................................... 121
1. Best Interests Test........................................................ 121
-------------------
2. Acceptance by Impaired Classes............................................. 125
------------------------------
3. Confirmation Without Acceptance by All Impaired Classes.................... 125
-------------------------------------------------------
D. Voting Instructions.............................................................. 126
X. OTHER MATTERS.......................................................................... 128
A. Voidable Transfer Analysis....................................................... 128
1. Fraudulent Transfers....................................................... 128
--------------------
2. Preferences................................................................ 128
-----------
B. Certain Effective Date Bonuses................................................... 129
XI. RECOMMENDATION........................................................................ 130
XII. CONCLUSION............................................................................ 130
</TABLE>
EXHIBIT A -- Joint Plan of Reorganization
EXHIBIT B -- Agreement and Plan of Merger
EXHIBIT C -- Disclosure Statement Approval Order
EXHIBIT D -- Financial Statements
EXHIBIT E -- Financial Projections
EXHIBIT F -- Arch Prospectus
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<PAGE>
I. INTRODUCTION
A. General Background
MobileMedia Corporation, a Delaware corporation ("MobileMedia"),
MobileMedia Communications, Inc., a Delaware corporation ("Communications"), and
the subsidiaries of Communications listed on the cover page of this Disclosure
Statement, as debtors and debtors-in-possession (the "Debtors"), transmit this
Disclosure Statement (the "Disclosure Statement") pursuant to section 1125(b) of
title 11, United States Code, 11 U.S.C. (S)(S) 101 et seq. (the "Code"), to all
-- ----
known impaired creditors of the Debtors in connection with the solicitation of
their acceptance of the Debtors' First Amended Joint Plan of Reorganization
dated as of August 18, 1998 (the "Plan"). A copy of the Plan, which has been
filed with the Clerk of the Bankruptcy Court, is annexed hereto and made a part
hereof as Exhibit A. (Capitalized terms not defined herein have the meanings
---------
ascribed to them in the Plan unless otherwise noted.) This Disclosure Statement
supersedes and replaces the disclosure statement filed with the Bankruptcy Court
on February 2, 1998, and the Amended Plan attached hereto supersedes and
replaces the plan of reorganization filed with the Bankruptcy Court on January
27, 1998.
The Plan proposes a reorganization of the Debtors pursuant to a
business combination with a newly-formed wholly owned subsidiary of Arch
Communications Group, Inc. ("Arch"), a Delaware corporation. Under the Plan,
existing creditors of the Debtors will receive in satisfaction of their claims
cash or equity securities of Arch, or will have their claims cured and
reinstated pursuant to section 1124 of the Code. There will be no recovery for
the Debtors' equity security holders. The proposed business combination is
reflected in the Agreement and Plan of Merger (the "Merger Agreement"), which is
incorporated by reference and attached hereto Exhibit B, among MobileMedia,
---------
Communications, Arch and Farm Team Corp., a wholly-owned special purpose
subsidiary of Arch ("Merger Subsidiary"). Pursuant to the Merger Agreement,
effective simultaneously with the effectiveness of the Plan, Communications will
merge with and into Merger Subsidiary (the "Merger"), with Merger Subsidiary
being the surviving company. As consideration for the Merger, the Plan provides
for distribution of (a) approximately $479 million in cash to the Debtors'
secured creditors and (b) equity securities and rights to purchase equity
securities of Arch to the Debtors' unsecured creditors that will represent, in
the aggregate, a 66% to 69% ownership stake in Arch (63% to 66% on a Fully
Diluted Basis)/1/ subsequent to the Merger. Arch has also agreed to satisfy all
of the Debtors' administrative expenses and to assume certain ongoing
liabilities including debts incurred in the ordinary course of business, as
described in more detail below.
The Debtors' bankruptcy cases under chapter 11 of the Code (the
"Cases") are currently pending before the Honorable Peter J. Walsh, United
States Bankruptcy Judge for the District of Delaware (the "Bankruptcy Court").
Chapter 11 is the principal business
- ------------------------
/1/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
<PAGE>
reorganization chapter of the Code. Under chapter 11 of the 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 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. Recognizing the
need for representation of unsecured creditors in the reorganization process,
section 1102 of the Code provides for the establishment of a creditors'
committee. An official committee of unsecured creditors (the "Committee") in the
Cases was appointed by the United States Trustee for the District of Delaware on
February 10, 1997.
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 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 effective date of
the plan and substitutes therefor the obligations specified under the confirmed
plan.
As noted above, the Plan contemplates a merger of Communications with
a subsidiary of Arch pursuant to which existing creditors of the Debtors will
receive cash or equity securities and rights to purchase equity securities of
Arch. The Debtors believe the Plan complies with all requirements of the Code
and provides the best available recovery to creditors and equity security
holders. The Plan has the support of the Committee. The Debtors urge all
impaired creditors to vote to accept the Plan.
B. The Debtors; Events Leading up to the Filings
The Debtors operate one of the largest paging companies in the United
States, with approximately 3.2 million units in service as of June 30, 1998.
Through their sales offices, nationwide retail distribution network, reseller
and company-operated retail stores, the Debtors offer 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. The Debtors market their services primarily under the
MobileComm(R) brand name.
-2-
<PAGE>
MobileMedia, a public company, is the ultimate parent company of all the
Debtors, and the direct parent of Communications./2/ The Debtors' business is
conducted primarily through Communications. Communications and various
subsidiaries of Communications hold the Federal Communications Commission
("FCC") licenses and, where applicable, state public utility commission
authorizations that grant the Debtors the authority to operate their paging
systems.
The Debtors distribute their paging services using three primary
distribution channels: direct, reseller and retail. These three channels are
described below. The Debtors' paging and wireless messaging services consist
principally of numeric and alphanumeric paging services. As of June 30, 1998,
the Debtors had approximately 2.6 million numeric units in service, representing
approximately 81% of their subscriber base, approximately .6 million
alphanumeric units in service, representing approximately 18% of their
subscriber base, with other types of units in service representing the remaining
number (less than 1% of their subscriber base).
Beginning in 1995, MobileMedia grew its business primarily through
acquisitions. In August 1995, the Debtors completed the acquisition of the
paging and wireless messaging business of Dial Page, Inc. ("Dial Page"); in
January 1996, the Debtors completed the acquisition of Mobile Communications
Corporation of America ("MCCA"), the paging and wireless messaging unit of
BellSouth Corporation. During 1996, the Debtors experienced difficulties
executing their post-acquisition business strategy. These difficulties related
largely to the process of integration of the operations of Dial Page and MCCA
into those of MobileMedia. As a result, the Debtors did not achieve expected
growth in their subscriber base and revenues, nor did they realize anticipated
efficiencies and cost reductions from the elimination of duplicative functions.
During 1996, the Debtors' financial position deteriorated. As of
September 30, 1996, Communications was in violation of certain financial
covenants under its $750 million senior secured credit agreement (as amended,
the "1995 Credit Agreement"), which resulted in a default under the 1995 Credit
Agreement and precluded Communications from borrowing additional funds
thereunder. Communications' obligations under the 1995 Credit Agreement are
guaranteed by MobileMedia and by all the subsidiaries of Communications. In the
fall of 1996, the Debtors commenced negotiations with The Chase Manhattan Bank,
the agent (the "Pre-Petition Agent") for the lenders (the "Pre-Petition
Lenders") under the 1995 Credit Agreement, regarding the terms of a possible
financial restructuring.
- -------------------------
/2/ MobileMedia also has five direct and indirect wholly owned non-debtor
subsidiaries, Proximity Communications Manager, Inc. (formerly named Locate
Manager, Inc.), Proximity Communications, Inc. (formerly named Local Area
Telecommunications, Inc.), Locate-1, Inc., Proximity Communications, L.L.C.
(formerly named Locate L.L.C.) and Personal Communication Network Services of
New York, Inc. (collectively, the "Locate Entities"). The Locate Entities are
no longer doing business, are in the process of trying to reach an agreement
with their known creditors (other than taxing authorities) and currently intend
to file chapter 11 cases to wind up their businesses. See Section II.A.1.(e).
--- ------------------
-3-
<PAGE>
6. A ballot for accepting or rejecting the Plan by the holders of
Voting Claims
C. The Disclosure Statement; Voting Requirements
In press releases issued on September 27 and October 21, 1996, the
Debtors 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 their approximately 8,000
local transmission one-way paging stations. The Debtors caused an investigation
to be conducted by their 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. As
discussed below, the Debtors are still in the process of resolving these issues
with the FCC.
In November and December of 1996, the Debtors sought to modify payment
terms with certain of their larger vendors, some of which had not been paid in
accordance with their scheduled payment terms. In the fall of 1996, Motorola,
Inc. ("Motorola"), the Debtors' largest supplier of pagers and pager repair
parts, informed the Debtors 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,
the Debtors pending resolution of the matter. Subsequently, Glenayre
Electronics, Inc. ("Glenayre"), the Debtors' primary supplier of paging
terminals, transmitters and related parts, and NEC America Inc. ("NEC") and
Panasonic Communications & Systems Company ("Panasonic" and, together with
Motorola, Glenayre and NEC, the "Key Suppliers"), the Debtors' secondary
suppliers of pagers, also made demands on the Debtors for payment of their past
due accounts in the aggregate amount of $11.8 million.
On November 1, 1996, the Debtors failed to make a scheduled interest
payment of approximately $11.8 million on their 9 3/8% Senior Subordinated Notes
due November 1, 2007 (the "9 3/8% Notes"), which failure was not cured during
the thirty day grace period ending November 30, 1996. In addition, in December
1996 and January 1997, the Debtors failed to make scheduled interest payments in
the aggregate amount of approximately $13.4 million under the 1995 Credit
Agreement.
Negotiations between the Debtors and the Pre-Petition Lenders, the
holders of the 9 3/8% Notes and certain other outstanding notes (collectively,
the "Notes") and the Key Suppliers continued through late 1996. When it became
apparent that the Debtors 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 Notes on the terms of a restructuring of their indebtedness outside of
chapter 11, the Debtors concluded that they had no practical alternative other
than to seek protection under chapter 11 of the Code.
On January 30, 1997 (the "Petition Date"), each of the Debtors filed a
voluntary petition for reorganization under chapter 11 of the Code with the
Bankruptcy Court. During the Cases, the Debtors' management has continued to
manage the operations and affairs of the Debtors as debtors-in-possession under
the jurisdiction of the Bankruptcy Court.
-4-
<PAGE>
C. The Disclosure Statement; Voting Requirements
[This Disclosure Statement has been approved by the Bankruptcy Court
pursuant to an order dated ___________, 1998 (the "Disclosure Statement Approval
Order") as containing information of a kind and in sufficient detail to enable a
hypothetical, reasonable investor typical of the holders of impaired Claims to
make an informed judgment with respect to voting to accept or reject the Plan.
A copy of the Disclosure Statement Approval Order is attached hereto as Exhibit
-------
C.] This Disclosure Statement is being transmitted in connection with the Plan
- -
to provide adequate information to enable holders of Claims entitled to vote on
the Plan ("Voting Claims") to make an informed judgment with respect to such
vote.
APPROVAL BY THE BANKRUPTCY COURT OF THIS DISCLOSURE STATEMENT DOES NOT
CONSTITUTE AN ENDORSEMENT OF ANY OF THE REPRESENTATIONS CONTAINED IN THIS
DISCLOSURE STATEMENT OR IN THE PLAN, NOR DOES IT CONSTITUTE AN ENDORSEMENT OF
THE PLAN ITSELF.
EACH HOLDER OF A VOTING CLAIM SHOULD CAREFULLY REVIEW THE MATERIAL SET
FORTH IN THIS DISCLOSURE STATEMENT AND THE EXHIBITS HERETO IN ORDER TO MAKE AN
INDEPENDENT DETERMINATION AS TO WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN.
IN ADDITION, ALTHOUGH THE DEBTORS HAVE MADE EVERY EFFORT TO BE ACCURATE HEREIN,
EACH HOLDER OF A VOTING CLAIM SHOULD APPROPRIATELY REVIEW THE ENTIRE PLAN AND
THE EXHIBITS THERETO BEFORE CASTING A BALLOT.
Accompanying this Disclosure Statement are:
1. A copy of the Plan (attached hereto as Exhibit A);
---------
2. A copy of the Merger Agreement (attached hereto as Exhibit B);
---------
3. A copy of the Disclosure Statement Approval Order (attached hereto
as Exhibit C);
---------
4. A copy of the audited consolidated financial statements of
Communications as of December 31, 1996 and 1997 and for the years ended
December 31, 1995, 1996 and 1997, and the unaudited financial statements of
Communications as of June 30, 1998 and for the six-month periods ended June
30, 1997 and 1998 (attached hereto as Exhibit D);
---------
5. A copy of (a) unaudited financial projections relating to the
Reorganized Debtors and Arch on a combined basis and (b) unaudited pro
forma historical condensed consolidated financial statements of the
Reorganized Debtors and Arch on a combined basis (attached hereto as
Exhibit E);
----------
-5-
<PAGE>
6. A ballot for accepting or rejecting the Plan by the holders of
Voting Claims (the "Ballot");
7. The notice approved by the Bankruptcy Court which, among other
things, states the time fixed by the Bankruptcy Court for:
(a) returning Ballots reflecting acceptances and rejections of
the Plan;
(b) the hearing on confirmation of the Plan (the "Confirmation
Hearing");
(c) filing objections to confirmation of the Plan; and
(d) the filing of administrative claims by certain parties;
(e) filing claims arising from the rejection of leases and
executory contracts; and
(f) filing objections to the Debtors' proposed cure payments in
connection with assumed leases and executory contracts;
8. A Preliminary Prospectus included in the Registration Statement
filed by Arch with the Securities and Exchange Commission on August 25,
1998, described more fully in Section V.J.3 below, which Preliminary
-------------
Prospectus is being provided by Arch and is attached hereto as Exhibit
-------
F./3/
-
Holders of impaired Claims in Classes 4, 5 and 6 are entitled to vote
on the Plan. TO BE COUNTED, YOUR VOTE MUST BE RECEIVED ON OR BEFORE 5:00 P.M.
(NEW YORK CITY TIME) ON ___________________, 1998 (THE "VOTING DEADLINE").
Signed Ballots should be sent by the Voting Deadline by hand delivery, first
class mail postage prepaid or recognized overnight courier to:
Bankruptcy Services, Inc.
70 E. 55th Street, 6th Floor
New York, NY 10022-3222
Attention: Kathy Gerber
Ballots received by facsimile will not be counted.
---
- -----------------------
/3/ Such Preliminary Prospectus will be replaced by the Final Prospectus
included in such Registration Statement at the time such Registration
Statement becomes effective under the Securities Act of 1933.
-6-
<PAGE>
D. Sources of Information
The information contained in this Disclosure Statement was derived
from (i) the Debtors' and Arch's books and records (such as their general
purpose financial statements, books of account and corporate records), (ii) the
Debtors' and Arch's public filings and (iii) consultations with the Debtors' and
Arch's officers, senior management, key personnel and various of their outside
professionals, including accounting and financial advisors.
E. Summary of the Plan
The following Plan summary is qualified in its entirety by reference
to the Plan and to the more detailed description of provisions for the Classes
created under the Plan set forth in Section V, "Summary of the Plan of
---------
Reorganization". This Disclosure Statement contains only a summary of the terms
of the Plan. It is the Plan and not the Disclosure Statement that governs the
rights and obligations of the parties.
1. General Terms of the Plan of Reorganization and the Business
------------------------------------------------------------
Combination between the Debtors and Arch.
----------------------------------------
The Plan of Reorganization proposes a merger of the Debtors with a
subsidiary of Arch pursuant to the Merger Agreement. On the Effective Date of
the Plan, MobileMedia will contribute its assets to Communications and then
dissolve, and Communications will merge with and into Merger Subsidiary, a
wholly owned subsidiary of Arch, and will continue to operate as a wholly-owned
operating subsidiary of Arch. Under the Plan, existing creditors of the Debtors
will receive for their claims either (a) cash or (b) equity securities and the
right to purchase equity securities of Arch, or will have their claims cured and
reinstated pursuant to section 1124 of the Code.
Arch, a Delaware corporation, is a leading provider of wireless
messaging services, primarily paging services, and is the second largest paging
company in the United States (based on operating earnings before interest,
taxes, depreciation and amortization ("EBITDA")). Arch, which had 4.1 million
pagers in service at June 30, 1998, 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 has achieved significant growth in pagers
in service and operating cash flow through a combination of internal growth and
acquisitions. 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 operating cash
flow, or EBITDA, was $136.2 million, representing a compound growth rate on an
annualized basis of 78.4% since January 1, 1995.
The Merger Agreement and the Plan together provide for, among other
matters:
-7-
<PAGE>
(i) the payment in full in cash of Allowed Class 4 Claims
(Claims under the 1995 Credit Agreement);
(ii) the payment in full in cash of Allowed Class 5 Claims
(Claims under the Dial Page Notes);
(iii) the issuance of Arch Common Shares to the holders of
Allowed Class 6 Claims (general unsecured Claims, including
Subordinated Noteholder Claims), which shares will represent
approximately 17.2%-31.3%/4/ of the total number of Arch Common Shares
(on a Diluted Basis) outstanding immediately following the Merger;
(iv) the distribution by Arch (pursuant to a registration
statement filed with the Securities and Exchange Commission on August
25, 1998 (the "Registration Statement")) to holders of Allowed Class 6
Claims of transferable rights (the "Rights") to purchase for cash
"Units", which Units are comprised of (a) Arch Common Shares or, under
certain circumstances described below, Arch Class B Common Shares
(together, "Arch Capital Shares") which will represent approximately
34.3%-52.1%/5/ of the total number of Arch Capital Shares (on a
Diluted Basis) outstanding immediately following the Merger (the
"Rights Offering") and (b) warrants to acquire Arch Common Shares
equal to 2.5% of the total number of Arch Capital Shares (on a Fully
Diluted Basis) outstanding immediately following the Merger;
(v) the distribution by Arch to four groups of the Debtors'
unsecured creditors of warrants to acquire Arch Common Shares in
consideration of their several agreements to exercise Rights
distributed to them as holders of Allowed Class 6 Claims and to
purchase any Units not otherwise purchased through the exercise of
Rights, which warrants will represent approximately 2.5% of the total
number of Arch Capital Shares (on Fully Diluted Basis) outstanding
immediately following the Merger; and
(vi) the satisfaction by Arch of Allowed Priority Claims and
Allowed Administrative Claims.
Certain conditions specified in the Plan and the Merger Agreement must
be satisfied or waived prior to the Effective Date of the Plan in order for the
Merger to be
- -------------------
/4/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger
Agreement.
/5/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
-8-
<PAGE>
consummated and the Plan to become effective. A summary of such conditions is
set forth in Section V.C herein, "Conditions to Effectiveness of
-----------
the Plan" and in Section IV.D herein, "Summary of the Merger Agreement," and
------------
reference is made to the terms of the Plan and the Merger Agreement, which are
attached hereto as Exhibits A and B, respectively.
---------- -
As discussed in Sections II.A.8 and IV.F.2, the transfer of the
--------------- ------
Debtors' FCC licenses and authorizations as contemplated by the Merger will
require the approval of the FCC, including pursuant to a doctrine known as
Second Thursday. Such approval, if granted, will terminate the pending
- ---------------
proceedings regarding the Debtors' qualification to remain an FCC licensee. The
Merger and the Debtors' reorganization -- which will include the transfer of
various state authorizations -- may also require the approval of state
regulatory authorities. FCC approval is also necessary for the change in Arch
stock ownership effected by the Plan.
Since the Petition Date, the Debtors have worked to identify and
pursue the reorganization strategy that yields the highest and best recovery for
the Debtors' creditors. The Debtors and the Committee support the Plan and the
proposed Merger as being in the best interests of the Debtors and their estates.
The Committee will recommend to its constituency that it vote to accept the
Plan.
2. Classification and Treatment of Claims and Interests.
----------------------------------------------------
Under the Plan, the Debtors are being treated as one entity for the
purpose of claims made against them and distributions made by them under the
Plan. The Plan also contemplates the elimination of all intercompany claims
between and among the Debtors. As discussed in Section II.B.4.(d), the Debtors
------------------
filed joint Schedules of Assets, Liabilities and Executory Contracts, and a
joint Statement of Financial Affairs. Moreover, under the order entered by the
Bankruptcy Court directing certain creditors to file proofs of claim, a claim
filed against one Debtor was deemed filed against all of the Debtors.
The Plan provides for separate classes of Claims and Interests
(individually, a "Class" and collectively, the "Classes"). The following chart
provides a summary of the classification and treatment of the Classes under the
Plan. Certain holders of Claims and Interests will be impaired under the Plan,
while other holders of Claims will be unimpaired. As discussed in Section
-------
IX.C.2., "impairment" is a technical concept under the Code that refers to any
- -------
change in the contractual or other rights of a creditor or interest holder.
Only the holders of Claims and Interests that are impaired under the Plan and
are receiving distributions under the Plan are entitled to vote on the Plan.
-9-
<PAGE>
Summary Chart of Claims and Interests/6/
----------------------------------------
<TABLE>
<CAPTION>
Estimate of Aggregate
Allowed Claim Amount
Class Description (as of _____, 1998) Treatment of Allowed Claims
- ----- ----------- ----------------------- ---------------------------
<S> <C> <C> <C>
N/A Administrative Claims Paid in full in cash
N/A Priority Tax Claims Paid in full in cash or over time under 1129(a)(9)(C)
1 Priority Claims Paid in full in cash
2 Misc. Secured Claims Unimpaired
3 Customer Refund Claims Unimpaired
4 Secured Claims under Paid in full in cash
1995 Credit Agreement
5 Dial Page Notes Paid in full in cash
6 Non-Priority Unsecured Claims Arch Stock and Rights (or, if a Class 6 Claim is
Allowed after the distribution of Rights, such holder
will receive cash in lieu of Rights)
7 Note Litigation Claims No distribution
8 Common Stock Claims and Interests No distribution
9 Subsidiary Claims and Interests No distribution
</TABLE>
3. Conditions to Effectiveness of the Plan.
---------------------------------------
The Bankruptcy Court has scheduled a hearing to consider confirmation
of the Plan. The Code imposes a number of voting and other requirements on the
confirmation of a plan. These Code requirements are described in Section IX,
----------
"Conditions Precedent to Confirmation of the Plan under the Code".
The Plan also provides for other conditions to the occurrence of the
Effective Date of the Plan that are set forth in Section V.C, "Conditions to
-----------
Effectiveness of the Plan". The list that follows is qualified by reference to
the Plan and the Merger Agreement and to the more detailed description set forth
in Section V.C. The conditions to the Effective Date set forth in the Plan are:
-----------
(a) That the Confirmation Order (which order shall be reasonably
satisfactory to Arch and, as to the provisions relating to the treatment of
Allowed Class 4 Claims, to the Pre-Petition Agent) has been entered by the
Bankruptcy Court, has become a Final Order (as defined in section 5.1 of
the Merger Agreement), more than ten (10) days have elapsed since the
Confirmation Date, no
- -----------------------------
/6/ The estimates set forth in this table are for descriptive purposes only,
and do not and shall not constitute an admission as to the Debtors' obligations
with respect to any Claim.
-10-
<PAGE>
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
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 1995 Credit Agreement, as applicable.
The Merger Agreement contains a number of requirements that must be
met or waived by the Debtors and/or Arch in order for the Merger to be
consummated on the Effective Date. For a description of such requirements, see
"Summary of the Merger Agreement" in Section IV.D herein. The conditions to the
----
Effective Date can be waived as described in Article V of the Merger Agreement
and in Section V.C below.
-----------
4. Securities Being Issued in Connection With the Plan; Post-Merger
----------------------------------------------------------------
Capital Structure of Arch.
-------------------------
Under the Plan, Classes 1, 2, 3, 4 and 5 will be paid the Allowed
amount of their claims in full in cash or otherwise will not be impaired under
the Plan. Classes 7, 8 and 9 will receive no distribution. Securities of Arch
are being issued to the holders of Allowed Claims in Class 6 on account of their
claims.
On the date that the Bankruptcy Court approves the Disclosure
Statement or such date subsequent thereto on which the Securities and Exchange
Commission (the "SEC") has declared effective the Registration Statement, Arch
will issue the Rights to the holders of Allowed Claims in Class 6. The Rights
entitle the holders thereof to purchase for cash (i) an aggregate number of Arch
Common Shares equal to 34.3% -52.1%/7/ of the anticipated 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) and (ii) warrants to purchase in the aggregate, an aggregate
number of Arch Common Shares equal to 2.5% of the anticipated issued and
outstanding Arch Capital Shares on the Effective Date (the "Arch Warrants").
The subscription
- -------------------------
/7/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
-11-
<PAGE>
price of the Rights (the "Rights Exercise Price") will be based on the market
price of Arch Common Shares as determined during a twenty-day period immediately
prior to September 22, 1998./8/ If fewer than all of the holders of Allowed
Class 6 Claims exercise the Rights, certain Standby Investors (as defined below)
have committed to purchase the common stock and warrants not otherwise purchased
in connection with the Rights.
In addition, on the Effective Date, Arch will issue Arch Common Shares
to the holders of Allowed Claims in Class 6 that will represent 17.2% to
31.3%/9/ 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. The issuance of
these shares is subject to adjustment as described in Section V.B.4.
-------------
The Plan will effectuate the cancellation of virtually all of the pre-
petition indebtedness of the Debtors. The holders of Allowed Claims in Class 6
will be receiving equity interests (and the right to purchase equity interests)
in a company that, after giving effect to the Merger on a pro forma basis, would
have long-term debt, total assets and stockholders' equity of $1.3 billion, $1.8
billion and $322.3 million, respectively, at June 30, 1998.
II. DESCRIPTION OF THE DEBTORS
A. Background Information Regarding the Debtors
The following information provides a brief summary of the business of
the Debtors./10/ Attached hereto as Exhibit D are the 1996 and 1997 audited
---------
consolidated financial
- ----------------------
/8/ The Rights Exercise Price will be set based on the pricing mechanism set
forth in Schedule II to the Merger Agreement (the "Pricing Mechanism"). The
Pricing Mechanism provides for the closing trading price of the Arch Common
Shares to be monitored for the 20 trading days immediately prior to September
22, 1998. The closing price of the Arch Common Shares for eight of such days
will be selected at random, the two highest and lowest prices shall be
discarded, and the prices for the remaining four days will be averaged (the
"Pricing Mechanism Price"). The Rights Exercise Price will be set at 80% of the
Pricing Mechanism Price, provided that in no event, will the Rights Exercise
Price be less than $5.00 or more than $8.50. As described in Section V.J.3
-------------
below, there can be no assurance that the Rights Exercise Price will be below
the market price of the Arch Common Shares at any time during the Rights
Offering.
/9/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
/10/ Because MobileMedia was unable to comply with certain accounting
requirements and,
(continued...)
-12-
<PAGE>
statements of Communications, which provide certain historical financial
information regarding the Debtors. In addition, since the Petition Date, the
Debtors have filed Monthly Operating Reports with the Office of the United
States Trustee for the District of Delaware (the "Operating Reports"), and
have filed a copy of each Operating Report with the SEC as an exhibit to a
Current Report on Form 8-K. Financial statements included in the
Debtors' periodic reports for all periods since February 1997 were not been
prepared in accordance with generally accepted accounting principles ("GAAP")
due to the Debtors' 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 Communications attached hereto as Exhibit D reflect
---------
adjustments from the unaudited statements, including, but not limited to, an
impairment adjustment of $792.5 million recorded as of December 31, 1996.
1. Overview of the Debtors' History and Operations.
-----------------------------------------------
(a) The MTI Acquisition. The Debtors' business originally derives
from the paging business formed by MetroMedia Telecommunications, Inc. through
numerous acquisitions in the 1980's. In 1987, SBC Communications, Inc. ("SBC"),
formerly Southwestern Bell Corporation, acquired MetroMedia Telecommunications,
Inc. ("MTI") and continued to operate the paging business under the
"MetroMedia" name.
On December 30, 1992, Local Area Telecommunications, Inc. ("Locate")
entered into a stock purchase agreement (the "MTI Purchase Agreement") to
acquire the stock of MTI from SBC for $308 million, subject to certain
adjustments (the "MTI Acquisition"). MobileMedia and the predecessor of
Communications (the "Predecessor") were formed by Locate in September 1993 to
effect the MTI Acquisition. Locate's rights under the MTI Purchase Agreement
were contributed to MobileMedia in exchange for which MobileMedia issued
4,375,000 shares of Class B Common Stock to Locate, and MobileMedia's rights
under the MTI Purchase Agreement were contributed to the Predecessor.
- -------------------------
/10/ (...continued)
therefore, to issue audited financial statements in compliance
with generally accepted accounting principles, it was unable to file its Report
on Form 10-K for the year ending December 31, 1996 or its Report on Form 10-Q
for the fiscal quarter ending March 31, 1997. Accordingly, MobileMedia was
unable to comply with the continued listing requirements of the NASDAQ National
Market ("NASDAQ") and, on June 3, 1997, MobileMedia voluntarily delisted its
Class A Common Stock from the NASDAQ. Since the filing of the September 1996
Form 10-Q, MobileMedia has not filed any periodic reports under the Securities
and Exchange Act of 1934, as amended, other than Current Reports on Form 8-K.
The 1996 and 1997 audited consolidated financial statements of Communications
attached hereto as Exhibit D were not completed until August 20, 1998.
---------
-13-
<PAGE>
In order to provide a portion of the financing for the MTI
Acquisition, Locate and MobileMedia entered into a stock purchase agreement with
Hellman & Friedman Capital Partners II, L.P. and certain other investors
(collectively, the "H&F Investors"), dated as of October 11, 1993, as amended
(the "H&F Purchase Agreement"). Pursuant to the H&F Purchase Agreement and
concurrently with the consummation of the MTI Acquisition, MobileMedia sold to
the H&F Investors for $150 million (i) 14,999,995 shares of Class A Common Stock
of MobileMedia and (ii) warrants to purchase 456,283 shares of Class A Common
Stock of MobileMedia at $.001 per share (the "H&F Investment"). The proceeds of
the H&F Investment were contributed by MobileMedia to the Predecessor, and the
Predecessor used such proceeds, the net proceeds from the issuance of
$210,000,000 aggregate principal amount at maturity of 10 1/2% Senior
Subordinated Deferred Coupon Notes due December 1, 2003 (the "10 1/2% Notes")
and initial borrowings under a bank credit facility to pay the purchase price
and transaction fees and expenses incurred in connection with the MTI
Acquisition. Concurrently, the Predecessor merged with and into MTI, with the
result that MTI became a wholly owned subsidiary of MobileMedia, and MTI was
renamed "MobileMedia Communications, Inc." As a result of the MTI Acquisition,
Communications had approximately 1.2 million units in service as of December 31,
1993.
(b) The Dial Page Acquisition. On August 31, 1995, Communications
purchased the paging and wireless messaging business of Dial Page, Inc. (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
MobileMedia 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 Communications. 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 Dial Page 12 1/4% Senior Notes due 2000 (the
"Dial Page Notes"). Concurrently with the transaction, Communications
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 Communications' subscriber base.
(c) The MobileComm Acquisition. On January 4, 1996, Communications
purchased MCCA (the "MobileComm Acquisition"), the paging and wireless messaging
unit of BellSouth Corporation ("BellSouth"), and an associated nationwide two-
way narrrowband 50/12.5 kHz PCS license. The purchase price for the MobileComm
Acquisition was $928.7 million. The purchase price of the MobileComm
Acquisition was financed by (i) MobileMedia'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 MobileMedia to Communications, (ii) a concurrent
public offering by Communications of $250 million aggregate principal amount at
maturity of 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 "1995 Credit Facility"), evidenced by the
1995 Credit Agreement. $500 million of the secured term loan facility was used
as consideration for the MobileComm Acquisition. $50 million of the 1995 Credit
Facility was
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<PAGE>
used to repay Communications' former credit facility. The MobileComm Acquisition
added approximately 1.7 million units in service to the Debtors' subscriber
base.
(d) Post-Acquisition Operations. Since consummating the Dial Page
Acquisition and the MobileComm Acquisition, the Debtors have experienced
difficulties integrating the acquired businesses and have experienced serious
financial difficulties. During 1996, the financial results of the Debtors were
negatively impacted by the continuing costs and increased subscriber "churn"
associated with the attempt to integrate the business operations of MobileComm
and Dial Page with the preexisting business of the Debtors./11/
Since the Petition Date, the Debtors have been engaged in
restructuring their 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. The
Debtors also have undertaken cost reduction analyses and have taken actions that
have the objective of reducing telecommunications, subcontracting and lease
expenses, among others. In addition, the Debtors have sought to refocus their
marketing and sales efforts in an attempt to achieve unit additions consistent
with positive cash flow, and are continuing to change their management structure
with the objective of establishing profit and loss accountability in each
market.
(e) The Locate Entities. As noted above, the Locate Entities are five
subsidiaries of MobileMedia that ceased doing business in 1996 but that did not
file bankruptcy petitions with the Debtors. The Locate Entities formerly
operated as a competitive access provider, providing (i) local digital microwave
distribution services and facilities to large corporations and to interexchange
and other common carriers, and (ii) local, long distance and international
switched services. The assets of the Locate Entities were sold in a series of
transactions, culminating in a sale to WinStar Communications, Inc. ("WinStar")
in October 1996 of substantially all the remaining assets of the Locate Entities
in exchange for notes payable by WinStar in the principal amount of $17.5
million (the "WinStar Notes"). On April 7, 1997, WinStar paid the amounts owing
on the WinStar Notes, except for certain amounts withheld to cover liabilities
for New York City commercial rent taxes, New York State bulk sales taxes and
certain property taxes.
MobileMedia believes that the liabilities of the Locate Entities
exceed their assets. Since the Petition Date, MobileMedia has been working with
officers of the Locate Entities (including Joseph A. Bondi, also a MobileMedia
officer) to quantify potential liabilities against the Locate Entities. In
particular, the Locate Entities are working with their financial advisors to
assess and establish an appropriate reserve for outstanding and potential tax
liabilities. In addition
- ------------------------------
/11/ "Churn", typically measured on a monthly basis, is the percentage loss of a
paging company's subscriber base. Because of the various expenses associated
with churn, and because of the fact that it may be indicative of operational
problems, it is highly desirable for a paging company to maintain a low churn
rate.
-15-
<PAGE>
to existing and potential tax claims, the Locate Entities are aware of the
following creditors of the Locate Entities and their claimed amounts: (i)
Hellman & Friedman Capital Partners II, L.P. ("Hellman & Friedman"), a
significant shareholder of MobileMedia, for the principal amount of $7.3
million, plus $2.69 million of interest from February, 1995 through December 31,
1997, based on certain promissory notes executed by one of the Locate Entities
in 1995; (ii) certain trusts of which G. Jeffrey Mennen is a trustee
(collectively, "Mennen"), for the aggregate principal amount of $10 million,
together with an unspecified amount of interest thereon (currently estimated to
be approximately $3 million), based on promissory notes executed by one of the
Locate Entities in 1994 (collectively, "Mennen Claims"); (iii) R. Craig Roos, a
former officer of the Locate Entities, for approximately $2.6 million, based on
severance and related claims under an employment agreement; and (iv) Kenneth
Curtin, a former officer of the Locate Entities, for approximately $1 million
based on severance and related claims under an employment agreement. Hellman &
Friedman asserts that its claims are senior to the Mennen Claims by virtue of a
subordination agreement among Hellman & Friedman, Mennen and Locate. In
addition, MobileMedia has a claim for reimbursement against the Locate Entities
in an amount yet to be determined.
To date, the Locate Entities have paid approximately $1.1 million to
various taxing authorities and have made two interim distributions to their
creditors (other than MobileMedia) in the aggregate amount of $718,479, as
follows: Jerry McAndrews (no longer a creditor of the Locate Entities) --
$25,000; John Davenport (who is believed no longer to be a creditor of the
Locate Entities) -- $2,216; Kenneth Curtin -- $191,263; R. Craig Roos --
$200,000; Mennen --$150,000; and Hellman & Friedman -- $150,000. Such payments
and interim distributions will reduce amounts ultimately to be distributed to
such creditors. Substantially all of such interim distributions were made
without prejudice to any rights of the Locate Entities. The Locate Entities
expressly reserved their rights to dispute such claims of creditors, and
substantially all of the interim distributions to creditors were made expressly
subject to recovery if such claims are not ultimately established.
In addition to the claims described above, one of the Locate Entities
is a named defendant in a lawsuit currently pending in New York Supreme Court
relating to claims by two individuals seeking damages of $65 million for
defamation and intentional infliction of emotional distress in connection with
alleged false and defamatory statements transmitted over an electronic paging
network. The Locate Entities believe that the plaintiffs' allegations are
without merit and are vigorously defending the action.
It is currently anticipated that the Locate Entities will be
liquidated pursuant to a chapter 11 filing in order to effect a consensual
allocation and distribution of assets to their creditors. Kensington & Ressler
L.L.C. has been retained as outside counsel to assist management of the Locate
Entities in resolving with their creditors all issues relating to the validity,
extent and priority of their claims. Other than the known creditors named
above, MobileMedia is not aware of any claims against the assets of the Locate
Entities by any creditors
-16-
<PAGE>
of the Debtors. It is anticipated that the liquidation of the Locate Entities
will be completed prior to the Effective Date of the Plan.
2. Networks and Licenses.
---------------------
(a) General. The Debtors operate local, regional and national
paging networks. The Debtors' networks enable customers to receive pages over a
broad geographical area. The extensive coverage provided by this network
infrastructure provides the Debtors 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 the Debtors' networks provide local, regional and national
coverage, the Debtors' 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 the Debtors' networks utilize older
technologies and are comparatively costlier to operate. Although the capacity
of the Debtors' network infrastructure varies significantly market-by-market,
customer usage of the Debtors' systems is close to capacity in several markets,
thus limiting future growth in such markets in the absence of additional capital
investment.
The Debtors are 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 their existing networks. The Debtors believe their
investments in their network infrastructure will facilitate and improve the
delivery of high quality paging services while at the same time reducing
associated costs of such services.
(b) Nationwide wireless networks. The Debtors operate two
nationwide 900 MHz networks. As part of the MobileComm Acquisition, the Debtors
acquired MCCA's fully operational nationwide wireless network (the "8875
Network"), which was upgraded in 1996 to incorporate high-speed FLEX(TM)
technology developed by Motorola. In addition, in 1996, the Debtors completed
the construction of a second nationwide network that uses FLEX(TM) technology
(the "5375 Network"). The use of FLEX(TM) technology significantly increases
transmission capacity and represents a marked improvement over other systems
that use older paging protocols.
(c) 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. The Debtors
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
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<PAGE>
MobileComm Acquisition, the Debtors acquired a second two-way narrowband PCS
license for a nationwide 50 kHz outbound/12.5 kHz inbound system.
In order to retain their narrowband PCS licenses, the Debtors must
comply with certain minimum build-out requirements. With respect to each of the
regional PCS licenses purchased at the FCC's 1994 auction, the Debtors are
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,
the Debtors are 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. The Debtors estimate that the costs of
these minimum build-outs (which would not be sufficient for the Debtors to
provide significant narrowband PCS applications) could be as much as
approximately $9 million. The Debtors have concluded that, given the expected
high demand for nationwide alphanumeric services, the potential demand for
guaranteed receipt services and the Debtors' high fixed costs for maintaining
and building out their existing networks, the most economical means for
satisfying projected demand is for the Debtors to construct a fully operational
narrowband PCS network with ReFLEX 25(TM) capability. The Debtors estimate that
they will be able to complete the construction economically relative to other
methods of network construction using their existing nationwide network
infrastructure and supplementing it with additional transmitters and with
receivers. On May 12, 1998, the Bankruptcy Court authorized the Debtors to
expend up to $16 million during 1998 in connection with the buildout of the
network necessary to support narrowband PCS services.
3. Paging and Messaging Services and Products.
------------------------------------------
(a) Paging and Messaging Services. The Debtors currently offer a
variety of paging and messaging services. To send a page to a subscriber of the
Debtors, 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 the Debtors 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 the Debtors' 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 the Debtors
are:
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<PAGE>
. 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, the Debtors 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/TM /manufactured by Motorola.
Internet and WorldWide Web access is also possible for many
alphanumeric paging customers. As of June 30, 1998, the Debtors
had approximately .6 million alphanumeric units in service.
. Other Services. In addition to local, regional and
nationwide paging service -- both numeric and alphanumeric -- the
Debtors offer a variety of enhanced services such as voice mail
and voice mail notification, e-mail notification and news, sports
reports and stock quotes.
(b) Products and Services. Subscribers for paging services enter
into a service contract with the Debtors that provides for either the purchase
or lease of pagers and the payment of air time and other charges. The Debtors
also sell their services in bulk quantities to resellers, who subsequently sell
the Debtors' services to end-users. Resellers are responsible for sales,
billing, collection and equipment maintenance costs. 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 the Debtors and leased to
subscribers. Customer-owned and -maintained pagers and those owned by resellers
do not require capital investment by the Debtors, unlike Debtor-owned pagers
leased to subscribers.
The Debtors sell other products and services, including pagers and
accessories and pager replacement and maintenance contracts.
4. Sales and Marketing.
-------------------
(a) General. The Debtors' sales and marketing efforts are
directed toward adding additional units with existing subscribers and
identifying new potential subscribers.
-19-
<PAGE>
Subscribers to the Debtors' 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.
(b) Sales Channels. The Debtors market their paging services
through three primary sales channels: direct, reseller and retail.
. Direct. In the direct channel, the Debtors lease or sell
pagers directly to their customers and bill and service such
customers. The Debtors' 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
the Debtors' marketing and sales efforts, given its critical
contribution to recurring revenue and projected growth. The
Debtors are engaging in efforts to improve sales productivity and
strengthen their direct channel sales force, which suffered from
high turnover and open positions during much of 1997. In
addition, the Debtors 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, the Debtors sell
access to their transmission networks in bulk to a third party,
who then resells such services to the end users (usually
consumers or small businesses). The Debtors offer 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 the Debtors retain the
credit risk of the reseller. Because resellers are responsible
for customer equipment, the capital costs that would otherwise be
borne by the Debtors are reduced.
The Debtors' resellers generally are not exclusive
distributors of the Debtors' 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. Going forward, the Debtors intend to be an
active participant in the reseller channel, but to concentrate on
accounts that are profitable and where longer term partnerships
can be
-20-
<PAGE>
established with selected resellers. As of June 30, 1998, the
reseller channel accounted for approximately 11% of recurring
revenue.
. Retail. In the retail channel, the Debtors sell pagers
to retailers and, after the consumer purchases the pager from the
retailer, the consumer contacts the Debtors 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 the Debtors' capital investment
requirements in pagers. Subscribers obtained through retailers
are billed and serviced directly by the Debtors. Retail
distribution permits the Debtors 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.
5. Suppliers and Equipment Vendors.
-------------------------------
The Debtors do not manufacture any of the pagers or related
transmitting and paging terminal equipment used in their paging operations. The
Debtors currently purchase pagers from a limited number of suppliers and in turn
sell or lease the pagers to their subscribers. Motorola is the primary supplier
of pagers to the Debtors. Glenayre is the Debtors' primary supplier of paging
terminals, paging transmitters and voice mail system equipment. On February 6,
1997, the Debtors obtained Bankruptcy Court approval to pay the pre-petition
outstanding accounts payable owing to their Key Suppliers, in exchange for which
each of Motorola, NEC, Panasonic and Glenayre entered into post-petition supply
agreements with the Debtors.
6. Assets of the Debtors.
---------------------
In addition to their FCC licenses and network infrastructure (which
includes radio transmission and satellite uplink equipment), the Debtors have
the following categories of assets:
(a) pagers (including both pagers held as fixed assets for lease
and pager inventory for sale), pager parts and accessories;
(b) their subscriber base and related accounts receivable;
(c) intellectual property;
(d) owned real estate and improvements;
(e) certain leased assets;
(f) computer and telephone systems and equipment;
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<PAGE>
(g) furniture, fixtures and equipment;
(h) the ownership of one-third of the equity of Abacus
Communications Partners, L.P.;
(i) goodwill and other intangibles; and
(j) cash and cash equivalents.
7. Material Litigation and Claims against the Debtors.
--------------------------------------------------
(a) Pending FCC Action. In press releases issued on September 27
and October 21, 1996, the Debtors 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
their approximately 8,000 local transmission one-way paging stations. The
Debtors caused an investigation to be conducted by their 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 the Debtors' nationwide paging licenses, and the
results of that investigation were submitted to the FCC on November 8, 1996.
Since November 8, 1996, the Debtors have 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 the Debtors. 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 the Debtors 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 commencing an administrative
hearing to inquire into the qualification of the Debtors to remain an FCC
licensee. The Order directed an administrative law judge ("ALJ") to take
evidence and develop a full factual record on issues concerning the Debtors'
filing of false forms and applications in connection with their applications for
paging licenses. While the 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, the
Debtors would continue to operate in the ordinary course and provide
uninterrupted service to customers.
-22-
<PAGE>
On April 23, 1997, the Debtors filed a motion with the ALJ seeking a
stay of the hearing proceedings instituted by the April 8 Order. The Debtors
sought the stay on the ground that, absent a stay, the uncertainty created by
the hearing process would likely inflict material irreparable damage on the
Debtors' business. In the motion, the Debtors also sought confirmation that the
Debtors' operations could be preserved through an assignment or transfer of
control of the Debtors' Licenses consistent with an FCC doctrine known as Second
------
Thursday./12/ On May 5, 1997, the ALJ denied the Debtors' motion for a stay.
- --------
On June 6, 1997, as a result the Debtors' request for FCC review of
the ALJ's order, the FCC issued a ten-month stay of the hearing. The ten-month
stay is intended to provide the Debtors with an opportunity to comply with the
FCC's Second Thursday doctrine. The Second Thursday doctrine balances the FCC's
--------------- ---------------
interests with the 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. The
Debtors believe they will satisfy the requirements of Second Thursday pursuant
---------------
to the proposed Plan. FCC approval of the transfer of the Debtors' licenses
pursuant to the Plan is a condition to effectiveness of the Plan. Such
approval, if granted, will terminate the pending proceedings into the Debtors'
qualification to remain an FCC licensee. On March 27, 1998, the Debtors filed a
request with the FCC to extend the ten-month stay for an additional six months,
in order to provide the Debtors with sufficient time to complete their
reorganization process and to continue discussions among the various partes in
interest. This extension request was granted by the FCC on June 4, 1998.
(b) 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
Securities Exchange Act of 1934 (the "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 of 1933 (the "Securities Act") by failing to disclose information
in offering documents filed with the Securities and Exchange Commission (the
"SEC") on or around November 7, 1995 in connection with the secondary offering
of MobileMedia common stock and 9 3/8% Notes.
- ---------------------
/12/ This policy derives from the FCC's decision in In re Second Thursday Corp.,
---------------------------
22 F.C.C.2d 515 (1970), reconsideration granted in part, 25 F.C.C.2d 112 (1970).
-------------------------------
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<PAGE>
The plaintiffs in the New Jersey Actions allege that, as a result of
alleged misrepresentations, purchasers of MobileMedia common stock and 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, the Debtors initiated an Adversary Proceeding in the
Bankruptcy Court to stay the prosecution of the New Jersey Actions. The basis
of the Debtors' motion for a stay was, inter alia, that the continued
----- ----
prosecution of the New Jersey Actions would interfere with the Debtors' efforts
to reorganize and would deplete the assets of the estate.
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 of the Plan. Subsequent to the expiry
of this stay, the New Jersey Actions will be allowed to proceed against the
named defendants.
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. None of the Debtors is 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
MobileMedia who purchased stock during 1995 and 1996 and allege that
MobileMedia, 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 MobileMedia's securities and
in various public filings.
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 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, the Debtors 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, the
Debtors submitted an agreed form of order that
-24-
<PAGE>
bars certain types of discovery until September 15, 1998. This order was entered
by the Bankruptcy Court on May 29, 1998. Subsequent to the expiry of this stay,
the California Actions will be allowed to proceed against the named defendants.
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. As to the
Debtors, however, these Claims (and related claims for indemnification) are
classified in Classes 7 and 8, and will receive no distributions under the Plan.
(c) Bankruptcy Claims. Since the June 16, 1997 bar date established
by the Bankruptcy Court for filing proofs of claim in the Cases, the Debtors
have been actively involved in resolving the claims filed against their estates.
As of July 31, 1998, more than 2,400 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, the Debtors 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 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. The Debtors have already filed objections with the Bankruptcy Court
to certain of these claims and are currently in the process of reconciling and
resolving those remaining. The Debtors believe that, once resolved, the
aggregate allowed amount of these remaining claims will be substantially less
than $30 million.
The Debtors also are in the process of reconciling and resolving the
tax claims filed against their estates. These tax claims were filed in an
aggregate amount of approximately $30 million. The Debtors anticipate that
these claims will be allowed in an amount substantially less than the filed
amount.
8. Regulatory Matters.
------------------
(a) FCC Regulation. The paging licenses granted to the Debtors by
the FCC 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. 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 still pending, the FCC has thus far
granted each license renewal that the Debtors have filed. Almost all of the
Debtors' FCC paging, business, earth station and air-to-ground licenses will
expire in 1998 and 1999. The Debtors' nationwide PCS license will expire in
September 2004 and their regional narrowband PCS licenses will expire in April
2005.
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In addition, the Debtors' narrowband PCS licenses require that the Debtors
construct base stations meeting certain population coverage requirements within
Section II.A.2.(c), the Debtors intend to build out their narrowband PCS license
- ------------------
infrastructure to meet these requirements.
The Communications Act of 1934, as amended, (the "Communications
Act"), requires radio licensees such as the Debtors 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 the Debtors and transfers by the Debtors of a
controlling interest in any of their licenses, construction permits or any
rights thereunder. In addition, prior FCC approval would be required in
connection with any transfer of control of the Debtors or, in certain
circumstances, the acquisition of fifty percent (50%) or more of the equity of
the Debtors by a single entity or two or more entities under common control, or
the transfer of de facto control of the Debtors. On February 13, 1997, in
connection with the filing of the Cases, the Debtors sought a grant of
permission from the FCC to execute an involuntary, pro forma assignment of their
licenses to the Debtors as debtors-in-possession. On March 3, 1997, the FCC
granted such permission with respect to the Debtors' earth stations, on April 3,
1997, the FCC granted such permission for the assignment of the Debtors'
microwave licenses and on May 26, 1998 and July 17, 1998, the FCC granted such
permission with respect to the Debtors' paging, air-to-ground and narrowband PCS
licenses. In addition, as noted above, FCC approval of the transfer of the
Debtors' licenses pursuant to the Plan and the Merger Agreement is a condition
to effectiveness of the Plan and the Merger Agreement.
In a rulemaking proceeding pertaining to interconnection between local
exchange carriers ("LECs") and commercial mobile radio service ("CMRS")
providers such as the Debtors, 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 at LEC facilities, and vice versa.
Consistent with this ruling mandating compensation for carriers terminating LEC-
originated traffic, 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. In September and October of 1997, the Debtors provided notice to each of
the LECs with which they do business that the Debtors would no longer be paying
such charges and that the LECs should cease invoicing the Debtors for such
charges, and requested that the LECs provide the Debtors with refunds of these
charges that were invoiced and paid by the Debtors after the effectiveness of
the FCC's orders. Certain LECs, in compliance with the FCC's orders, have
ceased charging the Debtors and are cooperating with the Debtors in assessing
refunds. Other LECs have refused to comply with the Debtors' request and have
disagreed verbally and in writing with the Debtors' interpretation of the FCC's
orders. These items 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, the Debtors 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 the Debtors' favor, then the
Debtors will pursue relief through settlement negotiations, administrative
complaint procedures or both. If these issues ultimately are decided in favor
of the LECs, the Debtors likely would be required to pay all past due contested
charges and may also be assessed interest and late charges for the withheld
amounts. For a further discussion of regulatory matters, see Section IV.G.10.
---------------
(b) State Regulation. As a result of the enactment by Congress of the
Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") in August 1993, the
states are now generally preempted from exercising rate or entry regulation over
any of the Debtors' operations. States are not preempted, however, from
regulating "other terms and conditions" of CMRS. Thus, to the extent any states
have authority to regulate "other terms and conditions" of paging service (e.g.,
----
financing regulations, hearing complaints, universal service contributions), the
Budget Act does not preempt them from exercising such regulatory authority.
Legislation is currently in effect in Texas requiring paging companies to
contribute a portion of their taxable telecommunications revenues to a
Telecommunications Infrastructure Fund created by the state legislature.
Certain other states, including Alabama, Georgia, Hawaii, South Carolina and
Tennessee, impose various regulations on certain paging operations of the
Debtors. State regulations may require the Debtors to submit for prior approval
the terms and conditions (other than rates) under which they plan to provide
service or to secure approval for the issuance of securities or the entry into
financing arrangements. Those states that regulate paging services also may
require the Debtors to obtain prior approval of the acquisition of controlling
interests in other paging companies. At this time, the Debtors are not aware of
any proposed state legislation or regulations that would have a material adverse
impact on the Debtors' existing operations.
9. Trademarks.
----------
The Debtors market their services primarily under the trade name
MobileComm and the federally registered mark MOBILECOMM(R), except in the
Greater Metropolitan Cincinnati area and in certain parts of Western
Pennsylvania and Western New York, in which they market their services under the
federally registered mark MOBILEMEDIA. The Debtors market their messaging
services under the federally registered mark VOICESTOR(R), and other services
under the federally registered mark SPORTSCASTER(R) and the unregistered mark
MOBILECOMM CITYLINK. The Debtors also own other marks that are registered with
the United States Patent and Trademark Office ("USPTO"), including: DIAL PAGE,
DMC DIGITAL MOBILE COMMUNICATIONS, EZ ALERT, MEMORY MANAGER, MESSAGESOFT,
MOBILEMEDIA & Design, MOBILEMEDIA & Design (Globe), MOBILEMEDIA PAGING &
PERSONALCOM and PAGERXTRA.
In addition, the Debtors have applications on file with the USPTO for
the marks MMS and MOBILECOMM & Design.
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B. The Debtors' Operations in Chapter 11
1. Overview of the Debtors' Operations.
-----------------------------------
Since the Petition Date, the Cases have been pending before the
Honorable Peter J. Walsh, United States Bankruptcy Judge for the District of
Delaware. During this period, the Debtors have functioned as debtors-in-
possession pursuant to sections 1107 and 1108 of the Code and have continued to
operate their business. 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 Code. The Debtors have been paying undisputed obligations that have
arisen subsequent to the Petition Date on a timely basis.
2. Retention of Professionals and Appointment of Committee.
-------------------------------------------------------
(a) The Debtors' Retention of Counsel. As of the Petition Date,
the Bankruptcy Court authorized the Debtors' retention of Sidley & Austin and
Young Conaway Stargatt & Taylor, LLP, as reorganization counsel for the Debtors,
and the retention of Latham & Watkins, as special counsel for the Debtors. In
addition, the Debtors have retained, with Bankruptcy Court approval, the law
firms of Wiley, Rein & Fielding and Koteen and Naftalin as FCC counsel, and
Gerry, Friend & Sapronov LLP, as telecommunications counsel.
(b) The Debtors' Retention of Other Professionals. Also as of the
Petition Date, the Bankruptcy Court approved the employment of Alvarez & Marsal,
Inc. and Ernst & Young LLP, as restructuring advisors and accountants,
respectively, for the Debtors. The Debtors' Chairman-Restructuring and Chief
Financial Officer are both affiliated with Alvarez & Marsal, Inc. On July 10,
1997, the Bankruptcy Court approved the Debtors' retention of The Blackstone
Group, L.P. ("Blackstone"), as financial advisors and investment bankers.
(c) Appointment of Official Committee and the Retention of
Professionals Thereby (at Debtors' expense). On February 10, 1997, the Office
of the United States Trustee for the District of Delaware (the "U.S. Trustee")
appointed the Committee. The current members of the Committee are as follows:
First Trust New York National Association
State Street Bank and Trust Company
The Huff Alternative Income Fund, L.P.
c/o W.R. Huff Asset Management Co., LLC
The Northwestern Mutual Life Insurance Company
Mountain Dew Marketing, Inc.
Intek Telecommunications, Inc.
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The Committee has been active in the day-to-day course of the Cases.
The Committee received authorization to retain and has retained the law firms of
Jones, Day, Reavis & Pogue and Morris, Nichols, Arsht & Tunnel, as co-counsel,
and Paul, Weiss, Rifkind, Wharton & Garrison, as FCC counsel. The Committee
also received authorization to retain and has retained Houlihan Lokey Howard &
Zukin as financial advisors and investment bankers. The fees and expenses of
the Committee's professionals are paid by the Debtors.
3. Operating Results During Chapter 11.
-----------------------------------
Since the Petition Date, the Debtors have filed Monthly Operating
Reports with the U.S. Trustee. These Operating Reports are public documents and
are available at the Office of the U.S. Trustee.
As of June 30, 1998, there were no outstanding funded borrowings under
the DIP Facility (described below) and the Debtors had approximately $11.6
million in cash and cash equivalents on hand.
4. Summary of Significant Orders Entered and Other Actions Taken
-------------------------------------------------------------
During the Cases.
----------------
As in any major chapter 11 case, certain motions, applications and
orders have been filed and entered on the Bankruptcy Court's official docket.
The following information relates to certain significant events in the Cases.
(a) DIP Facility. On the Petition Date, the Bankruptcy Court provided
interim authority for the Debtors' entry into a Revolving Credit and Guarantee
Agreement dated as of January 30, 1997 (as amended, the "DIP Credit Agreement")
that provided for a $200 million secured, superpriority post-petition financing
facility (the "DIP Facility") with a number of financial institutions (the "DIP
Lenders") and The Chase Manhattan Bank, as agent for the DIP Lenders (the "DIP
Agent"). On February 19, 1997, the Debtors obtained final approval of the DIP
Facility. In accordance with the terms of the various orders approving the DIP
Facility (the "DIP Approval Orders"), the Debtors have been paying interest and
fees to the DIP Lenders in accordance with the terms of the DIP Facility and
have made monthly payments, in an amount equal to the interest accruing at the
non-default rate under the 1995 Credit Agreement, to the Pre-Petition Lenders as
adequate protection for the priming liens granted to the DIP Lenders and for the
use of cash collateral. Through June 30, 1998, the Debtors had paid $1.6
million in interest to the DIP Lenders and $94.18 million in adequate protection
payments to the Pre-Petition Lenders, in each case in accordance with the DIP
Approval Orders. The initial payment to the Pre-Petition Lenders included the
payment of amounts in arrears from October 7, 1996 through the Petition Date in
accordance with the initial DIP Approval Order. During the Cases, the Debtors
have borrowed and repaid various amounts under the DIP Facility. As of June 30,
1998, there were no outstanding funded borrowings under the DIP Facility.
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<PAGE>
Pursuant to the terms of the DIP Credit Agreement, the DIP Facility
was to mature on January 30, 1998 unless, on or before December 31, 1997, the
Debtors filed a plan of reorganization satisfactory to two-thirds in amount and
one-half in number of the DIP Lenders, in which case the Maturity Date under and
as defined in the DIP Credit Agreement would automatically be extended to July
31, 1998. No such plan was filed by December 31, 1997, but, pursuant to a
Fourth Amendment to the DIP Credit Agreement dated January 22, 1998, the DIP
Lenders agreed to extend the maturity of the DIP Facility until July 31, 1998,
and, at the request of the Debtors, the facility was reduced to $100 million.
Interim approval of the extension of the DIP Facility was granted by the
Bankruptcy Court on January 27, 1998, which approval became final on February
13, 1998. Pursuant to a Seventh Amendment to the DIP Credit Agreement dated
July 23, 1998, the DIP Lenders agreed to extend the maturity of the DIP Facility
until March 31, 1999 and, at the request of the Debtors, the facility was
further reduced to $75 million. Interim approval of this second extension and
reduction of the DIP Facility was granted by the Bankruptcy Court on July 28,
1998, which approval became final on August 12, 1998.
The Chase Manhattan Bank, as Pre-Petition Agent and DIP Agent, has
remained active in the day-to-day course of the Cases. Moreover, in its
capacity as DIP Agent, The Chase Manhattan Bank has retained certain advisors,
including Simpson Thacher & Bartlett and Richards, Layton & Finger, as co-
counsel, and Wilmer Cutler & Pickering, as FCC counsel. The DIP Agent has also
retained Arthur Andersen LLP and Chilmark Partners as financial advisors. The
costs of these professionals are being borne by the Debtors in accordance with
the terms of the DIP Credit Agreement and the DIP Approval Orders.
(b) Exclusivity Orders. Upon motions of the Debtors, the Bankruptcy
Court extended the Debtors' exclusive periods for filing a plan of
reorganization and soliciting acceptances thereof to January 27, 1998 and March
30, 1998, respectively. As noted above, the Plan was filed on January 27, 1998,
within the exclusive filing period. By order of the Bankruptcy Court entered
March 18, 1998, the Debtors' exclusive solicitation period was extended until
June 30, 1998; by order dated June 25, 1998, the Debtors' exclusive solicitation
period was extended until July 31, 1998. By order dated August 14, 1998, the
Debtors' exclusive solicitation period was extended until September 30, 1998.
The Plan was filed prior to the expiration of exclusivity.
(c) Customer, Key Supplier and Employee Orders. On the Petition Date,
the Bankruptcy Court also 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 the Key Suppliers. On January 8,
1998, the Bankruptcy Court authorized the Debtors to enter into a
telecommunications contract with MCI Telecommunications Corporation that effects
the consolidation of the Debtors' long-distance telephone service and which the
Debtors estimate will result in cost savings for the Debtors of up to $10
million over its 21-month term.
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<PAGE>
On April 3, 1997, the Bankruptcy Court authorized the Debtors to
implement a new severance plan, and on May 2, 1997, the Bankruptcy Court
authorized the Debtors to pay up to $3.1 million on account of their 1996
employee bonus program. On June 4, 1997, the Bankruptcy Court authorized the
Debtors to employ Ronald R. Grawert as their Chief Executive Officer and
approved a compensation package in respect of the services of Joseph A. Bondi,
the Debtors' Chairman-Restructuring. On March 18, 1998, the Bankruptcy Court
approved the Debtors' 1997 bonus incentive plan, which permitted the Debtors to
make payments up to an aggregate amount of $6.9 million to all of the Debtors'
full-time, non-commission-based employees. On June 25, 1998, the Bankruptcy
Court authorized the Debtors to make up to $7.6 million in payments under their
1998 bonus incentive plan. The Debtors expect to make the payments earned under
this plan in the second quarter of 1999.
On April 22, 1998, the Debtors filed a motion seeking authority to
undertake the buildout of the network necessary to support narrowband PCS
services. An order authorizing the Debtors to enter in contracts during 1998
obligating the Debtors to pay up to $16 million in connection with this buildout
was entered by the Bankruptcy Court on May 12, 1998.
(d) Administrative Orders. On the Petition Date, the Bankruptcy Court
granted the Debtors' motion to extend the Debtors' time to file their Schedules
of Assets, Liabilities and Executory Contracts, and the Statement of Financial
Affairs. The joint Schedules of Assets, Liabilities and Executory Contracts,
and the joint Statement of Financial Affairs were filed with the Bankruptcy
Court on March 26, 1997, and were amended by the Debtors' First and Second
Amendments to Schedules of Assets, Liabilities and Executory Contracts (as so
amended, the "Schedules").
On March 20, 1997, the Bankruptcy Court entered an order setting a bar
date of June 16, 1997 for the filing of certain proofs of claim.
On March 18, 1998, the Bankruptcy Court authorized the Debtors to pay
up to $7 million on account of the Debtors' pre-petition property taxes. As of
July 15, 1998, the Debtors had paid approximately $6.1 million on account of
pre-petition property tax claims.
(e) Real Property and other Leases. The Bankruptcy Court has extended
the period during which the Debtors can decide whether to assume or reject non-
residential real property leases of the Debtors to the confirmation date of the
Plan. During the course of the Cases, the Debtors have obtained Bankruptcy
Court approval to reject certain specified leases. As of June 30, 1998, 121
leases had been rejected with Bankruptcy Court approval.
On January 22, 1998, the Bankruptcy Court approved the Debtors' entry
into a lease with Miller Freeman, Inc. (the "Fort Lee Lease"). Pursuant to the
Fort Lee Lease, the Debtors relocated their headquarters to Fort Lee, New Jersey
as of March 23, 1998, resulting in cost savings to the Debtors of approximately
$3 million over the term of the Fort Lee Lease. On
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<PAGE>
March 18, 1998, the Bankruptcy Court approved the assignment of the lease for
the premises that previously served as the Debtors' headquarters.
On April 14, 1998, the Bankruptcy Court approved the Debtors' motion
to assume the lease for the premises that serves as their Dallas, Texas customer
service center.
(f) Administrative Claims. Administrative expenses payable in the
Cases include, among other things, fees and expenses of attorneys, accountants,
financial advisors and other professionals retained by the Debtors, the
Committee and the DIP Agent in connection with the Cases (collectively, the
"Case Professionals"). Such fees are calculated generally as the product of the
customary hourly billing rates and the aggregate hours billed by such Case
Professionals. Some financial advisors are paid a monthly fee plus expenses
incurred, rather than on an hourly basis. As of June 30, 1998, $25.5 million
had been paid to Case Professionals on account of work performed subsequent to
the Petition Date.
All unpaid fees of the U.S. Trustee will be paid on the Effective
Date. Such fees have been paid as they accrued during the pendency of the
Cases.
(g) Sale of Owned Tower Assets. On July 7, 1998, the Debtors executed
an agreement, subject to Bankruptcy Court approval, to sell the Debtors'
transmission towers and associated assets ("Tower Assets") to Pinnacle Towers
Inc. ("Pinnacle"), and to rent from Pinnacle transmitter space on the Tower
Assets (the "Tower Transaction"). The purchase price for the Tower Assets is
$170 million, and the projected annual rental stream to be paid by the Debtors
to Pinnacle is approximately $10.7 million. The proceeds of the Tower Sale will
be paid to the Pre-Petition Lenders, which Lenders have liens on all of the
assets being sold.
The Tower Transaction is the product of an extensive marketing and
bidding process conducted by the Debtors and Blackstone. Prior to executing the
agreement with Pinnacle, Blackstone, on behalf of the Debtors, contacted
approximately 40 potential buyers of the Tower Assets and executed
confidentiality agreements with, and distributed Tower Asset information to,
approximately 30 of these potential buyers. After the potential buyers' review
of public and non-public operating and financial information concerning the
Tower Assets, Blackstone requested preliminary expressions of interest from such
third parties including, but not limited to, their proposed acquisition price
for the Tower Assets and sources of financing for the acquisition. Subsequent
to the Debtors' receipt and review of preliminary expressions of interest,
potential purchasers continued to conduct due diligence, including on-site
review of the Tower Assets. During such period, Blackstone continued to
negotiate with Pinnacle and other potential purchasers the respective terms and
conditions for the Acquisition of the Tower Assets. After extensive
negotiations, the Debtors 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,
the Debtors filed two motions on July 14, 1998. One motion sought to establish
procedures for bidding on the
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<PAGE>
Tower Assets, including establishing a bidding deadline of August 7, 1998, and
provided for liquidated damages and the reimbursement of expenses to Pinnacle
under certain circumstances. This relief was granted on July 23, 1998. No bids
were received by the bidding deadline. The second motion sought Bankruptcy Court
approval of the Tower Transaction, and authority to pay the sale proceeds to the
Pre-Petition Lenders. The relief requested in this Motion was granted on August
10, 1998. The Debtors currently anticipate closing the Tower Transaction by the
end of August.
(h) 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 Initial 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 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. If the Plan is confirmed,
this litigation will terminate.
(i) Agreement with Committee. Under an agreement dated as of August
18, 1998 between the Debtors and the Committee (the "Committee Agreement"), the
Debtors cannot, without either the consent of the Committee or the approval of
the Bankruptcy Court: (a) terminate the Merger Agreement or withdraw the Plan;
(b) knowingly take any action that would give Arch the right to terminate the
Merger Agreement; (c) agree to any material modification to the Merger
Agreement; or (d) make any material modification to the Plan. In addition, the
Committee has the right to request that the Debtors terminate the Merger
Agreement and, if the Debtors disagree with such termination, to request that
the Bankruptcy Court order the Debtors to do so.
(j) Approval of Initial Merger Motion. On August 20, 1998, as
required by the Merger Agreement, the Debtors filed a motion (the "Initial
Merger Motion") seeking Bankruptcy Court approval of the provisions of the
Merger Agreement that relate to the Debtors' and Arch's agreements to pay to one
another "breakup fees" in certain circumstances, to the Debtors' agreement to
pay $500,000 to Arch in partial reimbursement of its expenses in connection with
the negotiation and execution of the Merger Agreement and to the exclusive
dealing provisions of the Merger Agreement. The Initial Merger Motion also
seeks the approval of the Bankruptcy Court for the Debtors' agreement to waive
their rights to assert claims against Arch's accountants in connection with such
accountants having provided Ernst & Young, LLP, the Debtors' accountants, access
to certain confidential work papers in connection with the due diligence of Arch
undertaken by the Debtors. Finally, the Initial Merger Motion seeks approval of
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the Committee Agreement. A hearing on the Initial Merger Motion is scheduled
for September 1, 1998.
III. BUSINESS OF 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 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%. 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.
IV. ACQUISITION OF THE DEBTORS BY ARCH AND FUTURE BUSINESS OF THE REORGANIZED
DEBTORS
A. Attempts to Sell Debtors' Business
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During the pendency of the Cases, Blackstone, the Debtors' financial
advisors and investment bankers, conducted an extensive search for a third party
purchaser of the Debtors' business. To this end, Blackstone met with
representatives of prospective purchasers, and a number of prospective
purchasers conducted "due diligence" reviews of the Debtors. By letter dated
August 26, 1997, the Debtors formally solicited preliminary proposals from
prospective purchasers. In response, the Debtors received preliminary
conditional proposals from certain prospective purchasers, including a proposal
received from Arch by letter dated September 24, 1997. Upon receipt of the
proposals, the Debtors' management and Blackstone provided the financial
advisors to the Committee and the Pre-Petition Agent with information regarding
the proposals, and engaged in discussions with the Committee and the Pre-
Petition Agent (and their respective advisors) regarding the proposals. At the
same time, the Debtors and Blackstone had numerous conversations with the
parties making the proposals in order to clarify the terms of the proposals and
to provide such parties with the Debtors' reactions to the proposals.
Subsequent to these discussions, the Debtors and Blackstone engaged in
further extensive negotiations and discussions with various parties that had
expressed an interest in a business combination with the Debtors. The Debtors
and their professionals assisted these parties in conducting further due
diligence on the Debtors. On January 27, 1998, having determined that none of
the proposals received from third parties were superior to the standalone plan
of reorganization that the Debtors had formulated, the Debtors filed the Initial
Plan. The Initial Plan had the support of the Agent for the Debtors' Pre-
Petition Lenders but was opposed by the Committee.
Subsequent to the filing of the Initial Plan, various third parties
contacted the Debtors regarding possible transactions and the Debtors continued
to engage in discussions and negotiations with such parties. By letter dated
March 17, 1998, Arch (having entered into an agreement with Huff, Northwestern
(each as defined below) and the Committee regarding a potential transaction
relating to the Debtors) submitted a revised proposal for a business combination
with the Debtors. Subsequent to that date, Arch and the Debtors each conducted
due diligence and Arch, the Debtors, the Pre-Petition Agent and the Committee
engaged in lengthy negotiations in connection with the form of the proposed
transaction and the form and amount of the consideration to be provided by Arch.
After an extended period of negotiation and analysis, and after
consultation with the Committee and the Pre-Petition Agent and their respective
financial advisors, the Debtors determined that the agreement ultimately reached
with Arch (as reflected in the Merger Agreement and the Plan) represented the
highest and best offer received and was superior to the Initial Plan.
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B. Capitalization and Structure of the Reorganized Debtors
Section 4.2(B) of the Plan provides that effective as of the Effective
Date but immediately following the discharge of the Debtors described in Section
6.1 of the Plan, each of the following transactions will occur in the order
listed: (i) MobileMedia will contribute all of its assets/13/ to Communications
and thereafter immediately dissolve, at which time the separate corporate
existence of MobileMedia will cease; (ii) Communications will merge with and
into Merger Subsidiary, and the separate corporate existence of Communications
will cease as contemplated by the Merger Agreement; (iii) MCCA will merge with
and into a special purpose Delaware corporation formed by Communications and a
wholly owned direct subsidiary of Merger Subsidiary as a result of the merger
described in clause (ii) of this section ("Delaware Subsidiary Co."); (iv) a
number of merger transactions will be effected such that all of the Debtors
(other than MobileMedia, Communications and MCCA) will be merged with and into
Delaware Subsidiary Co.; and (v) Delaware Subsidiary Co. (as successor to MCCA)
will organize License Co. L.L.C. as a wholly owned limited liability company of
Delaware Subsidiary Co. (as successor to MCCA) and will transfer the Licenses
then held by it to License Co. L.L.C. 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.
In addition to the survivor of the merger of Communications and Merger
Subsidiary, Arch will have other operating subsidiaries subsequent to the
Merger.
C. Composition of Management and Directors of the Reorganized Debtors
Pursuant to Section 4.2(C)(3) of the Plan, the directors and officers
of each Debtor will 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 will become the
directors and officers of Reorganized Communications, and the directors and
officers of Delaware Subsidiary Co. immediately prior to the Effective Date will
become the directors and officers of Reorganized MCCA. The Debtors will 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. Pursuant to the transactions contemplated
under the Plan, a designee of each of Huff and Whippoorwill (each as defined
below) will be elected to the Arch board of directors on the Effective Date.
On and after the Effective Date, each Reorganized Debtor will be governed
- ----------------------------
/13/ To the extent the issues arising in connection with the Locate Entities
have not been resolved in the separate bankruptcy proceeding of the Locate
Entities, the contributed assets of MobileMedia will include its equity
interests in the Locate Entities.
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<PAGE>
in accordance with such Reorganized Debtor's Certificate of Incorporation, as
amended, in the case of Merger Subsidiary, by the Certificate of Merger relating
to the Merger.
D. Summary of the Merger Agreement
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached hereto as Exhibit B and is incorporated herein by
---------
reference. This summary is qualified in its entirety by reference to the Merger
Agreement.
1. The Merger.
----------
The Merger Agreement provides that, following the satisfaction of
certain specified conditions, including, without limitation, approval of the
Plan by the Bankruptcy Court, Communications will merge with and into Merger
Subsidiary, a wholly-owned subsidiary of Arch, with Merger Subsidiary being the
surviving entity, which will then be renamed "MobileMedia Communications, Inc."
or such other name as Arch will determine prior to the Effective Date.
2. Funding for the Plan and Merger Agreement.
-----------------------------------------
Arch intends to finance a portion of the cash necessary to fund the
Plan and consummate the Merger through an offering to holders of Allowed Class 6
Claims of transferable rights (the "Rights") to purchase (a) an aggregate number
of Arch Capital Shares equal to 34.3%-52.1%/14/ of the anticipated outstanding
Arch Capital Shares on the Effective Date (on a Diluted Basis) and (b) warrants
to purchase an aggregate number of Arch Common Shares equal to 2.5% of the
anticipated outstanding Arch Capital Shares on the Effective Date (on a Fully
Diluted Basis) (the "Arch Warrants"). In connection with the offering of the
Rights and the Units, Arch has filed the Registration Statement with the SEC
under the Securities Act and will use its best efforts to have the Registration
Statement declared effective by the SEC as promptly as practicable. Arch has
agreed to cause the Rights to be issued as soon as practicable after the date
the Registration Statement becomes effective, but not before approval of this
Disclosure Statement by the Bankruptcy Court.
Contemporaneously with the execution and delivery of the Merger
Agreement, four groups of holders of Class 6 Claims (the "Standby Purchasers")
- -- W.R. Huff Asset Management Co., L.L.C., as agent for various discretionary
accounts and affiliates ("Huff"), The Northwestern Mutual Life Insurance Company
and an affiliate (together, "Northwestern"), Credit Suisse First Boston
Corporation and Whippoorwill Associates, Inc., as agent for various
discretionary accounts ("Whippoorwill") -- have entered into binding written
commitments (the "Standby Purchase Commitments") to become Standby Purchasers
and, in such capacity, to purchase, (a) their respective allocations as holders
of Class 6 Claims of Rights and (b) the Arch
- ------------------
/14/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
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<PAGE>
Capital Shares and Arch Warrants not purchased by other Class 6 Creditors or
their transferees pursuant to the Rights for an aggregate purchase price of up
to $217 million. In consideration of their purchase commitments contained in the
Standby Purchase Commitments, the Standby Purchasers will be issued Arch
Warrants to purchase an aggregate number of Arch Common Shares equal to 2.5% of
the anticipated outstanding Arch Common Shares on the Effective Date on a Fully
Diluted basis. The Standby Purchase Commitments require Arch to cause one
nominee of Huff and one nominee of Whippoorwill to be elected as directors of
Arch for as long as Huff and Whippoorwill hold specified percentages of Arch's
equity securities. Arch also will enter into a Registration Rights Agreement,
substantially in the form attached as Exhibit C to the Merger Agreement, with
the Standby Purchasers (the "Standby Purchaser Registration Rights Agreement").
In the event that the purchase of Arch Common Shares by the Standby
Purchasers described above would cause the Standby Purchasers (including certain
other persons and affiliates) in the aggregate, to beneficially own more than
49% of the securities of Arch entitled to vote in the election of directors and
outstanding on the Effective Date or more than 49% of the total voting power of
the capital stock of Arch, the Standby Purchasers will receive, proportionate to
their obligations to purchase Units and in lieu of Arch Common Shares, Arch
Class B Common Shares such that the Standby Purchasers, in the aggregate, will
beneficially own shares representing not more than 49% of the capital stock of
Arch generally entitled to vote in the election of directors and not more than
49% of the total voting power of the capital stock of Arch. The Arch Class B
Common Shares are not entitled to vote in the election of directors and have
voting rights equal to 1% of the voting rights of Arch Common Shares on all
other matters. Upon transfer of the Arch Class B Common Shares from the Standby
Purchasers to any other person, the shares will convert automatically into Arch
Common Shares.
The obligations of each Standby Purchaser under its Standby Purchase
Commitment are subject to a number of conditions, including without limitation:
(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,
have waived the requirement of finality; (ii) the satisfaction or, with the
written consent of the Standby Purchaser, 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 certain
conditions may be waived without the written consent of the Standby Purchaser);
(iii) the Shelf Registration Statement covering the resale of Arch Common
Shares, Arch Class B Common Shares and Arch Warrants by the Standby Purchasers
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 (with certain exceptions), 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
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<PAGE>
Purchaser not fulfilling its commitment) on certain minimum terms; (viii) each
other Standby Purchaser shall have fulfilled its commitment; (ix) the Rights,
Arch Common Shares, Arch Class B Common Shares 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 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) an FCC order
approving the transfer of the Debtors' licenses and terminating the pending
proceedings 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 order 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 Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") shall have expired or been terminated early. The
obligations of each Standby Purchaser are also 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 the
Debtors conduct their respective businesses) that 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 Reorganized Debtors and Arch (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 a Standby Purchaser may not assert such
condition if each of the other Standby Purchasers shall have waived this
condition).
In addition, each Standby Purchase Commitment will terminate (i) if
the Tower Transaction is terminated (unless the Debtors have entered into an
agreement with a third-party purchaser providing for a sale to such third party
of all substantially all of the Tower Assets resulting in net proceeds of not
less than $165 million), (ii) on December 31, 1998, unless the Debtors have sold
the Tower Assets for not less than $165 million on or before such date, (iii) on
March 31, 1999, unless the Confirmation Order shall have been entered by the
Bankruptcy Court on or before such date, (iv) on June 30, 1999, unless the
effectiveness of the Plan occurs on or before such date, or (v) if not
theretofore terminated pursuant to one of the foregoing clauses, on the date on
which the Merger Agreement is terminated in accordance with the terms thereof.
The proceeds of the Rights Offering, together with any amounts paid by
the Standby Purchasers under the Standby Purchase Commitments, if necessary,
will equal $217 million.
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<PAGE>
Arch intends to borrow the remaining funds necessary to consummate the
Merger and make the distributions provided for under the Plan under its existing
credit facility, as amended, and one or more bridge or permanent debt
facilities. These borrowings are expected to aggregate $347 million.
3. Effective Date.
--------------
The Merger will be consummated (which consummation will be on the
Effective Date of the Plan) if and when each of the conditions described in
Section IV.D.10 below is satisfied or (where permissible) waived, and the
- ---------------
parties file the Certificate of Merger with the Secretary of State of the State
of Delaware. The Merger will become effective upon the filing of the
Certificate of Merger with such Secretary of State or at such later time as may
be provided for in the Certificate of Merger.
4. Representations and Warranties.
------------------------------
In the Merger Agreement, each of MobileMedia Communications and Arch
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 that are material
to the respective parties; (xiv) the possession of licenses and authorizations;
(xv) the absence of 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 opinion of Arch's financial advisor regarding
the fairness of the Merger to Arch stockholders, and (xxiv) 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.
The representations and warranties in the Merger Agreement will not
survive the closing under the Merger Agreement.
-40-
<PAGE>
5. Certain Covenants and Agreements.
--------------------------------
Except as otherwise contemplated by the Merger Agreement and Plan and,
in the case of MobileMedia and Communications, except as otherwise required by
"Bankruptcy-Related Requirements" as such term is defined in the Merger
Agreement, Arch, MobileMedia, Communications and the Merger Subsidiary have
agreed, among other things (a) to use their respective best efforts to
consummate the Merger, (b) to work together to secure all necessary approvals of
regulatory authorities to the Merger, (c) to maintain their respective
regulatory licenses and authorizations and (d) to conduct their businesses in
the ordinary course of business.
MobileMedia and Communications have further agreed to pay the net
proceeds from the Tower Transaction pro rata to the holders of the Allowed Class
--- ----
4 Claims and to comply with certain operating restrictions during the period
from the date of the execution of the Merger Agreement until the earlier to
occur of the Effective Date or earlier termination of the Merger Agreement,
except as required by law or consented to by Arch. Among other operating
restrictions, MobileMedia and Communications have agreed not to (i) except for
assets not in excess of $2,500,000, sell, lease, mortgage, pledge, encumber or
dispose of any of their assets or acquire or dispose of any assets, other than
in the ordinary course of business; (ii) except for permitted borrowings under
the DIP Loan Agreement in an aggregate amount as computed under Section
4.5(a)(ii) of the Merger Agreement (which generally restricts borrowings in
excess of amounts used for construction of the Debtors' narrowband PCS network
plus, at any time before December 31, 1998, $20 million, and, at any time after
January 1, 1999 through June 30, 1999, $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 their payroll program as previously disclosed to Arch, enter into, adopt or
amend any employee benefit plan or severance agreements or arrangements, 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 their directors, officers or employees generally or pay any
benefit not required by the terms of any existing employee benefit plan; (iv)
change in any material respect their 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 the Debtors are authorized to
pay by the Bankruptcy Court and adequate protection payments and the net cash
proceeds of the Tower Sale to the Pre-Petition Lenders; (vi) amend their
certificates 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, materially 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
(except, with the consent of Arch, in connection with entering into a
transaction to replace the Tower Transaction); (ix) make or
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<PAGE>
commit to make any capital expenditure not set forth in the capital expense
budget attached to the Merger Agreement; (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 their outstanding capital stock (other
than, with respect to a subsidiary of MobileMedia, to its corporate parent), (B)
split, combine or reclassify any of their 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 their 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 their 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) take any action or fail to take any action permitted by the
Merger Agreement with the knowledge that such action or failure to take action
would result in any of the representations and warranties of Communications set
forth in the Merger Agreement becoming untrue in any material respect; (xiii)
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
the terms of the Plan or practice since the Petition Date; (xiv) 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 (xv) agree in writing or otherwise to take any of
the foregoing actions.
Arch has agreed to similar categories of covenants, which are
contained in the Merger Agreement.
6. No Solicitation by the Debtors.
------------------------------
The Merger Agreement provides that, other than in connection with the
Tower Transaction, the Debtors and each of their respective directors, officers,
employees, financial advisors, representatives or agents may not directly or
indirectly, 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 any
Debtor, proxy solicitation or other business combination involving any Debtor
(collectively, "Debtor Acquisition Proposals"), or provide any non-public
information concerning the business, properties or assets of any Debtor to any
person or entity (other than to Arch and the Debtors' creditors in accordance
with existing confidentiality arrangements). The Merger Agreement further
obligates the Debtors immediately to notify Arch of any inquiries in connection
with any Debtor Acquisition Proposals.
Notwithstanding the foregoing, if a third party other than Arch
delivers to the Debtors an acquisition or business combination proposal superior
to Arch's, the Debtors may, as required by bankruptcy law or the fiduciary
duties of the Board of Directors of MobileMedia and Communications, participate
in discussions or negotiations with such third party. The Debtors
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<PAGE>
have agreed, however, not to terminate the Merger Agreement until at least 48
hours after Arch's receipt of a copy of the third party's superior proposal.
Arch is subject to similar restrictions, which are contained in the
Merger Agreement.
7. FCC Approval.
------------
As discussed in Sections II.A.8 and IV.F.2, the transfer of licenses
--------------- ------
contemplated by the Merger is subject to the approval of the FCC. Arch and the
Debtors have agreed jointly to prepare and file applications (the "FCC
Applications") requesting the FCC's consent to the consummation of the Merger
(i) to the transfer of the control of the Debtors' FCC authorizations to Arch
and to the transfer of control of Arch's FCC authorizations from Arch's current
shareholders to Arch's shareholders immediately following the Merger and (ii) to
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 Debtors' authorizations or otherwise materially
affecting Arch's or the Reorganized Debtors' ability to own or operate the
properties, assets and business of the Debtors following the Merger. Arch and
the Debtors further have agreed to cooperate in taking all steps necessary to
expedite the preparation, filing and prosecution of the FCC Applications and
that, should any person or entity challenge the grant of any FCC Application
before the FCC, they will 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. The Debtors
have also agreed to allow Arch to participate in any meetings or hearings
relating to the FCC Applications and a right to review in advance any
correspondence, agreements, or pleadings that may be submitted by the Debtors to
the FCC or any other party to the Hearing with regard to the FCC Applications.
8. Additional Agreements.
---------------------
The Merger Agreement provides that each party to the agreement will
(a) afford the other party and its representatives access to all of its
respective facilities, properties, books, contracts, commitments and records and
make available copies of all reports and other documents filed by such party
with certain Federal or state governmental or regulatory authorities, (b)
cooperate in the preparation and filing of the Registration Statement filed with
the SEC, and to take any other actions required to be taken under applicable
state blue sky or securities laws in connection with the Rights Offering, (c)
take all actions required to file with the Federal Trade Commission and the
United States Department of Justice the required notifications under the HSR Act
with respect to the transactions contemplated by the Merger Agreement and to
take any other actions to cause the waiting periods under the HSR Act to
terminate or expire at the earliest possible date, (d) cooperate in the
preparation and filing of all necessary documents, applications, notices,
petitions and filings and use all reasonable efforts to obtain all necessary
permits, consents, approvals and authorizations of all governmental or
regulatory authorities and all other
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<PAGE>
third parties, necessary or advisable to consummate the transactions
contemplated by the Merger Agreement, and (e) periodically provide updated
financial information to the other.
In addition, each of the Debtors and Arch has agreed to notify the
other promptly of any event or development that would (a) render any statement,
representation or warranty in the Merger Agreement inaccurate or incomplete in
any respect, or (b) constitute or result in a breach or failure to comply with
any agreement or covenant in the Merger Agreement.
9. Employees and Employee Benefit Plans.
------------------------------------
After the Merger, Arch and Reorganized Communications will control the
hiring, retention and firing of the employees of Reorganized Communications.
Subject to the requirements of all applicable laws and transition periods for
certain plans, all Reorganized Communications employees will be transferred to
Arch's employee benefit plans. Arch has agreed to honor all vacation accrued by
the Debtors' employees, to honor the Debtors' 1998 Employee Incentive Program
previously approved by the Bankruptcy Court and to give the Debtors' employees
"credit" for their years of service with the Debtors in connection with Arch's
employee benefit plans, to the extent permitted by applicable law.
10. Conditions to the Merger.
------------------------
The Merger Agreement provides that the respective obligations of Arch,
Merger Subsidiary, MobileMedia and Communications to effect the Merger are
subject to the satisfaction or waiver of each of the following conditions: (i)
the stockholders of Arch will have approved the proposals necessary to
consummate the Merger; (ii) no statute, rule, order, decree or regulation will
have been enacted or promulgated by any foreign or domestic governmental entity
that 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 Communications and Arch will have been obtained and
will be in effect; (iii) there will 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 by the Merger
Agreement; (iv) the expiration or early termination of any waiting period under
the HSR Act will have occurred; (v) (1) the FCC shall have issued an order (the
"FCC Grant") both (A) consenting to the transfer of the Debtors' FCC licenses
and, to the extent requested by the parties, to the transfer of Arch's FCC
licenses without any conditions that would result in a material adverse effect
to Arch or the Debtors and (B) terminating the pending FCC hearing without any
findings or conclusions (x) that are materially adverse to the Reorganized
Debtors or that would have a material adverse effect on the use of the Debtors'
FCC licenses by the Reorganized Debtors following the Effective Date, or (y)
that 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 Arch or the Reorganized Debtors based on the activities of the
Debtors prior to the Effective Date; and (2) either (A) the FCC Grant has become
a Final Order (as defined below) or (B) any condition or conditions under
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<PAGE>
Arch's financing agreements related to the Merger 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, Arch's lenders shall have waived any such condition or conditions (or
any such condition or conditions having a substantially similar effect); (vi)
the Registration Statement has been declared effective and no stop order with
respect thereto will be in effect; (vii) the Arch Common Shares to be issued as
contemplated by the Plan and the Merger Agreement will have been approved for
quotation on the Nasdaq National Market; (viii) (1) the Confirmation Order, in a
form reasonably satisfactory to Arch, MobileMedia and Communications shall have
been entered by the Bankruptcy Court; and (2) either (i) the Confirmation Order
shall have become a Final Order (as defined below) or (ii) any condition or
conditions under Arch's financing agreements related to the Merger 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, waived; (ix) no action, suit or proceeding will
be pending or threatened by any governmental entity challenging the validity of
the actions taken by Arch, Communications or any of their respective
subsidiaries in connection with the confirmation of the Plan; (x) the Effective
Date will have occurred; and (xi) the stock to be issued as contemplated by the
Merger Agreement will be so issued and distributed pursuant to the exemption
from registration under the Securities Act provided by section 1145 of the Code,
will be freely tradeable by holders thereof who are not then affiliates of Arch
or "underwriters" under the Securities Act or section 1145(b)(1) of the Code
and, except for certificates issuable to such affiliates or underwriters, will
be represented by certificates bearing no restrictive legend.
The parties have agreed that the FCC Grant shall have 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. The parties have further agreed that the Confirmation Order
shall become a "Final Order" when it has 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.
The obligation of Arch to consummate the transactions to be performed
by Arch in connection with the Merger is subject to the satisfaction, or waiver
by Arch, of the following conditions: (i) the representations and warranties of
MobileMedia and Communications contained
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<PAGE>
in the Merger Agreement, which representations and warranties will be deemed not
to include any qualification or limitation with respect to materiality, will be
true and correct as of the Effective Date, with the same effect as though such
representations and warranties were made as of the Effective Date, except where
the matters in respect of which such representations and warranties are not true
and correct 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 the Debtors, taken as a
whole; (ii) each of MobileMedia and Communications will have performed or
complied with its respective material agreements and covenants required to be
performed or complied with under the Merger Agreement as of or prior to the
Effective Date in all material respects; (iii) there will not have occurred
between the date of the Merger Agreement and the Effective Date an event that
has had 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; (iv) MobileMedia and
Communications will 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
(as defined in the Merger Agreement) has been declared effective, the Rights
Offering will have expired and Arch will have received aggregate proceeds
therefrom (and/or from the closings contemplated by the Standby Purchase
Commitments) of $217 million; and (vi) the closing of the Tower Transaction or a
similar transaction will have occurred and Communications and MobileMedia will
have paid at least $165 million in net proceeds therefrom to the Pre-Petition
Lenders.
The obligations of Communications and MobileMedia to consummate the
transactions to be performed by them in connection with the Merger is subject to
the satisfaction, or waiver by Communications and MobileMedia, of the following
conditions: (i) the representations and warranties of Arch contained in the
Merger Agreement, which representations and warranties will be deemed not to
include any qualification or limitation with respect to materiality, will be
true and correct as of the Effective Date, 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 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 will 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 will not have occurred between the date of execution of
the Merger Agreement and the Effective Date an event that 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) Arch's "poison pill" rights
plan will not have been triggered; and (v) Arch will have delivered to
Communications and MobileMedia a certificate (without qualification as to
knowledge or materiality or otherwise) to the effect that such conditions are
satisfied in all respects.
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<PAGE>
11. Termination.
-----------
The Merger Agreement provides that Arch and Communications may
terminate the Merger Agreement prior to the Effective Date only as follows: (a)
Arch and Communications may terminate the Merger Agreement by mutual written
consent; (b) either Arch or Communications may terminate the Merger Agreement by
giving written notice to the other in the event the other is in breach (i) of
its representations and warranties contained in the Merger Agreement, which
representations and warranties will 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 (ii) 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 will specify in reasonable detail the nature of such breach); (c)
(i) after March 31, 1999, Arch may terminate the Merger Agreement by written
notice to Communications 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 Arch of any representation, warranty or covenant contained in
the Merger Agreement) or (ii) after June 30, 1999, Arch may terminate the Merger
Agreement by giving written notice to Communications if the Merger will not have
occurred on or before such date (unless the failure results primarily from a
breach by Arch of any representation, warranty or covenant contained in the
Merger Agreement); (d)(i) after March 31, 1999, Communications 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 such date (unless the
failure results primarily from a breach by Communications of any representation,
warranty or covenant contained in the Merger Agreement) or (ii) after June 30,
1999, Communications may terminate the Merger Agreement by giving written notice
to Arch if the Merger will not have occurred on or before such date (unless the
failure results primarily from a breach by Communications of any representation,
warranty or covenant contained in the Merger Agreement); (e) Communications may
terminate the Merger Agreement if it has decided to pursue a Communications
Superior Proposal (as defined in the Merger Agreement) by giving written notice
to Arch, provided that on or before such termination Communications will have
paid to Arch the Buyer Breakup Fee (as defined in the Merger Agreement); (f)
Arch may terminate the Merger Agreement by giving written notice to
Communications if the Provisional Order has not been entered by the Bankruptcy
Court on or prior to September 4, 1998; (g) Communications may terminate the
Merger Agreement by giving written notice to Arch if (i) the Arch Board does not
issue the Arch Recommendation prior to the Special Meeting or withdraws or
amends in a manner adverse to Communications the Arch Recommendation or
otherwise materially breaches its obligations with respect to soliciting proxies
from its stockholders for approval of the two necessary shareholder proposals to
be considered at a special shareholder meeting or (ii) at this meeting either of
the two necessary shareholder proposals is not approved by the requisite vote of
Arch's stockholders; (h) Arch may terminate the Merger Agreement by giving
written notice to Communications if Communications or any of its subsidiaries
files either
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<PAGE>
an amendment to the Plan in a manner that is in violation of the Merger
Agreement or files any other plan of reorganization; and (i) either the Debtors
or Arch may terminate the Merger Agreement if (1) the Tower Transaction shall
have been terminated in accordance with its terms, unless, prior to or
simultaneously with such termination, the Debtors have entered into an agreement
with a third-party purchaser providing for a sale to such third party of all or
substantially all of the Tower Assets and which agreement results in net
proceeds of not less than $165 million or (2) the Tower Assets have not been
sold for not less than $165 million on or before December 31, 1998.
If any party terminates the Merger Agreement, all obligations of Arch
and Communications 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 Communications's
obligation to pay the Arch Breakup Fee (as defined in Section III.D.12), if
----------------
applicable, and Arch's obligation to pay the Communications Breakup Fee (as
defined in Section III.D.12), if applicable, which will survive any such
----------------
termination.
12. Effect of Termination; Payment of Fees.
--------------------------------------
Pursuant to the terms of the Merger Agreement, on August 20, 1998,
Communications filed the Initial Merger Motion seeking approval of the
Bankruptcy Court for the breakup fees and the no solicitation provisions of the
Merger Agreement. The Initial Merger Motion also sought Bankruptcy Court
approval for the Debtors' agreement to pay Arch $500,000 in partial
reimbursement of Arch's expenses incurred in connection with the negotiation and
execution of the Merger Agreement. The relief requested in the Initial Merger
Motion is scheduled to be heard on September 1, 1998.
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 Communications or as a result of the
failure of the Confirmation Order to be entered on a timely basis due to the
failure of the holders of Claims in Classes 4, 5 or 6 to vote in favor of the
Plan, or due to the withdrawal or amendment of the Plan, or the filing of any
other plan of reorganization by Communications, in either case without Arch's
consent, (ii) Communications 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 Code, (iii) Communications has terminated the Merger
Agreement in connection with a Communications Superior Proposal (as defined in
the Merger Agreement) (each of the foregoing being a "Major Breakup Event"),
or (iv) Arch or Communications terminate the Merger Agreement (as a result of
the failure of the Tower Transaction or a comparable transaction to close
_________________) (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
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<PAGE>
adverse effect on Arch), then Communications will 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 Communications pursuant to the Tower
Agreement (or pursuant to any settlement in lieu thereof) (in either case, the
"Arch Breakup Fee").
In the event that Communications 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 to its shareholders
proposals for the increase in Arch Capital Shares and for the issuance of Arch
Capital Shares under and in connection with the Merger Agreement and the Plan,
or the failure of such shareholder proposals to be approved at the Special
Meeting, or Arch or Communications 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 Plan, and at the time of such
termination Communications is not in material breach of any material covenant or
obligation required to be performed by Communications 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 Communications), then Arch will pay to Communications
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 "Communications
Breakup Fee").
E. Business of the Reorganized Debtors
Subsequent to the Effective Date, Reorganized Communications will be a
wholly owned subsidiary of Arch. The Debtors and Arch have jointly prepared pro
forma unaudited statements of operations, balance sheets and statements of cash
flow (the "Combined Company Projections"), which are attached hereto as Exhibit
-------
E and discussed in Section VII, "Feasibility of the Plan". As noted in Section
- - ----------- -------
VII, the assumptions underlying these projections are subject to significant
- ---
business, economic and competitive uncertainties and contingencies, many of
which are beyond the Debtors' and Arch's control. There generally will be a
difference between projections of future performance and actual results because
certain events and circumstances may not occur as expected. These differences
could be material.
THE DEBTORS AND ARCH HAVE PREPARED THE PROJECTIONS ATTACHED AS EXHIBIT
-------
E TO THIS DISCLOSURE STATEMENT IN CONNECTION WITH THE PLANNING AND DEVELOPMENT
- -
OF THE PLAN. THE PROJECTIONS ASSUME THAT THE PLAN WILL BE SUCCESSFULLY
IMPLEMENTED AND THE MERGER AGREEMENT WILL BE CONSUMMATED ON THE TERMS DESCRIBED
IN THIS DISCLOSURE STATEMENT. THE PROJECTIONS, WHICH WERE PREPARED AS DESCRIBED
THEREON, ARE SUBJECT TO BUSINESS, ECONOMIC AND OTHER
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<PAGE>
UNCERTAINTIES INHERENT IN DEVELOPING PROJECTIONS, AS DISCUSSED IN SECTION VII,
-----------
"FEASIBILITY OF THE PLAN".
1. Projected Revenues.
------------------
The Debtors anticipate that, as subsidiaries of Arch subsequent to the
Effective Date, the Reorganized Debtors will continue to provide paging services
and products to their customers and otherwise operate their business in
substantially the same manner as they currently do. Arch and the Debtors have
projected that their pro forma net revenue will be approximately $841.2 million
for the year ending December 31, 1999, and that EBITDA will be approximately
$255 million for the year ended December 31, 1999. These numbers are exclusive
of anticipated cost savings resulting from the business combination.
2. Projected Capital Expenditures.
------------------------------
The bulk of the pro forma combined projected capital expenditures
relates to the purchase of new pagers and the construction and upgrading of
network infrastructure, including construction of a portion of a narrowband PCS
network. Capital expenditures for 1999 are currently estimated to aggregate
approximately $194 million. Subsequent to the Merger, Arch may undertake
certain expenditures in connection with upgrading management information
systems, improving order fulfillment operations and adding additional customer
service centers These projected capital expenditures will either be paid from
internally generated funds or will be financed externally as Arch's financial
position and existing indebtedness permit. The Debtors and Arch have estimated
their projected capital expenditure requirements based on their projected needs,
the change in historical costs and anticipated future costs.
3. Interest Expense.
----------------
As noted in Section IV.G.10, "High Degree of Leverage After the
---------------
Merger", Arch currently is, and after the Merger will continue to be, highly
leveraged. Subsequent to the Merger, Arch will have outstanding indebtedness
for borrowed money of approximately $1.3 billion (on a pro forma basis as of
June 30, 1998). Arch's annual interest expense for 1999 is projected to be $146
million.
F. General Description of Regulatory Matters Relating to the Plan
The discussions of regulatory matters contained in the following and
other Sections of this Disclosure Statement describe certain actions that the
Debtors (and Arch) have taken or will take to satisfy the regulatory conditions
precedent to the effectiveness of the Merger Agreement and the Plan. The
Debtors, however, reserve the right to take or seek such alternative and
different actions or relief from that described herein as they may from time to
time deem appropriate.
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<PAGE>
1. SEC Matters.
-----------
All securities distributed pursuant to the Plan (but excluding (a) the
Rights, (b) the Arch Common Shares, the Arch Class B Common Shares and the Arch
Warrants issuable upon exercise of the Rights or the Units issuable upon such
exercise consisting of such Arch Common Shares or Arch Class B Common Shares and
such Arch Warrants, and (c) the Arch Common Shares issuable upon exercise of
such Arch Warrants and certain other Arch Warrants issued in connection with the
Plan) will be entitled to the benefits and exemptions provided by section 1145
of the Code to the maximum extent allowed by law and equity. Section 1145 of
the Code provides an exemption from registration under the Securities Act and
state securities laws of the securities of a debtor or, among others, of a
successor to a debtor under a plan, with exceptions for certain categories of
holders. The Debtors believe that the securities that will be issued by Arch in
connection with the Plan for which no registration statement is being filed
qualify for the exemption provided for under section 1145. See Section V.I for
--- -----------
a discussion of certain matters related to the ownership and resale of
securities issued pursuant to the Plan.
2. FCC and State Regulatory Matters.
--------------------------------
The Debtors intend to transfer their FCC licenses to the Reorganized
Debtors and to merge with Merger Subsidiary pursuant to the Plan in accordance
with the FCC's Second Thursday doctrine. FCC approval of the transfer of
---------------
ownership of more than 50% of the equity securities of Arch is also necessary.
On ________, 1998, the Debtors and Arch jointly filed their applications to
transfer licenses and to consummate the Merger in accordance with the Second
------
Thursday doctrine (collectively, the "Second Thursday Application"). It is a
- -------- ---------------
condition to effectiveness of the Plan that the FCC approves the transfer of the
licenses and the Merger, thereby granting the Second Thursday Application, on
---------------
terms that do not impair the feasibility of the Plan and permit the Plan and the
Merger to be implemented and consummated.
G. Information Relevant to the Risks Posed to Creditors Under the Plan
The following is a summary of certain matters that should be
considered, together with all other relevant matters, in connection with the
Plan. This summary is not intended to be a complete list of important matters
that persons voting on the Plan should consider. Because it is anticipated that
subsequent to the Effective Date, the Reorganized Debtors will be wholly owned
subsidiaries of Arch, and that holders of Allowed Class 6 Claims will receive
under the Plan a substantial equity interest in Arch, certain of the matters
addressed below relate exclusively to Arch. Holders of Voting Claims against
the Debtors should analyze and evaluate the Plan and the other information set
forth in this Disclosure Statement and in the Exhibits hereto with their
respective advisors in determining whether to vote to accept or reject the Plan.
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<PAGE>
1. Risk of Delay or Non-Occurrence of the Confirmation Date and the
----------------------------------------------------------------
Effective Date.
--------------
The Plan can only be confirmed if it complies with various legal
requirements set forth in the Code and outlined below. Moreover, the occurrence
of the Effective Date is subject to various conditions set forth in the Plan and
in the Merger Agreement that must be satisfied or, in some instances, waived
prior to the occurrence of the Effective Date. See Section V.C, "Conditions to
-----------
Effectiveness of the Plan". There may be delay in satisfying the conditions to
the occurrence of the Effective Date, and there is no assurance that these
conditions will be met (or, as applicable, waived). Reference should be made to
the Plan, to Article V of the Merger Agreement and to Section V.C for a
-----------
description of these conditions.
2. Challenges of Business Integration.
----------------------------------
There can be no assurance that the expectations regarding the future
operations of Arch following the Merger 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 the Reorganized Debtors. The process of integrating the
businesses of Arch and the Reorganized Debtors 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 cost savings and efficiencies, there can be no assurance as to the timing or
amount of cost savings or efficiencies that may ultimately be attained. Certain
of the anticipated benefits of the Merger may not be achieved if the existing
operations or Arch and the Debtors are not successfully integrated in a timely
manner. The difficulties of such integration may initially be increased by the
necessity of coordinating geographically separated organizations and integrating
personnel with disparate business backgrounds and corporate cultures. There can
be no assurance that Arch will be able to integrate effectively the Reorganized
Debtors' operations or, even if integrated, that Arch's operating performance
after the Merger will be successful. If Arch is not successful in integrating
the Reorganized Debtors' operations, or if the integrated operations fail to
achieve market acceptance, Arch could 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.
3. Certain Risks Associated with Arch's Existing Debt and Contracts.
----------------------------------------------------------------
Arch is currently party to various contractual arrangements,
including, without limitation, various contracts with governmental authorities,
credit agreements and indentures and similar agreements, under which the
consummation of the Merger and the other transactions contemplated by the Merger
Agreement and the Plan could (a) result in a breach, violation,
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<PAGE>
default or conflict, (b) give other parties thereto rights of termination or
cancellation or (c) 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 contracts 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
an 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 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 other parties
will not allege that the Merger constitutes either a breach or default or a
change in control of Arch.
4. Transaction Costs.
-----------------
Arch estimates that it will incur direct transaction costs of
approximately $25 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 charges to reflect
costs associated with the Merger.
5. Substantial Amortization Charges.
--------------------------------
A significant effect of the purchase accounting in connection with the
Merger will be to record a substantial amount of goodwill and other intangible
assets that 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
approximately 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.
6. 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 (a) the ability to obtain additional radio
spectrum, (b) greater access to capital markets and lower costs of capital, (c)
broader geographic coverage of paging systems, (d) economies of scale in the
purchase of capital equipment, (e) operating efficiencies and (f) enhanced
access to executive personnel.
Each of Arch and the Debtors has pursued, and, if the Merger is
consummated, Arch intends to continue to pursue, acquisitions of paging
businesses as a key component of its
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<PAGE>
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.
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.
7. Future Capital Needs; Uncertainty of Additional Funding.
-------------------------------------------------------
Arch's business strategy requires, and subsequent to the Merger will
continue to require, 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 NPCS strategy, acquisition
strategies and other 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 could
have a material adverse effect on Arch and its ability to make payments with
respect to its outstanding indebtedness when due.
8. Competition and Technological Change.
------------------------------------
Arch and the Debtors each face competition from other paging service
providers in all markets in which they operate, as well as from certain
competitors that 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 them. Certain of Arch's and the
Debtors' competitors 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 the
Reorganized Debtors' particular markets, there could be a material adverse
effect on them following the Merger.
Competitors are currently using and developing a variety of two-way
paging technologies. Neither Arch nor the Debtors presently offer their
customers such two-way services, other than as a reseller. Although such
services generally are higher priced than
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<PAGE>
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 or the Reorganized
Debtors. Future technological advances in the telecommunications industry could
increase new services or products competitive with the paging services provided
by Arch or the Reorganized Debtors or could require Arch and the Reorganized
Debtors 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 the
Debtors currently provide. While such services are primarily focused on two-way
voice communications, service providers could elect 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 the Reorganized Debtors and leased to
their respective subscribers. If Arch's or the Reorganized Debtors' subscribers
request more technologically advanced pagers, including, but not limited to,
two-way pagers, Arch or the Reorganized Debtors 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 the Reorganized
Debtors. There can be no assurance that Arch or the Reorganized Debtors will be
able to compete successfully with current and future competitors in the paging
business or with competitors offering alternative communication technologies.
9. Government Regulation, Foreign Ownership and Possible Redemption.
----------------------------------------------------------------
The paging operations of Arch and the Debtors are subject to
regulation by the FCC and various state regulatory agencies. The FCC paging
licenses granted to Arch and the Debtors 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 the
Debtors' qualifications to remain an FCC licensee, Arch and the Debtors are
unaware of any circumstances that would prevent the grant of any pending or
future renewal applications; however, no assurance can be given that any of
Arch's or the Debtors' 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 the Debtors have filed. There can be no
assurance that the FCC and various state regulatory agencies will not propose or
adopt regulations or take actions that would have a material adverse effect on
Arch or the Debtors 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 the Debtors are
subject may change significantly
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<PAGE>
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
the Debtors 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 the Debtors ),
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 the Debtors
might have to accelerate the build-out of their systems in certain areas.
Changes in regulation of Arch's and the Debtors' paging businesses or
the allocation of radio spectrum for services that compete with Arch's and the
Debtors' business could adversely affect their results of operations. In
addition, some aspects of the 1996 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 the Debtors 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 the Reorganized Debtors 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 1996 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 the Debtors, 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 the Debtors can yet know
the impact of these state contribution requirements, if enacted and applied to
Arch and the Debtors. Moreover, neither Arch nor the Debtors 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 the
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<PAGE>
Debtors 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 the Debtors 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 the Debtors' favor, then Arch and the Debtors will pursue relief
through settlement negotiations, administrative complaint procedures or both. If
these issues are ultimately decided in favor of the LECs, Arch and the Debtors
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 the
Debtors, these or similar requirements could in the future have a material
adverse effect on Arch or the Reorganized Debtors.
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. 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 state law (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 the Reorganized Debtors following
the Merger).
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<PAGE>
10. High Degree of Leverage After the Merger.
----------------------------------------
Each of Arch and Communications is, and after the consummation of the
Merger the combined company will continue to be, highly leveraged. At June 30,
1998, Arch's total long-term debt was $1.0 billion compared with total assets of
$971.5 million and latest six-month annualized EBITDA of $139.5 million.
Communications' total long-term debt was $1.1 billion compared with total assets
of $596.4 million and latest six month annualized EBITDA (before restructuring
costs) of $123.8 million at June 30, 1998. After giving effect to the Merger,
the sale of the Tower Assets to Pinnacle, the elimination of the Debtors' pre-
petition debt under the Plan and the incurrence of additional debt by Arch in
connection with the Merger, on a pro forma basis at June 30, 1998, the combined
company would have had long-term debt of $1.3 billion compared with total assets
of $1.8 billion and latest six-month annualized EBITDA of $250.9 million. Arch's
high degree of leverage may have adverse consequences for Arch, including: (a)
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; (b) 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; (c) the
amended credit facility and the indentures under which certain Arch 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; (d) Arch may be more highly
leveraged than its competitors which may place it at a competitive disadvantage;
(e) Arch's high degree of leverage will make it more vulnerable to a downturn in
its business or the economy generally; and (f) Arch's high degree of leverage
may impair its ability to participate in the anticipated 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 that 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.
11. Subscriber Turnover.
-------------------
The results of operations of wireless messaging service providers,
such as Arch and the Debtors, can be significantly affected by subscriber
cancellations. Since filing for bankruptcy protection, the Debtors have
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
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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 the Reorganized Debtors.
12. Dependence on Third Parties.
---------------------------
Neither Arch nor the Debtors manufactures any of the pagers used in
their respective paging operations. Arch and the Debtors each buy pagers
primarily from Motorola and NEC and therefore are dependent on such
manufacturers to obtain sufficient pager inventory for new subscriber and
replacement needs. In addition, Arch and the Debtors purchase terminals and
transmitters primarily from 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 the Debtors has
experienced significant delays in obtaining pagers, terminals or transmitters
(other than in the period preceding the Debtors' bankruptcy filing), but there
can be no assurance that Arch and the Reorganized Debtors 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. Communications' agreement with Motorola will expire on February 6,
1999, although it provides for automatic renewal for one-year terms. In
addition, under the terms of the current contract, on the Effective Date,
Reorganized Communications will need to provide Motorola with credit support.
There can be no assurance that Arch's or Communication's agreements with
Motorola will be renewed or, if renewed, that such agreements will be on terms
and conditions as favorable 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. Finally, Arch and the Debtors
rely on these parties to provide satellite transmission for some aspects of
their paging services. To the extent there are satellite outages, Arch and the
Reorganized Debtors may experience a loss of service until such time as
satellite coverage is restored.
13. Possible Acquisition Transactions.
---------------------------------
Arch has advised the Debtors that it believes that the paging industry
will undergo further consolidation, and that it 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.
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<PAGE>
14. Dependence on Key Personnel.
---------------------------
The success of Arch and the Reorganized Debtors subsequent to the
Merger 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 either Arch's or the Debtors' executive officers or the inability to
attract or retain key employees in the future could have a material adverse
effect on Arch and the Reorganized Debtors.
15. 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 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
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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.
The Debtors are aware that certain of their software and paging
systems require modification, and are in the process of determining the full
extent to which they will be required to modify or replace significant portions
of their software and paging systems so that systems function properly with
respect to dates in the year 2000 and thereafter. At present, the Debtors do
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 the Reorganized Debtors.
16. 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 Arch's credit facility and other Arch debt instruments
effectively prohibit the declaration or payment of cash dividends by Arch for
the foreseeable future. In addition, the terms of Arch's Series C Preferred
Stock generally prohibit the payment of cash dividends on Arch Common Shares
unless all accrued and unpaid dividends on the Series C Preferred Stock are paid
in full.
17. History of Losses.
-----------------
Neither Arch nor Communications 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.
Communications 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. 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 unaudited basis, a loss
before extraordinary items of $313.9 million and $154.5 million, respectively.
For both Arch and Communications, 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 Communications) 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. Arch expects to continue to report net losses for the
foreseeable future, whether or not the Merger is consummated.
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<PAGE>
18. Volatility of Trading Price.
---------------------------
The market price of Arch Common Shares is subject to significant
fluctuation. Between July 1, 1997 and June 30, 1998, the reported sale price of
Arch Common Shares 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 Shares
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 companies in technology businesses, and particularly paging
companies such as Arch and MobileMedia, have exhibited a high degree of
volatility. Shortfalls in revenues or earnings from the levels anticipated by
the public markets could have an immediate and significant adverse effect on the
trading price of Arch Common Shares in any given period. Such shortfalls may
result from events that are beyond Arch's immediate control, can be
unpredictable and, because a significant proportion of Arch's sales during each
fiscal quarter may tend to occur in the latter stages of the quarter, may not be
discernible until the end of a financial reporting period, which may contribute
to the volatility of the trading value of Arch's shares regardless of Arch's
long-term prospects. 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
prospects.
19. Risks Relating to the Combined Company Projections.
--------------------------------------------------
The managements of Arch and the Debtors have jointly prepared the
combined company pro forma projections attached hereto as Exhibit E, in
---------
connection with the development of the Plan to present the projected effects of
the Plan and the transactions contemplated thereby if the Merger is consummated.
The Combined Company Projections assume the 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. 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, Arch's advisors, the Debtors, the Debtors' advisors or
any other person that the Combined Company Projections can or will be achieved.
20. 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
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tax attributes. It is also anticipated that the net operating loss carryforwards
and possibly other tax attributes of Communications will be substantially
reduced as a result of consummation of the Plan pursuant to sections 382 and 108
of the Tax Code.
21. Arch's Amended Credit Facility and Indenture Restrictions.
---------------------------------------------------------
Arch's credit facility and indentures impose certain operating and
financial restrictions on Arch. The credit facility requires Arch's wholly
owned subsidiary, Arch Paging, Inc. ("API"), and in some 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
Arch's amended credit facility. In addition, the amended credit facility limits
or restricts, among other things, API's ability to: (a) declare dividends or
redeem or repurchase capital stock; (b) prepay, redeem or purchase debt; (c)
incur liens and engage in sale/leaseback transactions; (d) make loans and
investments; (e) incur indebtedness and contingent obligations; (f) amend or
otherwise alter debt instruments and other material agreements; (g) engage in
mergers, consolidations, acquisitions and asset sales; (h) engage in
transactions with affiliates; and (i) alter its lines of business or accounting
methods. In addition, Arch's indentures limit, among other things: (u) the
incurrence of additional indebtedness by Arch and its Restricted Subsidiaries
(as defined therein); (v) the payment of dividends and other restricted payments
by Arch and its restricted subsidiaries (as defined in its indentures); (w)
asset sales; (x) transactions with affiliates; (y) the incurrence of liens; and
(z) 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 Arch's amended credit facility and/or Arch's indentures. Upon the
occurrence of an event of default under the amended credit facility or Arch's
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
amended 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. In addition, because the
amended credit facility and Arch's indentures limit its ability to engage in
certain transactions except under certain circumstances, Arch may be prohibited
from entering into transactions that could be beneficial to Arch. Arch will be
entering into additional indentures in connection with the Merger Agreement and
the Plan.
22. Significant Fluctuations in Revenues and Operating Results.
----------------------------------------------------------
Arch and the Debtors have experienced significant fluctuations in its
revenues and operating results from quarter to quarter and year to year, and it
expects these fluctuations to continue in the future. Arch believes that future
fluctuations in revenues and operating results are likely 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
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<PAGE>
revenues. Arch may be unable to adjust spending in a timely manner to compensate
for any revenue shortfall. Consequently, revenues are difficult to forecast and
may vary significantly from quarter to quarter or year to year and revenues or
results of operations in any period will not necessarily be indicative of
revenues or operating results in subsequent periods and should not be relied
upon as any indication of future performance.
Due to the foregoing or other factors, it is likely that such
quarterly fluctuations in revenue or operating results will from time to time
not meet the expectations of securities analysts or investors, which may have a
material adverse effect on the price of Arch Common Shares.
23. 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 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
$15.0 million. In connection with the reorganization, Arch (a) anticipates a
net reduction of approximately 10% of its workforce, (b) plans to close certain
office locations and redeploy other real estate assets and (c) 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 desired cost savings will be achieved or that the anticipated
restructuring of Arch's business will be accomplished smoothly, expeditiously or
successfully. The difficulties of such restructuring may be increased by the
need to integrate the Reorganized Debtors' operations in multiple locations and
to combine two corporate cultures. The inability to successfully integrate the
operations of the Reorganized Debtors could have a material adverse effect on
Arch.
24. 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. In
addition, Section 203 of the Delaware General Corporation Law 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.
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<PAGE>
V. SUMMARY OF THE PLAN OF REORGANIZATION
A. Description and Classification of Claims and Interests
The following Section V.A describes the significant Claims and
-----------
Interests in the Debtors' Cases and the manner in which they are classified in
the Plan. First, it discusses in general the Debtors' Schedules (reflecting,
among other things, the Debtors' liabilities as reflected in their books and
records), the proofs of claim filed in the Cases and the Claim objection
process. Next, it outlines the significant categories of Claims against the
Debtors with estimates as of __________, 1998 of the Allowed Claims. Finally,
it summarizes the classification scheme for Claims and Interests established in
the Plan.
1. Description of Claims Generally.
-------------------------------
The Debtors filed the Schedules (which have subsequently been amended)
on March 26, 1997. By order of the Bankruptcy Court, June 16, 1997 (the "Bar
Date") was fixed as the last day by which the holders of certain claims could
file their proofs of claim. A holder of a claim listed on the Schedules as
liquidated, noncontingent and undisputed, and as to which the holder agreed with
the claim amount set forth in the Schedules, was not required to file a proof of
claim. More than 2,400 claims were filed against the Debtors. The Debtors have
objected to numerous claims and continue the process of reviewing each remaining
proof of claim, as well as reconciling the claimants and the claimed amounts
with the Debtors' books and records and analyzing the factual and legal bases of
these proofs of claim. Following the completion of such analyses and
reconciliation, the Debtors will contact claimants regarding variances between
the Debtors' books and records and the asserted claim amounts. As a result of
the Debtors' preliminary analysis of Claims, the Debtors resolved more than
1,260 claims pursuant to orders entered by the Bankruptcy Court, and have
analyzed and resolved more than 850 other claims. As necessary, and in
accordance with the terms of the Plan, the Debtors will continue to file formal
objections to claims with the Bankruptcy Court.
2. Estimated Amount of Allowed Claims.
----------------------------------
The following chart outlines the estimated amount of the Allowed
Claims included in each Class under the Plan, except for Allowed Claims for fees
and expenses and contingent and unliquidated claims. The estimated amounts set
forth herein constitute projections as of _________, 1998, and are rounded, in
most instances, to the nearest one-hundred thousand./15/
- ---------------------------
/15/ The estimates set forth in this chart and otherwise in this Disclosure
Statement are for descriptive purposes only, and do not and shall not constitute
an admission as to the Debtors' obligations with respect to any such claims.
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<PAGE>
<TABLE>
<CAPTION>
Estimate of Allowed
Class Description Claim Amount
----- ----------- ------------
<S> <C> <C>
1 Priority Claims
---------------
2 Miscellaneous Secured Claims
----------------------------
3 Customer Refund Claims
----------------------
4 1995 Credit Agreement Claims
----------------------------
Principal
Interest
Miscellaneous Fees
Costs and Expenses
5 Dial Page Note Claims
---------------------
Principal
Interest
Trustee fees
6 General Unsecured Claims
------------------------
9 5/8% Notes
10 1/2 Notes
Other Unsecured Claims
7 Note Litigation Claims
----------------------
8 Common Stock Claims and Interests and
-------------------------------------
Subordinated Indemnification Obligation
---------------------------------------
Claims
------
9 Subsidiary Claims and Interests
-------------------------------
----------------------
TOTAL $
======================
</TABLE>
3. Description of Claims and Interests; Summary of Classification
--------------------------------------------------------------
Scheme.
------
The Plan divides the holders of Claims and Interests, except
administrative claims and priority tax claims, into nine separate and distinct
Classes pursuant to section 1122(a) of the Code, and sets forth the treatment
offered each Class. A Claim or Interest will be deemed
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<PAGE>
classified in a particular Class only to the extent that the Claim or Interest
qualifies within the description of that Class, and will 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. A Claim is in a
particular Class and entitled to a distribution only to the extent that the
Claim is an Allowed Claim in that Class.
Under the Plan, a Claim is "Allowed" to the extent that: (a)(1) the
Claim was timely filed or the Claim was listed in the Schedules and not listed
therein as disputed, contingent or unliquidated as to amount, and (2) the
Debtors, the Reorganized Debtors or any other party in interest entitled to do
so has not yet filed an objection and does not file an objection prior to (i) in
the case of Class 6 Claims other than rejection claims, the Rights Offering
Commencement Date, and (ii) in the case of all other Claims, the Effective Date
of the Plan; or (b) the Claim is allowed by a Final Order of the Bankruptcy
Court; or (c) the Claim is allowed by the Plan.
In accordance with section 1123(a)(1) of the Code, two categories of
Claims are not classified under the Plan: Administrative Claims and Priority
Tax Claims. Administrative Claims are Claims entitled to priority under
sections 507(a)(1) and 503(b) of the Code, which Claims (other than claims for
taxes, trade debt and customer deposits and credits incurred in the ordinary
course of business after the Petition Date), to the extent they arose between
the Petition Date and the Confirmation Date, are required to be filed by the
party asserting such Claim within 15 days after the Confirmation Date.
Administrative Claims that arose between the Confirmation Date and the Effective
Date must be filed by the party asserting such Claim within 15 days after the
Effective Date. The Debtors will review all filed Administrative Claims, and
object to such Claims as necessary. Arch has waived its right to object to
Administrative Claims constituting professional fees. Priority Tax Claims
include certain federal, state and local taxes. Approximately 600 such Claims
have been filed against the Debtors in the Cases. The Debtors are in the
process of resolving all filed and unfiled Priority Tax Claims asserted in the
Cases. Pursuant to an order entered by the Bankruptcy Court granting the Debtors
authority to pay pre-petition property tax claims, the Debtors have already
satisfied more than 400 of these claims.
The following is a summary of the manner in which Claims and Interests
are classified in the Plan, together with a description of the estimated amounts
of Allowed Claims and Interests included in each such Class as of
_________________________, 1998.
(a) Class 1 -- Priority Claims. Allowed Claims against any of
the Debtors, if any, with priority pursuant to sections
507(a)(3), 507(a)(4) or 507(a)(6) of the Code are classified in
Class 1. Most liquidated Class 1 Claims have already been paid
pursuant to orders of the Bankruptcy Court. Excluding priority
customer deposits held by the Debtors in the ordinary course of
business (and payable to subscribers in the ordinary course of
business pursuant to an order of the Bankruptcy Court entered on
the Petition Date), the aggregate estimated amount of these
Allowed Class 1 Claims is $ ___________________________.
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(b) Class 2 -- Miscellaneous Secured Claims.
. Description of Miscellaneous Secured Claims.
Miscellaneous Secured Claims are Secured Claims against any of
the Debtors not classified in Class 4, and might include, for
example, claims for the delivery of goods or services to the
Debtors to the extent of any cash deposit made by the Debtors
before, and remaining unapplied on, the Petition Date.
. Classification Scheme. Allowed Secured Claims that are
not otherwise classified pursuant to the Plan are classified in
Class 2. The aggregate estimated amount of these Allowed Class 2
Secured Claims is $ ______.
(c) Class 3 -- Customer Refund Claims.
. Description of Customer Refund Claims. Class 3 consists
of all Customer Refund Claims against any of the Debtors not
otherwise classified in Class 1 or Class 2. Most Class 3 Claims
have already been paid pursuant to an order of the Bankruptcy
Court.
. Classification Scheme. Customer Refund Claims not
otherwise classified in Classes 1 or 2 are classified in Class 3.
The aggregate estimated amount of Allowed Class 3 Claims is
$__.
(d) Class 4 -- Claims under or related to the 1995 Credit
Agreement.
. Description of Claims under or related to the 1995 Credit
Agreement. As discussed in Section II.A.1., in connection with
---------------
the MobileComm Acquisition, Communications entered into the 1995
Credit Agreement with the Pre-Petition Lenders. The 1995 Credit
Agreement provides for term loans in an aggregate principal
amount of $550 million and a $200 million revolving loan
facility.
Communications' obligations to the Pre-Petition Lenders
under the 1995 Credit Agreement are secured by Liens on
substantially all the assets of Communications. As further
security for Communications' obligations to the Pre-Petition
Lenders under the 1995 Credit Agreement, Communications entered
into a Guaranty and Pledge Agreement, and each of the Debtors
other than Communications entered into a Guaranty and Security
Agreement, pursuant to which agreements each of the Debtors other
than Communications guaranteed Communications' obligations to the
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Lenders under the 1995 Credit Agreement and granted to the Pre-
Petition Agent a lien on and security interest in all of its
assets (including any stock owned by it) to secure such guaranty.
As of the Petition Date, $550 million in principal amount
was outstanding in respect of the term loans and $99 million in
principal amount was outstanding under the revolving credit
facility, in each case exclusive of accrued and unpaid interest.
As of the Petition Date, approximately $21 million in accrued and
unpaid interest was owed to the Pre-Petition Lenders. The full
amount of pre-petition interest owing to the Pre-Petition Lenders
was paid to the Pre-Petition Lenders as adequate protection in
accordance with the order approving the DIP Facility.
. Classification Scheme. Allowed Secured Claims in Class 4
consist of the following unpaid obligations arising under the
1995 Credit Agreement, and will 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 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.
(e) Class 5 -- Claims arising under or related to the Dial Page
Notes.
. Description of Claims with respect to the Dial Page
Notes. Communications is party to an Indenture dated as of
February 1, 1993 (as supplemented and amended, the "Dial Page
Indenture") with Norwest Bank Minnesota, N.A., as successor
Trustee, pursuant to which Dial Page, Inc. ("Dial Page")
originally issued $85,000,000 of 12 1/4% Senior Notes due
February 15, 2000 (the "Dial Page Notes"). As a result of the
Dial Page Acquisition, Communications assumed the obligations of
Dial Page
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under the Dial Page Indenture. Concurrently with that
acquisition, Communications repurchased the majority of the Dial
Page Notes from the holders thereof. The Dial Page Notes are
unsecured and interest is payable semi-annually thereon each
February 15 and August 15 of each year until maturity.
. Classification Scheme. Allowed Claims against any of
the Debtors arising under or related to the Dial Page Notes and
related agreements (other than Note Litigation Claims) are
classified in Class 5.
Class 5 Claims will 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.
The aggregate estimated amount of these Allowed Class 5
Claims is $________, including $1,570,000 principal amount,
approximately $88,149 in accrued and unpaid pre-petition
interest, and approximately $______ in accrued and unpaid post-
petition interest.
Allowed Claims for certain fees and expenses of the
indenture trustee for the Dial Page Notes as provided for under
the Dial Page Indenture are included in Class 5 but are not
included in the above aggregate amounts, as they have not been
estimated by the Debtors.
(f) Class 6 -- Non-Priority Unsecured Claims
. Description of Non-Priority Unsecured Claims. The
Debtors' unsecured claims fall into four basic categories:
(i) Subordinated Note Claims: Communications is party
to an Indenture dated as of November 13, 1995 with State
Street Bank and Trust Company, as Trustee, pursuant to which
Communications issued $250,000,000 of 9 3/8% Senior
Subordinated Notes due November 1, 2007 (the "9 3/8%
Notes"). The 9 3/8% Notes are unsecured. Interest on the 9
3/8% Notes is payable semi-annually, on May 1 and November 1
of each year.
Communications is also party to an Indenture dated as
of December 1, 1993 (as supplemented and amended, the "10
1/2% Indenture") with First Trust USA (as successor to
BankAmerica
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National Trust Company), as Trustee, pursuant to which
Communications issued $210,000,000 face amount of 10 1/2%
Senior Subordinated Deferred Coupon Notes due December 1,
2003 (the "10 1/2% Notes" and, together with the 9 3/8%
Notes, the "Subordinated Notes"). The 10 1/2% Notes are
unsecured and were issued at a price of $599.48 for each
$1,000.00 principal amount, with interest on the 10 1/2%
Notes being capitalized and the principal amount accreting
until December 1, 1998. Thereafter, interest on the 10 1/2%
Notes is payable semi-annually, on June 1 and December 1 of
each year, beginning June 1, 1999.
(ii) General Unsecured Claims: The Debtors listed
various trade and other unsecured claims in the Schedules.
A number of these creditors have filed claims in excess of
their scheduled amounts, and certain creditors that were not
listed in the Schedules (including parties to contracts and
leases that have been or will be rejected by the Debtors as
provided for under the Code) have filed (or will file)
Claims against the Debtors. Many of such Claims have
already been resolved through the claims objection process,
and the Debtors will continue to review these filed Claims,
attempt to reconcile them with their books and records and
file additional objections as necessary. A Claim listed in
the Debtors' Schedules, and not listed as disputed,
contingent or unliquidated as to amount and as to which the
creditor agrees with the amount, will be Allowed in the
amount set forth on the Schedules.
(iii) Litigation Claims: Several parties have
asserted Claims against the Debtors based on disputes that
were the subject of lawsuits or other actions commenced
prior to the Petition Date, or that would have been
commenced but for the filing of the Cases and the imposition
of the automatic stay of section 362 of the Code.
(iv) Personal Injury Claims: In addition to the
litigation claims described above, certain parties have
asserted Claims against the Debtors for personal injuries.
In accordance with 28 U.S.C. (S) 157(b)(5), these Claims
will be tried, if necessary, in the District Court for the
District of Delaware or the District Court for the District
in which the Claim arose (as determined by the District
Court for the District of Delaware), and once reduced to
judgment will be treated as Allowed Claims in Class 6.
. Classification Scheme. All Allowed Claims against any
of the Debtors arising under or related to the Subordinated
Notes and related
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agreements (other than Note Litigation Claims) and all other non-
priority Unsecured Claims, other than Customer Refund Claims
classified in Class 3, Claims arising under or related to the
Dial Page Notes classified in Class 5, Note Litigation Claims
classified in Class 7, Common Stock Claims classified in Class 8
and Subsidiary and Subordinated Indemnity Claims classified in
Class 8, are classified in Class 6.
Class 6 Claims other than Subordinated Noteholder
Claims and Personal Injury Claims will be allowed or disallowed
in accordance with Section 4.4(B) of the Plan and applicable
provisions of the Code and Bankruptcy Rules. Subordinated
Noteholder Claims other than Claims of the indenture trustees
under the Subordinated Indentures will be Allowed Claims in the
sum of: (x) the outstanding principal amount (or outstanding
accredited 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. Subordinated
Noteholder Claims for the indenture trustees under the
Subordinated Indentures will be Allowed Claims in an amount equal
to the unpaid reasonable fees and expenses of each such trustee
incurred prior to and after the Petition Date through the
Effective Date, to the extent provided for in the Subordinated
Indentures. Personal Injury Claims will 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.
The aggregate estimated amount of the Allowed Claims in
Class 6, excluding unliquidated or contingent claims that have
not been estimated, is $___________, consisting of:
(i) 9 3/8% Notes, in the estimated aggregate amount of
$267.8 million, including $250 million principal amount and
approximately $17.8 million in accrued and unpaid pre-petition
interest;
(ii) 10 1/2% Notes, with an aggregate accreted value of
approximately $174 million; and
(iii) other general unsecured claims in the amount of
_____.
Allowed Claims for certain fees and expenses of the
indenture trustees for the Subordinated Notes incurred as
provided under the
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Subordinated Note Indentures are included in Class 6 but are not
included in the above aggregate amounts, as they have not been
estimated by the Debtors.
(g) Class 7 -- Note Litigation Claims.
. Description of Note Litigation Claims. Note Litigation
Claims consist of all claims against any of the Debtors of the
kind described in section 510(b) of the Code arising out of the
ownership of the Notes, including claims asserted in or by
parties to the Securities Actions and related claims of officers,
directors and underwriters for contribution, reimbursement or
indemnification. See Section I.A.7.(b).
--- -----------------
. Classification Scheme. By operation of section 510(b) of
the Code, Note Litigation Claims are subordinated to Claims under
the Notes and are classified in Class 7. The Debtors have not
estimated the amount of the Note Litigation Claims.
(h) Class 8 -- Common Stock Claims and Interests and Subordinated
Indemnification Obligation Claims.
. Description of Common Stock Claims and Interests. There
were approximately 45.6 million shares of MobileMedia Class A
Common Stock and approximately 2.36 million shares of MobileMedia
Class B Common Stock issued and outstanding as of June 30, 1998.
Holders of such Common Stock have Interests as equity holders in
MobileMedia. In addition, certain of such holders have asserted
claims against MobileMedia arising out of their equity ownership,
including claims asserted by the plaintiffs to the Securities
Actions and related claims of officers, directors and
underwriters for contribution, reimbursement or indemnification.
By operation of section 510(b) of the Code, the Claims arising
out of the ownership of Common Stock are subordinated to
Unsecured Claims and are pari passu with the equity interests of
---- -----
the holders of the Common Stock. Class 8 also includes any
claims against the Debtors for contribution, reimbursement or
indemnification held by: (1) all individuals who were directors
of the Debtors at any time prior to the Effective Date, (2) any
present or former officer considered or determined as of the
Effective Date by the FCC to be an actual or alleged wrongdoer
for purposes of the Debtors' FCC Proceeding, (3) any present or
former officer now or hereafter named as a defendant in the
Securities Actions, as to claims arising out of the matters
alleged in the Securities Actions, (4) any present or former
officer named as a defendant in any action initiated after the
date hereof based upon similar factual allegations, or alleging
similar
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causes of action, to the Securities Actions, as to claims
arising out of the matters alleged therein, (5) any officer or
employee of the Debtors who is not an officer or employee of the
Debtors as of the Effective Date, and (6) any present or former
professionals and 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). Also classified in Class 8 are all other
contribution, reimbursement or indemnification obligations of the
kind described in section 510(b) of the Code.
. Classification Scheme. (i) Interests of holders of the
Common Stock of MobileMedia, (ii) options, warrants and other
rights to purchase the Common Stock of MobileMedia, (iii) Claims
arising out of ownership of the Common Stock of MobileMedia and
(iv) the various indemnification obligations described in the
immediately preceding paragraph are classified in Class 8.
(i) Class 9 -- Subsidiary Claims and Interests.
. Description of Subsidiary Claims and Interests.
Subsidiary Claims consist of Claims by a Debtor against another
Debtor; Subsidiary Interests consist of the Interests of a Debtor
in another Debtor based on the ownership of the stock of such
Debtor.
. Classification Scheme. Subsidiary Claims and Interests
are classified in Class 9.
B. Treatment of Claims and Interests
1. Treatment of Claims and Interests Generally.
-------------------------------------------
Article II of the Plan designates Classes of Claims and Interests and
provides for the treatment of and consideration to be provided to holders of
Allowed Claims and Interests under the Plan. A Claim or Interest will 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 to, holders
of Allowed Claims and Interests pursuant to the Plan will be in full settlement,
release and discharge of such Allowed Claims and Interests; provided, that such
--------
discharge will not affect the liability of any other entity on, or the property
of any other entity
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encumbered to secure payment of, any such Claim or Interest, except as otherwise
provided in the Plan; and provided, further, that such discharge will not affect
-------- -------
the Reorganized Debtors' obligations under and pursuant to the Plan. The
treatment of and consideration to be provided to Allowed Claim and Interest
holders in each Class will apply to all of the Cases. No Claim will entitle the
holder thereof to a distribution of cash or securities or to other consideration
pursuant to the Plan unless, and only to the extent that, such Claim is an
Allowed Claim.
2. Treatment of Administrative Claims and Priority Tax Claims.
----------------------------------------------------------
(a) Administrative Claims. In accordance with section 1123(a)(1) of
the Code, Section 2.1(A) of the Plan provides that, subject to the provisions of
Section 4.4(A) of the Plan and unless otherwise agreed by the holder of an
Allowed Administrative Claim (in which event such other agreement will govern),
each holder of an Allowed Administrative Claim will 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. Section 2.1(B) of the Plan provides that 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. Section 2.1(C)
of the Plan provides that 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. Section 2.1(D) of the Plan provides that Arch
will make available to Reorganized Communications any monies necessary for
Reorganized Communications to make timely payment of all Administrative Claims.
(b) Priority Tax Claims. In accordance with section 1123(a)(1) of the
Code, Section 2.2 of the Plan provides that priority tax claims of the kind
specified in sections 507(a)(8) of the Code are not classified. Unless
otherwise agreed by the holder of an Allowed Priority Tax Claim (in which event
such other agreement will govern), each holder of an Allowed Priority Tax Claim
against any of the Debtors will, 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
amount equal to the amount of such Allowed Priority Tax Claim on which interest
will 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 will be paid semiannually in arrears; the
principal amount of the promissory note will be paid in full on a date or dates
six (6) years after the date of assessment of such Allowed Priority Tax Claim.
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3. Treatment of Classes Not Impaired Under Plan.
--------------------------------------------
By virtue of the provisions of Article II of the Plan, the Allowed
Claims in Classes 1, 2, and 3 are unimpaired under the Plan.
(a) Allowed Claims in Class 1 will 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.
(b) The legal, equitable and contractual rights to which each
holder of an Allowed Claim in Class 2 or 3 is entitled will be left
unaltered by the Plan or, at the option of the Reorganized Debtors,
will be left unimpaired in the manner described in section 1124(2) of
the Code.
4. Treatment of Classes Impaired Under Plan.
----------------------------------------
By virtue of the provisions of Article II of the Plan, the Allowed
Claims and Interests in Classes 4, 5, 6, 7, 8 and 9 are impaired under the Plan.
The Debtors believe that the treatment afforded all Classes of Claims and
Interests under the Plan fully comports with the requirements of the Code and
case law.
(a) Treatment of Class 4. Each holder of an Allowed Claim in
Class 4 will receive, in full satisfaction of its Claim, cash equal to
the amount of its Allowed Claim, payable in accordance with Section
4.3(A) of the Plan.
(b) Treatment of Class 5. Each holder of an Allowed Claim in
Class 5 will 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) of the Plan.
(c) Treatment of Class 6. Each holder of an Allowed Claim in
Class 6 (other than the indenture trustees under the Subordinated
Indentures) will receive:
(i) for each holder of an Allowed Class 6 Claim as of the
record date set for the initial Rights Offering (the "Rights
Offering Initial Record Date"), its pro rata share of the
Rights being distributed on such date by Arch to holders of
Allowed Class 6 Claims;
(ii) for each holder of a Claim that becomes an Allowed
Claim after the Rights Offering Initial Record Date but
before the Confirmation Date (A) from Arch, as soon as
practicable after the Confirmation Date, that number of
Rights equal to the number of Rights that such holder would
have received had such holder's
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Claim been Allowed as of the Rights Offering Initial Record
Date or, (ii) if the number of Rights in the Rights Reserve
on the Confirmation Date is insufficient to make the
distribution set forth in clause (A), from Arch, (x) the
Holder's ratable share of the Rights actually in the Rights
Reserve on such date and (y) an amount of cash equal to the
value of the Rights such holder did not receive due to the
insufficiency of the Rights Reserve, such value to be
determined based on the actual proceeds received from the
sale of the Rights Reserve pursuant to Section 4.1(B)(5) of
the Plan;
(iii) 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;
(iv) holders of Claims in Class 6 that are not Allowed
until after the Confirmation Date will receive from Arch
(after the Effective Date), in lieu of Rights, cash equal to
the value of the Rights such holders would otherwise have
received, such value to be determined based on the actual
proceeds received from the sale of the Rights Reserve
pursuant to Section 4.1(B)(5) of the Plan;
(v) if such Claim is an Allowed Claim on the Effective
Date, on or as soon as practicable after the Effective Date,
its pro rata share of the pool of Arch Common Stock to be
issued to holders of Class 6 Claims under the Plan (the
"Creditor Stock Pool") minus shares withheld in connection
with Disputed Class 6 Claims 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 pro rata share of the
Creditor Stock Pool minus shares withheld in connection with
Disputed Class 6 Claims; and
(vi) on a "Final Distribution Date", each holder of an
Allowed Class 6 Claim will receive its pro rata share of the
Arch Common Shares, if any, that remain in the Creditor
Stock Pool; provided, that if on the day the final Disputed
Class 6 Claim is resolved, there are 10,000 or fewer Arch
Common Shares remaining in the Creditor Stock Pool, no
distribution will be made to holders of Allowed Class 6
Claims, and the Arch Common Shares remaining will be
returned to Arch and become treasury shares.
Section 2.8(C)(2) of the Plan provides that 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
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<PAGE>
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 Section 2.8(C)(2) of the Plan.
The number of Arch Common Shares constituting the Creditor Stock Pool
may be reduced if, on the Effective Date, the Debtors' estimate (which estimate
must be agreed to by Arch) of the aggregate amount of certain administrative and
other claims (collectively, "Capped Administrative Claims"), plus the costs and
expenses of the Standby Purchasers, exceeds $34 million. Capped Administrative
Claims are defined under the Plan to mean (i) Priority Tax Claims, (ii)
Administrative Claims for bonuses payable to employees and professionals on or
as a result of the occurrence of the Effective Date, cure payments under section
365(b)(1) of the Code and accrued and unpaid fees and expenses of professionals
to the Debtors and the Committee and (iii) certain costs and expenses relating
to Allowed Claims in Classes 4, 5 and 6. The Debtors currently estimate that
Capped Administrative Claims, together with the costs and expenses of the
Standby Purchasers, will not exceed $34 million; however, any such excess would
reduce the number of Arch Common Shares available for distribution to holders of
Allowed Class 6 Claims by such excess divided by $25.315.
Section 2.8(C)(3) of the Plan provides that on the Effective Date, the
Reorganized Debtors will 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.
Moreover, the number of Arch Common Shares in the Creditor Stock Pool
that will be reserved for distribution to subsequently Allowed Class 6 Claims
will be determined prior to the date that certain Class 6 Claims that arise out
of rejected executory contracts and leases have been filed. It is therefore
possible that the aggregate amount of all subsequently Allowed Class 6 Claims
will exceed the aggregate amount for which a reserve was established, in which
event certain holders of Allowed Class 6 Claims might receive a reduced, or no,
distribution on account of such Allowed Claims. Because the reserve the Debtors
will be establishing will have in it shares sufficient to provide distributions
to all holders of filed Disputed Class 6 Claims at the full filed amount of such
claims, however, the Debtors believe that the possibility of having insufficient
shares to satisfy all subsequently Allowed Class 6 Claims is remote.
(d) Treatment of Class 7. Claims in Class 7 will not be entitled
to receive or retain any property on account of their Note Litigation
Claims.
(e) Treatment of Class 8. Interests in Class 8 will be canceled
and the holder of Claims and Interests in Class 8 will not be entitled
to receive or retain any property on account of their Claims and
Interes ts.
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(f) Treatment of Class 9. Interests in Class 9 will be canceled
and the holders of Claims and Interests in Class 9 will not be
entitled to receive or retain any property on account of such Claims
and Interests, except that, in accordance with Section 4.2(B) of the
Plan, Reorganized Communications will retain its Interests in
Reorganized MCCA.
C. Conditions to Effective Date
Each of the following is a condition to the occurrence of the
Effective Date set forth in Section 5.1 of the Plan:
1. That the Confirmation Order (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) has been entered by the
Bankruptcy Court, has become a Final Order (as defined in section 5.1 of the
Merger Agreement), 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;
2. 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 the Merger shall occur as
contemplated by Section 4.2(B)(ii) of the Plan; and
3. That the commitments under the DIP Credit Agreement will have
terminated, all amounts owing under or in respect of the DIP Credit Agreement
will 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 will have been terminated or satisfied, or the Debtors will have
provided cash collateral therefor in accordance with the terms of the DIP Credit
Agreement or the 1995 Credit Agreement, as applicable.
Section 5.2 of the Plan provides that if the Merger Agreement is
terminated in accordance with its terms, then the Confirmation Order will 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.
D. Means for Implementation of Plan
1. Implementation of the Plan.
--------------------------
As set forth in more detail herein and in the Plan, the Plan
contemplates that the Reorganized Debtors will emerge from bankruptcy as
subsidiaries of Arch that will continue the
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business previously conducted by the Debtors prior to the Effective Date, and
that holders of Allowed Claims will receive cash or equity securities of Arch or
a combination thereof. The Plan contains the requisite elements required under,
inter alia, section 1123 of the Code, including adequate means for the Plan's
- ----- ----
implementation under section 1123(a)(5) of the Code. Section 1123(a)(5)(c) lists
a merger with one or more persons as an example of adequate means for a plan's
implementation.
Section 4.1(A) of the Plan lists the actions that will occur prior to
the Confirmation Date. Section 4.1(A)(1) of the Plan provides that pursuant to
the Merger Agreement, Arch will commence the Rights Offering. Section 4.1(A)(2)
of the Plan provides that each of the Standby Purchasers has executed the
Standby Purchase Commitment, copies of which are attached to the Plan as
Exhibits B-1 through B-6.
2. FCC and State Regulatory Approval.
---------------------------------
As described in Sections II.A.8 and IV.F.2, effectiveness of the Plan
--------------- ------
is conditioned upon obtaining approval by the FCC of the Second Thursday
---------------
Application on terms that do not impair the feasibility of the Plan and that
permit the Plan to be implemented and consummated. This approval will permit the
transfer of the Debtors' FCC licenses to the Reorganized Debtors, and the
consummation of the transactions contemplated under the Plan and Merger
Agreement.
3. Amendments to Certificates of Incorporation.
-------------------------------------------
Section 4.2(C)(1) of the Plan provides that as of the Effective Date,
each Reorganized Debtor's Certificate of Incorporation will comply with section
1123(a)(6) of the Code.
Section 4.2(C)(2) of the Plan provides that as of the Effective Date,
the bylaws of Reorganized Communications will 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 will be changed to
"MobileMedia Communications, Inc."), and the bylaws of Reorganized MCCA will be
the same as the bylaws of Delaware Subsidiary Co. as in effect immediately prior
to the Effective Date (except that the name of the corporation set forth therein
will be changed to "Mobile Communications Corporation of America"). Each
Reorganized Debtor's Bylaws will be effective as of the Effective Date.
Section 4.2(C)(4) of the Plan provides that 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 will
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.
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E. Agreements Between the Debtors and Various Third Parties
1. Distributions Occurring On and After the Effective Date.
-------------------------------------------------------
(a) Distributions to Holders of Allowed Class 4 Claims. Section
4.3(A) of the Plan provides that the cash distribution to be made to the holders
of Allowed Class 4 Claims will be made by wire transfer by Arch on the Effective
Date or the first Business Day thereafter to the Pre-Petition Agent, which will,
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 will, 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.
(i) Exchange of Notes. Section 4.3(B)(1) of the Plan provides
-----------------
that the cash distribution to be made to the holders of Allowed Class 5 Claims
will be made by Reorganized Communications to the Dial Page Indenture Trustee on
the Effective Date or the first Business Day thereafter, which will, 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) of the Plan. The reasonable fees and expenses of the Dial Page Indenture
Trustee incurred solely in connection with making such distributions, unless
otherwise paid hereunder, will 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.
(ii) Lost Notes. Section 4.3(B)(2) of the Plan provides that 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: (1) proof of such holder's title to such Note; (2) 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 (3) 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 the
Plan.
(c) Distributions from Arch. Section 4.3(C) of the Plan provides that
Arch will distribute to each holder of an Allowed Class 6 Claim and each Standby
Purchaser that
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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 Common 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) of the Plan. 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, will 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), (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. Section 4.3(D) of the Plan
provides that 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, will be made by the Exchange Agent on behalf of Reorganized
Communications from the Arch Common Shares evidenced by the certificate so
delivered by Arch.
(i) Holders of the Subordinated Notes. Section 4.3(D)(1) of the
---------------------------------
Plan provides that as soon as practicable after the Effective Date (except in
the case of the Standby Purchasers, who will receive such distributions on the
Effective Date as provided for in the Standby Purchase Commitments), Reorganized
Communications will cause the Exchange Agent to send a notice and a transmittal
form (which will specify that delivery will be effected and risk of loss and
title to the Subordinated Notes will pass, only upon delivery of the
Subordinated
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Notes to the Exchange Agent, and will be in such form and have such other
reasonable provisions as Arch may reasonably specify) to each holder of a
Subordinated Note advising such holder of the effectiveness of the Merger and
the 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) of the Plan.
Commencing on the Effective Date, the Exchange Agent will distribute
to each holder of an Allowed Claim that constitutes a Subordinated Noteholder
Claim, upon proper surrender of its Subordinated Notes, its Class 6 Pro Rata
Share of the Creditor Stock Pool. Thereafter, on each Semi-Annual Distribution
Date, distributions of a holder's Class 6 Pro Rata Share of the Creditor Stock
Pool will 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 will 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) of the Plan).
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 certain requirements specified in
Section 4.3(D)(1) of the Plan are satisfied. Moreover, after the Effective
Date, there will 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 will be canceled
and exchanged as provided in Section 4.3(D)(1) of the Plan.
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 will be a condition to the issuance of such
Arch Common Shares that (i) the Subordinated Note so surrendered will be
transferable, and will be properly assigned and endorsed, (ii) such transfer
will otherwise be proper and (iii) the person requesting such transfer will 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 will be liable to a holder of
Subordinated Notes for any Arch Common Shares issuable to such holder pursuant
to Section 2.8(C) of the Plan 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 will be
paid to holders of Allowed Class 6 Claims entitled to receive Arch Common Shares
pursuant to Section 2.8(C) of the Plan until such holders surrender their
Subordinated Notes in accordance with Section
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4.3(D)(1) of the Plan. Upon such surrender, Arch will 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 will 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 the Plan.
(ii) Holders of Allowed Class 6 Claims other than the Subordinated
-------------------------------------------------------------
Noteholder Claims. Section 4.3(D)(2) of the Plan provides that on the Effective
- -----------------
Date, the Exchange Agent will 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 Class 6 Pro Rata Share of the Creditor Stock
Pool will 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 will 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) of the Plan).
(iii) Fractional Interests. Section 4.3(D)(3) of the Plan provides
--------------------
that the Arch Capital Shares will 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 will, at
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 will 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 will receive the number of whole warrants determined by rounding up
to the next whole number of warrants. For purposes of Section 4.3(D) of the
Plan, holders of Allowed Claims under or evidenced by the Notes will, in the
case of Notes held in street name, mean the beneficial holders thereof.
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(e) Undeliverable Distributions
(i) Method of Distribution. Section 4.3(E)(1) of the Plan
----------------------
provides that all property under the Plan to be distributed by mail will 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.
(ii) Holding and Investment of Undeliverable Distributions.
-----------------------------------------------------
Section 4.3(E)(2) of the Plan provides that 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
Section 4.3(E)(2) of the Plan 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) of the Plan, such cash will not constitute property of the
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 period set forth in Section 4.3(E)(4) of the Plan.
(iii) After Distributions Become Deliverable. Section 4.3(E)(3)
--------------------------------------
of the Plan provides that 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).
(iv) Undistributed Property. Section 4.3(E)(4) of the Plan
----------------------
provides that 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 will be delivered to, and become the property of,
Arch.
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(f) Compliance with Tax Requirements
(i) Section 4.3(F)(1) of the Plan provides that in connection
with the 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 the Plan that may be
necessary or appropriate to comply with such withholding and reporting
requirements.
(ii) Section 4.3(F)(2)of the Plan provides that notwithstanding
any other provision of the Plan, each entity that has received any distribution
pursuant to the 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.
2. Continuation of Employment Agreements and Benefits Agreements.
-------------------------------------------------------------
Section 3.2(C) of the Plan provides that on the Effective Date, the
Debtors will assume pursuant to sections 365 and 1123(b)(2) of the Code the
employment and benefit agreements set forth on Schedule 1 to the Plan.
F. Effect of Plan Confirmation
1. Revesting of Assets.
-------------------
Section 4.2(A) of the Plan provides that, except as provided in the
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
will, on the Effective Date of the 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 the Plan.
2. Discharge of Claims and Termination of Interests.
------------------------------------------------
Section 6.1(A) of the Plan provides that except as provided in the
Confirmation Order, the rights afforded under the Plan and the treatment of
Claims and Interests under the 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 the Plan or the Confirmation Order,
Confirmation will, as of the Effective Date: (a) 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
(i) a proof of claim based on such debt is filed or deemed filed pursuant to
section 501 of the Code, (ii) a Claim based on such debt is allowed pursuant to
section 502 of the Code, or (iii) the holder of a Claim based on such debt has
accepted the Plan and (b) satisfy or terminate all Interests and other rights of
equity security holders in the Debtors.
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Section 6.1(B) of the Plan provides that as of the Effective Date,
except as provided in the 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 the 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.
3. Post-Consummation Effect of Evidences of Claims or Interests.
------------------------------------------------------------
Notes, stock certificates and other evidence of Claims against or
Interests in the Debtors will, effective upon the Effective Date, represent only
the right to participate in the distributions contemplated by the Plan.
4. Term of Injunctions or Stays.
----------------------------
Section 6.2(A) of the Plan provides that except as provided in the
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 the 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: (a) 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; (b) 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; (c) creating,
perfecting or enforcing any lien or encumbrance against the Debtors or the
Reorganized Debtors or Arch or its subsidiaries or their respective property;
(d) 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 (e) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan.
Section 6.2(B) of the Plan provides that 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 the 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: (a)
commencing or continuing in any manner any action or other proceeding; (b)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order; (c) creating,
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perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to any released entity; and (e) commencing or continuing any
action, in any manner, in any place that does not comply with or is inconsistent
with the provisions of the Plan.
Section 6.2(C) of the Plan provides that by accepting a distribution
pursuant to the Plan, each holder of an Allowed Claim receiving such
distribution pursuant to the Plan will be deemed to have specifically consented
to the injunctions set forth in Section 6.2 of the Plan.
G. Executory Contracts and Unexpired Leases
Article III of the Plan provides for assumption or rejection of the
Debtors' executory contracts and unexpired leases not assumed or rejected prior
to the Confirmation Date.
1. Rejected Contracts.
------------------
Section 3.1 of the Plan provides that no later than 25 days prior to
the Voting Deadline, the Debtors, at the direction of Arch, will prepare a
schedule of the executory contracts and unexpired leases to be rejected on the
Effective Date (the "Rejection Schedule"). The Rejection Schedule will 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 will 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 Section 3.1 of
the Plan 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
will be barred and may not thereafter be asserted.
2. Assumed Contracts.
-----------------
Section 3.2(A) of the Plan provides that 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
the Plan will, by the terms of the 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, will be vested in and continue in effect for the
benefit of the Reorganized Debtors.
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Section 3.2(B) of the Plan provides that the Debtors will, 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 will be
acceptable to Arch. Objections to any such proposed cure payment must be made
by the Voting Deadline, and will be determined, if necessary, at the
Confirmation Hearing. In the event the Debtors amend the Rejection Schedule
pursuant to Section 3.1 of the Plan after the Confirmation Date to remove an
executory contract or unexpired lease therefrom, the Debtors will, 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 will be
reasonably acceptable to Arch. Objections to any proposed cure payment set
forth in the 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 will 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 the 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 the Plan) will 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 will
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.
3. Post-Petition Contracts and Leases.
----------------------------------
Section 3.3 of the Plan provides that all contracts and leases entered
into or assumed 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, will be deemed assigned by the Debtors to
Reorganized MCCA on the Effective Date.
H. Other Plan Provisions
1. Management and Operation of the Debtors.
---------------------------------------
Section 4.1(B)(1) of the Plan provides that after the Confirmation
Date and until the Effective Date, the Debtors will be managed by substantially
the same personnel that managed
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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: (a) conduct their business in the usual, regular and
ordinary course, in a manner consistent with past practice, sound business
practice and the terms of the Plan and the Merger Agreement, and subject to
their obligations as debtors-in-possession pursuant to the Code; (b) use their
best efforts to preserve intact their respective business organizations and
goodwill, keep available the services of their key employees and preserve the
goodwill and business relationships with suppliers, distributors, customers and
others with whom they have business relationships; (c) take no actions
inconsistent with the Plan; (d) use their best efforts to satisfy the conditions
to the effectiveness of the Plan; and (e) make cash payments, and otherwise
conduct cash management, in the ordinary course of their business and in a
manner consistent with the terms of the Plan.
2. Estate Representative.
---------------------
Section 4.2(C)(5) of the Plan provides that within 15 days after the
Confirmation Date, the Committee will designate a person, subject to Arch's and
the Debtors' consent (which consent will not be unreasonably withheld) (the
"Estate Representative"), who will be responsible for the winding up of the
Debtors' estates after the Effective Date. The Estate Representative will 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 will 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 will 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 will be the final
budget for such month. At least once every calendar quarter, the Estate
Representative will report to Arch on the material activities taken in the prior
quarter and to be taken in the succeeding quarter, which activities will be
reasonably acceptable to Arch.
3. Continuation of Committee.
-------------------------
Section 4.1(B)(2) of the Plan provides that the Committee will
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 will be dissolved
on the Effective Date.
4. Rights of Creditors and Committee.
---------------------------------
Section 4.1(B)(3) of the Plan provides that between the Confirmation
Date and the Effective Date, the Committee, the holders of Claims against and
Interests in the Debtors and the
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indenture trustees for the Notes will 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.
5. Termination of Subordination Rights and Settlement of Related
-------------------------------------------------------------
Claims and Controversies.
------------------------
Section 6.3(A) of the Plan provides that the classification and manner
of satisfying all Claims and Interests under the 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 the 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 the
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 the 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.
Section 6.3(B) of the Plan provides that pursuant to Bankruptcy Rule
9019 and in consideration for the distributions and other benefits provided
under the Plan, the provisions of the Plan will constitute a good faith
compromise and settlement of all claims 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 the 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.
6. Cancellation of Stock.
---------------------
Section 4.2(D) of the Plan provides that 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, will be canceled and rendered null and void.
7. Sale of Rights Reserve.
----------------------
Section 4.1(B)(5) of the Plan provides that Arch will select an agent
independent of Arch (as such term is defined in Regulation M promulgated under
the Securities Exchange Act
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of 1934), which independent agent will 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 will be
distributed to Arch.
8. Release of Security Interests.
-----------------------------
Section 4.11 of the Plan provides that within ten Business Days after
the Confirmation Date, the Pre-Petition Agent will deliver to Communications
UCC-3 termination statements and such other documents as are 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 will 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) of the Plan.
9. Retention and Enforcement of Causes of Action.
---------------------------------------------
Section 7.2 of the Plan provides that pursuant to section
1123(b)(3)(B) of the Code, but subject to Sections 7.3 and 7.4 of the Plan, the
Reorganized Debtors, on behalf of themselves and holders of Allowed Claims and
Interests, will 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 will remain the
property of the Reorganized Debtors. Nothing contained in the Plan will
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.
10. Limitation of Liability.
-----------------------
Section 7.3 of the Plan provides that 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"), will 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 the Plan, the Disclosure Statement or any contract,
instrument, release or other agreement or document created in connection with
the Plan. The Exculpated Persons will 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 the Plan, in connection
herewith or with respect hereto, or arising out of their administration of the
Plan or the property to be distributed under the Plan, in good faith, including,
without limitation, failure to obtain Confirmation of the Plan or to satisfy any
condition or conditions, or refusal to waive any condition
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or conditions, to the occurrence of the Effective Date, and in all respects such
Exculpated Persons will be entitled to rely upon the advice of counsel with
respect to their duties and responsibilities under the Plan.
11. Releases.
--------
Section 7.4(A) of the Plan provides that 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' (a) present officers and directors, (b)
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 Debtors' FCC Proceeding), (c) the entities
that elected such directors to the extent they are or may be liable for the
actions or inactions of such directors and (d) 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 the Plan
(collectively, the "Released Matters"); provided, that the foregoing release
--------
will not apply to any action or omission that constitutes actual fraud or
criminal behavior; and provided, further, that such release will not be granted
-------- -------
to any Officer or Director Releasee who has a Disputed Claim as of the Effective
Date.
Section 7.4(B) of the Plan provides that 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 (a) the Pre-Petition Lenders, the Pre-Petition Agent,
the DIP Lenders and the DIP Agent and (b) their respective professional advisers
(collectively, the "Lender Releasees"), from the Released Matters; provided,
--------
that the foregoing release will not apply to any action or omission that
constitutes actual fraud or criminal behavior.
Section 7.4(C) of the Plan provides that 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, (a) 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"),
(b) the Standby Purchasers and their Representatives, and (c) their respective
professional advisers (collectively, the "Creditor Releasees"), from the
Released
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Matters; provided, that the foregoing release will not apply to any action or
--------
omission that constitutes actual fraud or criminal behavior.
Section 7.4(D) of the Plan provides that 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 will not apply to any action or omission
- --------
that constitutes actual fraud or criminal behavior.
Section 7.4(E) of the Plan provides that on the Effective Date, Arch
and its subsidiaries will 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 will 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.
Section 7.4(F) of the Plan provides that on the Effective Date, each
holder of a Claim that is entitled to vote on the Plan will 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 will not apply to any action or
--------
omission that constitutes actual fraud or criminal behavior and will 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.
Section 7.4(G) of the Plan provides that the Confirmation Order will
contain a permanent injunction to effectuate the releases granted in Sections
7.4(A), (B), (C), (D), (E) and (F) of the Plan and that any release granted
pursuant to Sections 7.4(A), (B), (C), (D), (E) and (F) of the Plan will 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 that 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 will be preserved and become the property of the
Reorganized Debtors pursuant to Section 7.2 of the Plan.
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12. Indemnification Obligations; Directors' and Officers' Liability
---------------------------------------------------------------
Insurance.
---------
Section 7.5(A) of the Plan provides that Director Indemnification
Obligations and Excluded Indemnification Obligations will be deemed to be, and
will 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 Section 7.5(A) of the Plan will be
subordinated in full under sections 510(b) and 510(c) of the Code.
Section 7.5(B) of the Plan provides that 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 Indemnification Obligations) will be deemed to be, and will
be treated as though they are, executory contracts that are assumed agreements
under the Plan and such obligations (subject to any defenses thereto) will
remain unaffected and will not be discharged or impaired hereby, and any Claim
for reimbursement, contribution or indemnification filed by any such party will
not be an Allowed Claim hereunder; provided, that the foregoing assumption will
--------
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 of the Plan.
Section 7.5(C) of the Plan provides that on the Effective Date, the
Reorganized Debtors will 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 Debtors' FCC Proceeding), which
policy will 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 will contain such other usual
and customary terms and conditions as are approved by the Board of Directors of
MobileMedia.
Section 7.5(D) of the Plan provides that as of the Effective Date,
Arch will 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 will 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 the Plan. As a condition to any officer or director obtaining amounts
from the Defense Fund, such officer or director will 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 will
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be required to reimburse Arch for any amounts obtained from the Defense Fund
that are subsequently covered by insurance.
13. Terms Binding.
-------------
Section 7.6 of the Plan provides that upon the entry of the
Confirmation Order, all provisions of the Plan, including all agreements,
instruments and other documents filed in connection with the Plan and executed
by the Debtors, Arch or the Reorganized Debtors in connection with the Plan,
will 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 the
Plan. All agreements, instruments and other documents filed in connection with
the Plan will have full force and effect, and will bind all parties thereto as
of the entry of the Confirmation Order, whether or not such exhibits actually
will be executed by parties other than the Debtors or the Reorganized Debtors,
or will be issued, delivered or recorded on the Effective Date or thereafter.
14. Effectuating Documents, Further Transactions, Exemptions from
-------------------------------------------------------------
Certain Transfer Taxes.
----------------------
Section 4.10 of the Plan provides that 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 the 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, the 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.
15. 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 the Plan after the Voting
Deadline, will be treated as a Plan modification and will be governed by section
1127 of the Code.
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16. Payment Dates.
-------------
Whenever any payment to be made under the Plan is due on a day other
than a Business Day, such payment instead will be made, without interest, on the
next succeeding Business Day.
17. Successors and Assigns.
----------------------
The rights, benefits and obligations of any person named or referred
to in the Plan will be binding upon, and will inure to the benefit of, the heir,
executor, administrator, successor or assignee of such person.
18. Compliance with Law; Governing Law.
----------------------------------
It is intended that the provisions of the Plan (including the
implementation thereof) will 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 HSR Act, as well as, in each case, any rules and regulations
promulgated thereunder. If the Debtors conclude that the Plan may not comply
with any of the foregoing, then and in such event the Debtors intend to amend
the Plan in such respects as they deem necessary to bring the Plan into
compliance therewith. In addition, 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 the Plan will 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.
19. Severability.
------------
If the Bankruptcy Court determines at the Confirmation Hearing that
any material provision of the 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, will be severable from this Plan and null and void, and, in
such event, such determination will in no way limit or affect the enforceability
or operative effect of any or all other portions of the Plan.
I. Ownership and Resale of Plan Securities; Exemption From Securities Laws
Holders of Allowed Class 6 Claims will receive (a) Arch Common Shares
(the "Arch Plan Shares") and (b) assuming such Class 6 Claims are allowed as of
the Rights Offering Supplemental Record Date, Rights. Each Right will entitle
the holder thereof to purchase one Unit./16/ Each Unit is comprised of one Arch
Common Share (as described above, certain large
- -----------------
/16/ As noted above, if fewer than all of the holders of Allowed Class 6 Claims
exercise the Rights,
(continued....)
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<PAGE>
holders may receive Arch Class B Common Shares in lieu of Arch Common Shares in
the event certain ownership thresholds are exceeded) and 0.__ of an Arch
Warrant./17/ In addition, as consideration for entering into Standby Purchase
Commitments, the Standby Purchasers will receive Arch Warrants, which will
enable them to purchase, in the aggregate, 2.5% 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 giving effect to the Plan as if the Effective Date had occurred on
such date and assuming 21,067,110 shares of Existing Arch Common Stock are
issued and outstanding immediately prior thereto.
The Debtors believe that the provisions of section 1145(a)(1) of the
Code exempt the offer and distribution of the Arch Plan Shares from federal and
state securities registration requirements. Arch has filed a registration
statement with the SEC with respect to (a) the Rights, (b) the Arch Common
Shares, the Arch Class B Common Shares and the Arch Warrants issuable upon
exercise of the Rights or the Units issuable upon such exercise consisting of
such Arch Common Shares or Arch Class B Common Shares and such Arch Warrants,
and (c) the Arch Common Shares issuable upon exercise of such Arch Warrants and
certain other Arch Warrants issued in connection with the Plan.
1. Bankruptcy Code Exemption From Registration Requirements.
--------------------------------------------------------
. (a) Initial Offer and Sale of Plan Securities. Section
1145(a)(1) of the Code exempts the offer and sale of securities under a plan of
reorganization from registration under the Securities Act and state laws if
three principal requirements are satisfied: (i) the securities must be offered
and sold under a plan of reorganization and must be securities of the debtor, of
an affiliate participating in a joint plan with the debtor or of a successor to
the debtor under the plan; (ii) the recipient of the securities must hold a pre-
petition or administrative claim against, or an interest in, the debtor; and
(iii) the securities must be issued entirely in exchange for the recipient's
claim against or interest in the debtor, or principally in such exchange and
partly for cash or property. The Debtors believe that the offer of the Arch
Plan Shares satisfies the requirements of section 1145(a)(1) of the Code and is,
therefore, exempt from registration under the Securities Act and state
securities laws.
- ------------------
/16/ (....continued)
certain Standby Investors have committed to purchase the common stock and
warrants not otherwise purchased in connection with the Rights
/17/ 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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<PAGE>
(b) Subsequent Transfers of Plan Securities. In general, all resales
and subsequent transactions in the Arch Plan Shares will be exempt from
registration under the Securities Act pursuant to section 4(1) of the Securities
Act, unless the holder thereof is deemed to be an "underwriter" with respect to
such securities, an "affiliate" of the issuer of such securities or a "dealer".
Section 1145(b) of the Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest in or a
claim for administrative expense against the debtor with a
view to distributing any security received in exchange for
such a claim or interest ("accumulators");
(ii) persons who offer to sell securities offered under a plan
for the holders of such securities ("distributors");
(iii) persons who offer to buy securities offered under a plan
from the holders of such securities, if the offer to buy is
(x) with a view to distributing such securities and (y) made
under a distribution agreement; or
(iv) a person who is an "issuer" with respect to the securities,
as the term "issuer" is defined in section 2(11) of the
Securities Act.
Under section 2(11) of the Securities Act, an "issuer" includes any "affiliate"
of the issuer, which means any person directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with the
issuer. Under section 2(12) of the Securities Act, a "dealer" is any person who
engages either for all or part of his or her time, directly or indirectly, as
agent, broker or principal, in the business of offering, buying, selling or
otherwise dealing or trading in securities issued by another person. Whether or
not any particular person would be deemed to be an "underwriter" or an
"affiliate" with respect to the Arch Plan Shares or to be a "dealer" would
depend upon various facts and circumstances applicable to that person.
Accordingly, the Debtors express no view as to whether any person would be an
"underwriter" or an "affiliate" with respect to the Arch Plan Shares or would be
a "dealer".
The SEC has taken the position that resales by accumulators and
distributors of securities distributed under a plan of reorganization who are
not affiliates of the issuer of such securities are exempt from registration
under the Securities Act if effected in "ordinary trading transactions". The
staff of the SEC has indicated in this context that a transaction by such non-
affiliates may be considered an "ordinary trading transaction" if it is made on
an exchange or in the over-the-counter market and does not involve any of the
following factors:
(i) (x) concerted action by the recipients of securities issued
under a plan in connection with the sale of such securities
or (y) concerted
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action by distributors on behalf of one or more such
recipients in connection with such sales;
(ii) the use of informational documents concerning the offering
of the securities prepared or used to assist in the resale
of such securities, other than a bankruptcy court-approved
disclosure statement and supplements thereto, and documents
filed with the SEC pursuant to the Exchange Act; or
(iii) the payment of special compensation to brokers and dealers
in connection with the sale of such securities designed as a
special incentive to the resale of such securities (other
than the compensation that would be paid pursuant to arm's-
length negotiations between a seller and a broker or dealer,
each acting unilaterally, not greater than the compensation
that would be paid for a routine similar-sized sale of
similar securities of a similar issuer).
The views of the SEC on the matter have not, however, been sought by the Debtors
and, therefore, no assurance can be given regarding the proper application of
the "ordinary trading transaction" exemption described above. Any person
intending to rely on such exemption is urged to consult his or her own counsel
as to the applicability thereof to his or her circumstances.
Securities Act Rule 144 provides an exemption from registration under
the Securities Act for certain limited public resales of unrestricted securities
by "affiliates" of the issuer of such securities. Rule 144 allows a holder of
unrestricted securities that is an affiliate of the issuer of such securities to
sell, without registration, within any three-month period a number of shares of
such unrestricted securities that does not exceed the greater of one percent
(1%) of the number of outstanding securities in question or the average weekly
trading volume in the securities in question during the four calendar weeks
preceding the date on which notice of such sale was filed pursuant to Rule 144,
subject to the satisfaction of certain other requirements of Rule 144 regarding
the manner of sale, notice requirements and the availability of current public
information regarding the issuer. The Debtors believe that, pursuant to section
1145(c) of the Code, the unregistered securities being distributed under and in
connection with the Plan will be unrestricted securities for purposes of Rule
144.
GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A PARTICULAR
PERSON MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING THE
RIGHT OF ANY PERSON TO TRADE IN THE ARCH PLAN SHARES. THE DEBTORS RECOMMEND
THAT HOLDERS OF CLAIMS CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY
FREELY TRADE SUCH SECURITIES.
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State securities laws generally provide registration exemptions for
subsequent transfers by a bona fide owner for his or her own account and
subsequent transfers to institutional or accredited investors. Such exemptions
are generally expected to be available for subsequent transfers of the Arch Plan
Shares.
(c) Certain Transactions by Stockbrokers. Under section 1145(a)(4) of
the Code, stockbrokers effecting transactions in the Arch Plan Shares prior to
the expiration of 40 days after the Effective Date are required to deliver to
the purchaser of such securities a copy of this Disclosure Statement (and
supplements hereto, if any, if ordered by the Bankruptcy Court) at or before the
time of delivery of such securities to such purchaser.
2. Registration Rights.
-------------------
Attached as Exhibit C to the Merger Agreement is the Registration
Rights Agreement that Arch will execute with the Standby Purchasers. Section
4.9 of the Plan provides that each Person (other than the Standby Purchasers)
that, as a result of the transactions contemplated by the 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,
will be entitled to become a party to a separate Registration Rights Agreement,
substantially in the form attached to the Plan as Exhibit A.
THE DEBTORS DO NOT PRESENTLY INTEND TO SUBMIT ANY NO-ACTION OR
INTERPRETATIVE REQUESTS TO THE SEC WITH RESPECT TO ANY SECURITIES LAWS MATTERS.
J. Certain Terms of Reorganization Securities Issued Under Plan
The following is a summary only, and is subject in all respects to the
terms of the Plan and the documents executed in accordance with the Merger
Agreement, which documents include the Buyer Warrant Agreement, the Registration
Rights Agreement and Schedule III attached to the Merger Agreement entitled
"Terms of Rights". The Plan, the Merger Agreement and the actual filed
documents may differ in non-material respects from the following. The
discussion contained in this Section and elsewhere in this Disclosure Statement
is intended only to be a description of the terms of the Arch Common Shares,
Arch Class B Common Shares, Rights and Arch Warrants to be issued under or in
connection with the Plan, and the general manner in which such securities will
be issued, and is not an offer to sell or the solicitation of an offer to buy
any such securities (other than the Arch Plan Shares), and no such offer to sell
or solicitation of an offer to buy any such securities will be deemed to be made
by this Disclosure Statement or the Plan.
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<PAGE>
1. General Provisions of the Arch Common Shares.
--------------------------------------------
Section 4.5(c) of the Plan provides that on and as of the Effective
Date, Arch will issue the Arch Common Shares, par value $.01 per share, to be
distributed to the holders of Allowed Class 6 Claims, to all persons that
exercised Rights and, if applicable, to the Standby Purchasers. Holders of
Arch Common Shares 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 Shares will
have no preemptive, subscription, redemption or conversion rights. All Arch
Common Shares issued in connection with the Merger will be fully paid and
nonassessable. The holders of Arch Common Shares do not have cumulative rights.
2. General Provisions of the Arch Class B Common Shares.
----------------------------------------------------
Section 4.5 of the Plan provides on and as of the Effective Date, to
the extent necessary under Section 4.1(A)(2) of the Plan and in lieu of Arch
Common Shares, Arch Class B Common Shares, par value $.01 per share, will be
distributed to certain holders of Allowed Class 6 Claims, Persons that exercised
Rights and the Standby Purchasers. The Arch Class B Common Shares are not
entitled to vote in the election of directors and have voting rights equal to 1%
of the voting rights of Arch Common Shares on all other matters. Upon transfer
of the Arch Class B Common Shares from the Standby Purchasers to any other
person, the shares will convert automatically into Arch Common Shares. The terms
of the Class B Common Shares are specified in the Arch Charter Amendment
attached as Exhibit F to the Merger Agreement.
3. General Provisions of the Rights.
--------------------------------
As soon as practicable after the later to occur of approval by the
Bankruptcy Court of the Disclosure Statement and the effectiveness of the
Registration Statement relating to the Rights (the "Rights Offering Commencement
Date"), Arch will commence 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.
The Rights will be certificated, transferable rights issued by Arch
for the purchase of (a) an aggregate number of Arch Capital Shares equal to
approximately [34.5%-52.4%]/18/ 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
- -----------------------
/18/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
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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. Each Right will entitle the holder thereof to purchase
from Arch one Arch Common Share and 0.__ of an Arch Warrant,/19/ subject to the
terms and conditions of such Right, for a purchase price per share equal to the
Rights Exercise Price.
The Rights Exercise Price will be set based on the pricing mechanism
set forth in Schedule II to the Merger Agreement (the "Pricing Mechanism"). The
Pricing Mechanism provides for the closing trading price of the Arch Common
Shares to be monitored for the 20 trading days immediately prior to September
22, 1998. The closing price of the Arch Common Shares for eight of such days
will be selected at random, the two highest and lowest prices will be discarded
and the prices for the remaining four days will be averaged (the "Pricing
Mechanism Price"). The Rights Exercise Price will be set at 80% of the Pricing
Mechanism Price, provided that in no event will the Rights Exercise Price be
less than $5.00 or more than $8.50. The Rights Offering Expiration Date will be
a date not less than 25 days after the Confirmation Date, and Rights can be
exercised at any time until such date. The Confirmation Date will not occur
until at least December 1998 and possibly later. Thus, the actual trading price
of the Arch Common Shares on the Rights Offering Expiration Date and during the
pendency of the Rights Offering may be either higher or lower than the Rights
Exercise Price. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE RIGHTS EXERCISE
PRICE WILL BE BELOW THE MARKET PRICE OF THE ARCH COMMON SHARES AT ANY TIME
DURING THE RIGHTS OFFERING.
Because not all Class 6 Claims will be Allowed Claims as of the Rights
Offering Initial Record Date, Arch will place into a reserve a number of Rights
equal to the product of the total number of Rights multiplied by a fraction, (i)
---------- --
the numerator of which is the sum of the estimated aggregate amount of (x)
Disputed Class 6 Claims and (y) Claims arising from the rejection of executory
contracts and unexpired leases pursuant to Section 3.1 of the Plan 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 (ii) the denominator
of which is the sum of (x) Disputed Class 6 Claims, (y) Claims arising from the
rejection of executory contracts and unexpired leases pursuant
- --------------------
/19/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
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<PAGE>
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.
On the Confirmation Date, Arch will distribute Rights to holders of
Allowed Class 6 Claims that become allowed between the Rights Offering Initial
Record Date and the Confirmation Date. Any Class 6 Claim that becomes an
Allowed Class 6 Claim subsequent to the Confirmation Date will receive, in lieu
of Rights, the cash value of the Rights that such Person would have been
entitled to receive had such Claim been Allowed on the Confirmation Date, which
value will be determined pursuant to Section 4.1(A)(3) of the Plan.
The Rights will expire on the "Rights Offering Expiration Date", which
date will be established on or prior to the Confirmation Date, but will be not
less than 15 calendar days after the date on which all the conditions to
effectiveness of this Plan will 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).
4. General Provisions of the Arch Warrants.
---------------------------------------
The Plan provides that Arch will issue Rights to holders of Allowed
Claims in Class 6. Each such Right will, among other things, entitle the holder
thereof to purchase 0.__ of an Arch Warrant./20/ In addition, Arch will issue
Arch Warrants directly to the Standby Purchasers in consideration of their
agreement to execute the Standby Purchase Commitments. The exercise price for
each Arch Warrant is $8.19 per share (the "Warrant Exercise Price"), payable
solely in cash and not by tender of stock. The Warrants are exercisable at any
time, upon days' prior written notice to Arch and tender of the Warrant
Exercise Price, from date of issuance through 5:00 p.m. New York City time, on
September 1, 2003. The Warrant Exercise 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, subdivisions of
shares, combination of outstanding shares into a smaller number of shares,
reclassification of outstanding Arch Common Shares, distribution of capital
stock of a subsidiary, and issuance of rights, options, or warrants to Arch
stockholders at a below market price. Fractional shares will not be issued upon
the exercise of Warrants. Rather, the number of Arch Common Shares to be
received will be rounded up or down to the nearest whole number of shares. The
terms of the Arch Warrants are set forth in Exhibit B to the Merger Agreement.
- ---------------------------
/20/ Such percentage will be fixed prior to soliciting votes on the Plan based
on the pricing mechanism set forth in Schedule II to the Merger Agreement.
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K. Claims Reconciliation and Objection Process
1. Bar Date for Administrative Claims.
----------------------------------
Section 4.4(A)(1) of the Plan provides that 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) will 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 will be
forever barred. Objections to any such application must be filed within 15 days
after receipt thereof; provided, that Arch will 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) will 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) of the Plan.
Section 4.4(A)(2) of the Plan provides that 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) will 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 will be forever barred.
Objections to any such application must be filed within 15 days after receipt
thereof; provided, that Arch will have no right to object to any such
--------
application for professional fees.
2. Objections to Claims.
--------------------
Section 4.4(B)(1) of the Plan provides that objections to any
Administrative Claim (other than Administrative Claims governed by Section
4.4(A) of the Plan) and to any other Claim (other than Class 6 Claims addressed
in the next sentence of 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 the 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 will be made on account of any Claim that is not
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Allowed. To the extent any property is distributed to an entity on account of a
Claim that is not an Allowed Claim, such property will be held in trust for and
will promptly be returned to the Reorganized Debtors.
Section 4.4(B)(2) of the Plan provides that on and after the Effective
Date, only the Estate Representative will have authority to continue to
prosecute, settle or withdraw objections to Claims. After the Effective Date,
the Estate Representative will be entitled to compromise or settle any Disputed
Claim without seeking approval of the Bankruptcy Court. The Estate
Representative will be paid subject to the budget described in Section 4.2(C)(5)
of the Plan, but without seeking approval of the Bankruptcy Court.
Section 4.4(B)(3) of the Plan provides that to the extent that a
Disputed Claim ultimately becomes an Allowed Claim, payments and distributions
on account of such Allowed Claim will be made in accordance with the provisions
of the 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
will 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).
L. Retention of Jurisdiction
Section 7.1 of the Plan provides that following the Effective Date,
the Bankruptcy Court will retain such jurisdiction as is set forth in the Plan.
Without in any manner limiting the scope of the foregoing, the Bankruptcy Court
will retain jurisdiction for the following purposes:
1. 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;
2. 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 the Plan and the documents and agreements filed in connection with
the Plan, issue such orders as may be necessary for the implementation,
execution and consummation of the Plan, including, without limiting the
generality of the foregoing, orders to expedite regulatory decisions for
the implementation of the Plan and to ensure conformity with the terms and
conditions of the Plan, such documents and agreements and other orders of
the Bankruptcy Court, notwithstanding any otherwise applicable non-
bankruptcy law;
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<PAGE>
3. 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;
4. To determine all matters that may be pending before the Bankruptcy
Court on or before the Effective Date;
5. To resolve any dispute regarding the implementation or
interpretation of the 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;
6. 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;
7. 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;
8. 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 the Plan;
9. To resolve any dispute arising out of actions taken by the Estate
Representative;
10. To modify the Plan pursuant to section 1127 of the Code, or to
remedy any apparent nonmaterial defect or omission in the Plan, or to
reconcile any nonmaterial inconsistency in the Plan so as to carry out its
intent and purposes; and
11. For such other purposes as may be provided for in the
Confirmation Order.
Prior to the Effective Date, the Bankruptcy Court will 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.
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<PAGE>
VI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A. General Tax Considerations
The following discussion summarizes the material federal income tax
consequences of the implementation of the Plan to the Debtors, Arch and the
United States holders of Claims and Interests. This summary does not discuss
all aspects of federal income taxation that may be relevant to a particular
holder of a Claim or Interest subject to special treatment under the federal
income tax laws (such as foreign taxpayers, broker-dealers, banks, thrifts,
insurance companies, financial institutions, regulated investment companies,
real estate investment trusts and pension plans and other tax-exempt investors),
and does not discuss any aspects of state, local or foreign tax laws.
This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Tax Code"), Treasury regulations promulgated and proposed
thereunder, judicial decisions and published administrative rules and
pronouncements of the Internal Revenue Service ("IRS") in effect on the date
hereof, all of which are subject to change (possibly with retroactive effect).
The Debtors have not received an opinion of counsel as to the federal income tax
consequences of the Plan and do not intend to seek a ruling from the IRS as to
any aspect of the Plan.
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES
PERTAINING TO A HOLDER OF A CLAIM OR INTEREST. EACH HOLDER OF A CLAIM OR AN
INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES OF THE PLAN.
B. Tax Consequences to the Debtors
The Debtors expect to report for federal income tax purposes a
consolidated net operating loss ("NOL") carryforward of approximately $400
million as of December 31, 1997. It is anticipated that a portion of this NOL
will be utilized to offset consolidated net taxable income for the year ending
December 31, 1998, including income from the sale pursuant to the Tower
Transaction. Additional losses may be incurred prior to the Effective Date.
The amount of such NOL carryforwards and other losses, and the extent to which
they are or will be available to offset income of the Debtors for past and
future years, has not been reviewed or approved by the IRS. In addition, the
Debtors believe that at December 31, 1997 the tax basis of the Debtors' assets
exceeded the value of such assets. As discussed below, certain tax attributes
of the Debtors, such as NOLs and tax basis, will be subject to reduction and
limitation as the result of the implementation of the Plan.
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<PAGE>
1. Cancellation of Debt.
--------------------
Under the Tax Code, a taxpayer generally must include in gross income
the amount of any indebtedness discharged during the taxable year for less than
full consideration except to the extent that payment of the canceled debt would
have given rise to a tax deduction (as, for example, accrued interest not
previously deducted). However, income arising from so-called "cancellation of
indebtedness" ("COD") that occurs in a case under title 11 of the Code is
excluded from gross income, but the taxpayer's tax attributes must be reduced by
the amount of the income so excluded. Attributes generally must be reduced in
the following order: NOLs, business tax credits, capital loss carryovers, the
taxpayer's basis in property and foreign tax credits. COD is the amount by
which the indebtedness discharged exceeds any consideration given in exchange
therefor. For purposes of determining the amount of a taxpayer's COD,
consideration is equal to the sum of the amount of cash, fair market value of
stock, issue price of debt, and fair market value of any other property
exchanged for the discharged indebtedness. As a result of the COD income that
arises from the discharge of Claims pursuant to the Plan, the Debtors will
suffer attribute reduction that will substantially reduce or eliminate NOL
carryforwards that otherwise might have been available to the Debtors and may
also reduce tax basis in the Debtors' assets.
2. Limitations on NOL Carryforwards and Other Tax Attributes.
---------------------------------------------------------
Following the implementation of the Plan, any carryforwards of
consolidated NOLs remaining following attribute reduction, as described above,
as well as certain other tax attributes of the Debtors allocable to periods
prior to the Effective Date, will be subject to limitations imposed by section
382 of the Tax Code and Treasury regulations addressing consolidated returns.
Under section 382 of the Tax Code, if a corporation undergoes an
"ownership change", the amount of the pre-change losses that may be utilized to
offset future taxable income generally will be subject to an annual limitation.
Similarly, such limitation generally will apply to losses or deductions that are
"built-in" (i.e., economically accrued but not yet taken into account for tax
----
purposes) as of the Effective Date that are recognized within the five-year
period beginning on the Effective Date. The consummation of the Plan will
result in an ownership change of the Debtors. In addition, pursuant to Treasury
regulations, the consolidated NOL carryovers of the Debtors remaining after the
Effective Date and certain "built-in" losses or deductions, in both cases as
limited by section 382, may be utilized only to offset future taxable income of
the Debtor corporations and successors thereto; i.e., they may not be usable
----
against the income of other corporations with which the Debtor corporations or
their successors file a consolidated return following the Merger.
It is anticipated that the amount of the annual limitation generally
would be equal to the product of (i) the lesser of the value of the outstanding
stock of Merger Subsidiary (as successor to Communications) immediately after
the ownership change or the value of the
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<PAGE>
Debtors' consolidated gross assets immediately before such change (with certain
adjustments) and (ii) the "long-term tax exempt rate" in effect for the month in
which the ownership change occurs (5.15% for ownership changes occurring in
August 1998). However, the annual limitation generally would be zero if, during
the two-year period beginning on the date the ownership change occurs, the
Debtors' successors do not either (i) continue the Debtors' historic business or
(ii) use a significant portion of the Debtors' historic business assets in a
business.
As stated above, section 382 of the Tax Code also operates to limit
built-in losses recognized subsequent to the date of the ownership change. If a
loss corporation has a net unrealized built-in loss at the time of an ownership
change (taking into account assets immediately before the ownership change other
than cash, cash items and marketable securities with values that do not
substantially differ from their adjusted bases and taking into account all items
of "built-in" income and deductions), then any built-in losses recognized during
the following five years (up to the amount of the original net built-in loss)
generally will be treated as a pre-change loss and similarly will be subject to
the annual limitation. For this purpose, built-in losses recognized during the
five-year period generally include depreciation and amortization deductions
allowable for any period within the five-year period except to the extent such
deductions are not attributable to built-in loss existing with respect to an
asset as of the Effective Date. In general, a loss corporation's net unrealized
built-in-loss will be deemed to be zero unless it is greater than the lesser of
(i) $10 million or (ii) 15% of the fair market value of its assets (with certain
adjustments) before the ownership change. The Debtors believe that the tax
basis and fair market value of the Debtors' assets (other than the stock of
Debtors) as of the date of the ownership change will be such that they will have
a net unrealized built-in loss for purposes of section 382 on the ownership
change date.
In addition to the regular federal income tax consequences described
above to a corporation that undergoes an "ownership change" within the meaning
of section 382 of the Tax Code, for certain alternative minimum tax ("AMT")
purposes, a corporation that has a net unrealized built-in-loss (as determined
for AMT purposes) on the date of the ownership change, will be required to
reduce its aggregate tax basis for its assets to the aggregate fair market value
of such assets as of the change date.
3. Merger of Communications with and into Merger Subsidiary.
--------------------------------------------------------
It is intended that the Merger of Communications with and into Merger
Subsidiary be treated as a "reorganization" qualifying under section
368(a)(2)(D) of the Tax Code and accordingly, that the Debtors recognize no gain
or loss with respect to the Merger. But see Section IV.B.1 above, regarding the
--------------
reduction of the Debtors' tax attributes as a result of the cancellation of the
Debtors' indebtedness.
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<PAGE>
4. Contribution of All of MobileMedia's Assets to Communications.
-------------------------------------------------------------
Under the Plan, once all Claims and Interests have been discharged
pursuant to Section 6.1 thereof, MobileMedia will contribute all of its assets
to Communications and thereafter immediately dissolve, and the separate
corporate existence of MobileMedia will cease. No consideration will be paid to
holders of Common Stock of MobileMedia, and the Common Stock will be canceled
upon the dissolution. The affiliated group of Debtors that join in filing
consolidated federal income tax returns will be unaffected by MobileMedia's
contribution of its assets and subsequent dissolution.
5. Merger of MCCA with and into Delaware Subsidiary.
------------------------------------------------
It is intended that reincorporation of MCCA as a Delaware corporation
pursuant to the merger of MCCA with and into Delaware Subsidiary Co. be treated
as a "reorganization" qualifying under section 368(a)(1)(F) of the Tax Code and
accordingly that the Debtors recognize no gain or loss with respect to such
merger.
6. Mergers of Subsidiaries of MCCA, Contributions by Merger
Subsidiary to MCCA, and Contributions to License Co. LLC pursuant
to Section 4.2(B) of the Plan.
-----------------------------------------------------------------
Pursuant to Section 4.2(B) of the Plan, a series of transactions will
be effected that will result in all of the operations of the Debtors being
conducted by a single operating company -- Delaware Subsidiary Co., a Delaware
corporation. It is intended that none of these transactions will result in
income, gain or loss to any party to such transaction.
C. Federal Income Tax Consequences to Arch
As stated above, it is intended that the Merger of Communications into
Merger Subsidiary constitute a "reorganization", and that as a result, no gain
or loss will be recognized by the corporate parties including Arch and Merger
Subsidiary. Merger Subsidiary's tax basis for the assets of Communications
received in the Merger will be the same as the basis for such assets in the
hands of Communications immediately before the Merger (which would reflect any
decrease in such basis resulting from the cancellation of the Debtors'
indebtedness), and Merger Subsidiary's holding period for such assets will
include the period such assets were held by Communications. Arch will not
recognize any gain upon the issuance of its stock or the Rights pursuant to the
Merger Agreement. Based upon the treatment of the Rights as consideration
provided pursuant to a "reorganization" under section 368(a)(2)(D) of the Tax
Code, Arch's tax basis for the stock of Merger Subsidiary will be equal to the
basis of the assets of Merger Subsidiary received in the Merger reduced by the
amount of liabilities, if any, to which such assets are subject and increased by
the amount of cash and Arch's tax basis for any property contributed to Merger
Subsidiary prior to the Merger and not distributed to creditors of the Debtors
pursuant
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to the Plan. No assurance can be given, however, that the IRS will agree with
such treatment of the Rights.
D. Federal Income Tax Consequences to Holders of Claims and Interests
1. Allowed Claims in Class 1, Class 2 and Class 3.
----------------------------------------------
Payment in satisfaction of Allowed Claims in Class 1, Class 2 and
Class 3 may result in income to a holder of such a Claim to the extent that the
holder has not already accrued the amount of the Claim as income. A holder who
reduced the amount of its Claim to an amount less than the amount already
included in its income may incur a loss upon satisfaction of such Claim under
the Plan to the extent a bad debt deduction (or an addition to a bad debt
reserve) was not previously claimed with respect to such reduction.
2. Allowed Class 4 Claims and Class 5 Claims.
-----------------------------------------
A holder of an Allowed Claim in Class 4 or Class 5 will recognize
ordinary interest income to the extent that the amount received is allocable to
unpaid interest that has accrued on or after the beginning of the holder's
holding period and was not previously included in income, and will recognize
ordinary income to the extent, if any, of the reimbursement for any costs, fees
and charges which such a holder previously deducted. No income is realized from
a payment attributable to unpaid interest that was previously included in
income. A holder will recognize an ordinary loss to the extent any accrued
interest claimed was previously included in its gross income and not paid in
full. In addition, such a holder will recognize gain or loss upon
implementation of the Plan equal to the difference between (x) the amount of
cash received in exchange for its Claim (other than a Claim for unpaid interest
accrued on or after the beginning of the holder's holding period or costs, fees
or charges which such a holder previously deducted) and (y) such holder's
adjusted tax basis in its Claim (not attributable to a claim for accrued
interest).
The character of any gain or loss recognized as long-term or short-
term capital gain or loss or as ordinary income or loss will be determined by a
number of factors, including the tax status of the holder, whether the Claim
constitutes a capital asset in the hands of the holder, whether the Claim has
been held for more than 12 months, whether the Claim was purchased at a
discount, and whether and to what extent the holder has previously claimed a bad
debt deduction. In this regard, section 582(c) of the Tax Code provides that the
sale or exchange of a bond, debenture, note, certificate or other evidence of
indebtedness by certain financial institutions will be considered the sale or
exchange of a non-capital asset. Accordingly, any gain or loss recognized by
such financial institutions as a result of the implementation of the Plan will
be ordinary gain or loss, regardless of the nature of their Claims.
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3. Allowed Class 6 Claims.
----------------------
The federal income tax consequences of the Plan to a holder of an
Allowed Claim in Class 6 that will receive Arch Capital Shares pursuant to the
Plan (i.e., excluding those holders of relatively small claims that elect to
----
receive cash under the Plan) will depend, in part, on whether such holder's
claim constitutes a "security" of Communications for federal income tax
purposes. The term "security" is not defined in the Tax Code or in the Treasury
regulations issued thereunder and has not been clearly defined by judicial
decisions. In general, a debt instrument with a maturity in excess of 10 years
is a security for federal income tax purposes and a debt instrument with a
maturity of less than 5 years is not a security; there is, however, no clear
legal standard determining whether a particular obligation is a security, and
holders should consult their tax advisors as to whether a particular debt
instrument or Claim constitutes a security for federal income tax purposes.
All holders of Allowed Claims in Class 6, whether or not their Claims
constitute "securities" for federal income tax purposes, will recognize ordinary
interest income to the extent that the amount received is allocable to unpaid
interest that has accrued on or after the beginning of the holder's holding
period and was not previously included in income, and will recognize ordinary
income to the extent, if any, of the reimbursement for any costs, fees and
charges that such holder previously deducted. No income is realized from a
payment attributable to unpaid interest that was previously included in income.
(a) Holders of Claims not Constituting "Securities". A holder of an
Allowed Claim in Class 6 that does not constitute a "security" for federal
income tax purposes will recognize an ordinary loss to the extent any accrued
interest claimed was previously included in its gross income and is not paid in
full. In addition, a holder of an Allowed Claim in Class 6 will recognize gain
or loss upon implementation of the Plan equal to the difference between (x) the
"amount realized" in respect of the holder's Claim (other than a Claim for
unpaid interest accrued on or after the beginning of the holder's holding period
or costs, fees or charges which such a holder previously deducted) and (y) such
holder's adjusted tax basis in its Claim (not attributable to a Claim for
accrued interest). In the case of a holder that elects to receive cash
consideration, the "amount realized" in respect of such Claim will equal the
amount of such cash. In the case of a holder that does not elect to receive
cash consideration, the "amount realized" in respect of such Claim will equal
the sum of (i) the fair market value of the Rights, (ii) the fair market value
of the Arch Capital Shares and (iii) the fair market value of any other property
received in exchange for the Claim. Pending litigation relating to certain
Notes may affect the ability of a holder of such a Note to deduct currently loss
recognized with respect to such Note as a result of the implementation of the
Plan. Each holder should consult with its own tax advisor.
The character of any gain or loss recognized as long-term or short-
term capital gain or loss or as ordinary income or loss will be determined by a
number of factors, including the tax status of the holder, whether the Claim
constitutes a capital asset in the hands of the holder, whether the Claim has
been held for more than 12 months, whether the Claim was purchased at a
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discount, and whether and to what extent the holder has previously claimed a bad
debt deduction. In this regard, section 582(c) of the Tax Code provides that the
sale or exchange of a bond, debenture, note, certificate or other evidence of
indebtedness by certain financial institutions will be considered the sale or
exchange of a non-capital asset. Accordingly, any gain or loss recognized by
such financial institutions as a result of the implementation of the Plan will
be ordinary gain or loss, regardless of the nature of their Claims.
(b) Holders of Claims Constituting "Securities". It is intended that
the holders of Allowed Claims in Class 6 that constitute "securities" for
federal income tax purposes be treated as having such Claims satisfied pursuant
to a "reorganization" qualifying under section 368(a)(2)(D) of the Tax Code.
However, the Debtors have not requested a ruling from the IRS and have not
obtained an opinion of counsel as to the federal income tax treatment of the
Plan, and no assurance can be given that the IRS will agree with such treatment.
Holders should consult their tax advisors regarding the federal income tax
consequences of any alternative characterization. In addition, different
considerations may apply to Standby Purchasers that purchase Units pursuant to
their Standby Purchase Commitments. Such holders should consult with their own
tax advisors.
The remainder of this Section (b) describes the federal income tax
consequences of treatment of the satisfaction of the Allowed Claims as a
"reorganization" under section 368 (a) of the Tax Code. A holder of a Claim
that constitutes a "security" will not recognize loss on the exchange of its
Claim for consideration other than ordinary loss to the extent of any accrued
interest claimed that was previously included in its gross income with respect
to which consideration is not received. However, such holder will recognize
gain (computed as described in section (a) immediately above), if any, but only
to the extent of any consideration other than Arch Capital Shares or Rights
received in satisfaction of its Claim.
A holder's tax basis in Arch Capital Shares or Rights received that
are allocable to accrued interest not previously included in income or to
expenses previously deducted will be equal to their fair market value on the
Effective Date. A holder's aggregate tax basis in all other Arch Capital Shares
and Rights received in satisfaction of its Claim will equal the holder's
adjusted tax basis in its Claim (including any claim for accrued interest
previously included in income), decreased by the sum of (i) the cash and fair
market value of any other property received and (ii) the amount of any loss
recognized in respect of its Claim for accrued interest previously included in
income that is not satisfied, and increased by the amount of any gain recognized
in respect of its Claim (which does not include interest income and income
relating to reimbursement). This aggregate tax basis will be allocated in
proportion to the fair market values of each class of Arch Capital Shares and
the Rights received as of the Effective Date. A holder's tax basis in any other
property received in satisfaction of its Claim will equal the fair market value
of such property. A holder's holding period for the Arch Capital Shares and
Rights received will include the holder's holding period for the Claim, except
to the extent that such stock or stock rights were issued in respect of a claim
for accrued interest not previously included in income or as reimbursement for
costs, fees or charges which the holder previously deducted. A holder's holding
period for any
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other property issued in exchange for a Claim, including Arch Capital Shares and
Rights issued in respect of a claim for accrued interest not previously included
in income or for reimbursement of previously deducted costs, will begin on the
day after the issuance thereof.
With respect to a holder of a Claim that constitutes a "security" and
has accrued market discount, regulations are expected to be promulgated by the
Treasury Department pursuant to which any accrued market discount not treated as
ordinary income upon any exchange of the Claim will carry over to the Arch
Capital Shares and Rights received in exchange therefor. If such regulations are
promulgated and applicable to the Plan, any gain recognized by such holder upon
a subsequent disposition of such consideration received in exchange for its
Claim would be treated as ordinary income to the extent of any accrued market
discount with respect to such Claim not previously included in income. In
general, a debt instrument will have accrued "market discount" if such debt
instrument was acquired after its original issuance at a discount to its
adjusted issue price.
Standby Purchasers that receive Arch Warrants in connection with their
Standby Purchase Commitments should consult with their own tax advisors
regarding the tax consequences of the receipt of such Arch Warrants.
(c) The Rights. A holder of an Allowed Claim in Class 6, whether or
not such Claim constitutes a "security" for federal income tax purposes, will
have a tax basis in the Arch Capital Shares and Arch Warrants received upon its
exercise of Rights received in satisfaction of its Claim, equal to the sum of
(i) its basis in the Rights and (ii) the exercise price of such Rights, and will
have a holding period in such Arch Capital Shares and Arch Warrants that begins
on the date of exercise. A holder that fails to exercise its Rights prior to
their expiration will be treated as having sold or exchanged the Rights on the
date of expiration, and accordingly, will recognize loss equal to the holder's
tax basis in the Rights on the date of their expiration. Such loss will be a
capital loss if the Arch Capital Shares and Arch Warrants would have been
capital assets in the hands of the holder, and will be short-term or long-term
capital loss depending on the holder's holding period for the expired Rights.
Different considerations may apply to Standby Purchasers that purchase Units
pursuant to their Standby Purchase Commitments. See Section (b) above.
4. Class 8 Claims and Interests.
----------------------------
A holder of a Class 8 Claim related to the Common Stock will recognize
a loss as of the Effective Date for federal income tax purposes in an amount
equal to such holder's adjusted basis in the stock. Any such loss generally
will be a capital loss if the holder held its Claim as a capital asset on the
Effective Date. With respect to holders other than corporate taxpayers, the
determination of whether such capital loss would be short-term or long-term will
depend upon the holder's holding period for the Common Stock as of the Effective
Date. With respect to taxpayers other than corporate taxpayers, capital losses
for a particular tax year are allowed as a deduction for federal income tax
purposes to the extent of such taxpayer's capital gains for such tax year, plus
$3,000. Excess capital losses may be carried over by noncorporate taxpayers to
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succeeding tax years and are allowed as a deduction for federal income tax
purposes in a particular succeeding tax year to the extent of such taxpayer's
capital gains for such succeeding tax year, plus $3,000. With respect to
corporate taxpayers, capital losses may be deducted only to the extent of
capital gains. Corporate taxpayers generally may carry back net capital losses
to each of the three years preceding the year in which such capital losses
arise; any excess capital losses may be carried forward by a corporate taxpayer
to five years following the tax year in which such capital losses arise.
Pending litigation relating to the Common Stock may affect the ability of the
holder of the stock to deduct currently loss recognized with respect to the
stock as a result of the implementation of the Plan. A holder of Common Stock
should consult with its own tax advisor.
All other holders of Claims in Class 8 should consult with their own
tax advisors regarding the tax consequences to them of the treatment of such
Claims under the Plan.
E. Withholding
All distributions to holders of Allowed Claims under the Plan are
subject to any applicable withholding. Under federal income tax law, interest,
dividends and other reportable payments may, under certain circumstances, be
subject to "backup withholding" at a 31% rate. Backup withholding generally
applies if the holder (i) fails to furnish his or her social security number or
other taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN
and the payor is so notified by the IRS, (iii) fails to report properly interest
or dividends, or (iv) under certain circumstances, fails to provide a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that it is not subject to backup withholding. Backup withholding is
not an additional tax. Rather, any amounts withheld from a payment to a holder
under the backup withholding rules are allowed as a refund or a credit against
such holder's federal income tax, provided that the required information is
furnished to the IRS. Certain persons are exempt from backup withholding,
including, in certain circumstances, corporations and financial institutions.
Holders should consult their tax advisors regarding the application of backup
withholding to their particular situations, the availability of an exemption
therefrom and the procedure for obtaining such an exemption, if available.
VII. FEASIBILITY OF THE PLAN
Pursuant to section 1129(a)(11) of the Code, among other things, the
Bankruptcy Court must determine that confirmation of a plan of reorganization is
not likely to be followed by the liquidation or need for further financial
reorganization of the Debtors or any successors to the Debtors under the Plan.
The Debtors believe that the Merger with Arch embodied in the Plan satisfies
this requirement.
The creditors of the Debtors will be receiving cash on the Effective
Date or equity securities (or the right to purchase equity securities) of Arch.
Arch has already secured the
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necessary commitments (each of which is subject to certain contingencies) from
its lenders and from the Standby Purchasers to provide the funds necessary to
consummate the transactions embodied in the Plan and the Merger Agreement.
The Debtors' and Arch's combined pro forma projected results of
operations, balance sheets and statements of cash flow are attached hereto as
Exhibit E and demonstrate that confirmation of the Plan will not likely be
- ---------
followed by the need to further reorganize or liquidate the Reorganized Debtors.
The projections attached hereto as Exhibit E were prepared by Arch and the
---------
Debtors as described therein and below. Moreover, the assumptions used in
preparing the projections are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Debtors' and Arch's control. There generally will be a difference between
projections of future performance and actual results because certain events and
circumstances may not occur as expected. These differences could be material.
While the Debtors believe the projections presented in Exhibit E are reasonable,
---------
there can be no assurance that such projections will be realized. Consequently,
the projections included therein should not be regarded as a representation by
the Debtors, Arch or their respective advisors or any other person that the
projected results will be achieved. In considering the projections attached
hereto and contained herein, holders of Claims and Interests should be mindful
of the inherent risk in developing projections for the future, particularly
given the rapidly developing technological field in which Arch and the
Reorganized Debtors will conduct their business.
VIII. ALTERNATIVES TO THE PLAN
If the Plan described in this Disclosure Statement is not confirmed or
does not become effective, the Debtors would consider proposing an amended plan
of reorganization, reflecting either a restructuring based on a merger or
business combination with another third party or a standalone reorganization.
As discussed in Section IV.A above, during the Cases, the Debtors
------------
conducted an extensive search for a third party purchaser prior to the proposal
of the Plan -- both prior and subsequent to filing the Initial Plan on January
27, 1998. None of the prospective purchasers made offers to purchase the
Debtors at a purchase price that would have resulted in recoveries greater than
those contained in the Plan.
After an extended period of negotiation and analysis, and after
consultation with the Committee and the Pre-Petition Agent and their respective
financial advisors, the Debtors have determined that the agreement ultimately
reached with Arch as reflected in the Merger Agreement and the Plan represents
the highest and best offer received and is superior to the standalone
reorganization that was reflected in the Initial Plan.
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IX. CONDITIONS PRECEDENT TO CONFIRMATION OF THE PLAN UNDER THE CODE
A. The Confirmation Hearing and Objections
In order for the Plan to be consummated, the Bankruptcy Court must
confirm the Plan in accordance with section 1129 of the Code. The Bankruptcy
Court has scheduled a hearing on confirmation of the Plan (the "Confirmation
Hearing") at ____ _.m., on _________, 1998, before the Honorable Peter J. Walsh,
United States Bankruptcy Judge, 824 N. Market Street, Wilmington, Delaware. The
Confirmation Hearing may be adjourned from time to time without further notice
except for the announcement of such adjournment by the Bankruptcy Court at such
hearing.
Section 1128(b) of the Code provides that any party in interest may
object to confirmation of a plan. Pursuant to the Disclosure Statement Approval
Order attached hereto as Exhibit C, any objections to confirmation of the Plan
---------
must be in writing, must set forth the objecting party's standing to assert such
objection and the basis of such objection and must be filed with the Bankruptcy
Court and served upon the United States Trustee for the District of Delaware,
counsel for the Debtors, counsel for the Committee, counsel for the Pre-Petition
Agent and the DIP Agent, and counsel for Arch, together with proof of such
service, so as to be received on or before ____ _.m. on ________ __, 1998.
Objections to confirmation are governed by Bankruptcy Rule 9014 and
the Disclosure Statement Approval Order. PURSUANT TO ORDER OF THE BANKRUPTCY
COURT, UNLESS A WRITTEN OBJECTION TO CONFIRMATION IS DULY AND TIMELY FILED, THE
BANKRUPTCY COURT IS NOT REQUIRED TO CONSIDER SUCH OBJECTION.
B. Confirmation Requirements
In order for a plan of reorganization to be confirmed, the Code
requires, among other things, that such plan be proposed in good faith, that the
proponent of such plan disclose specified information concerning payments made
or promised to insiders and that such plan comply with the applicable provisions
of chapter 11 of the Code. Section 1129(a) of the Code also imposes
requirements that each dissenting member of a class receive at least as much
under the plan as it would receive in a chapter 7 liquidation of the debtor,
that at least one class of impaired claims has accepted the plan, that
confirmation of the plan is not likely to be followed by the need for further
financial reorganization and that the plan is "fair and equitable" with respect
to each class of claims or interests that is impaired under the plan and fails
to accept the Plan by the required majorities. The bankruptcy court will
confirm a plan only if it finds that all of the applicable requirements
enumerated in section 1129(a) of the Code have been met or, if all of the
requirements of section 1129(a) other than the requirements of section
1129(a)(8) have been met
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(i.e., that all impaired classes have accepted the plan), that all of the
---
applicable requirements enumerated in section 1129(b) of the Code have been met.
Section 1129(a) provides that:
1. The plan must comply with the applicable provisions of the Code.
2. The proponent of the plan must comply with the applicable
provisions of the Code.
3. The plan must be proposed in good faith and not by any means
forbidden by law.
4. Any payment made or to be made by the proponent, by the debtor or
by a person issuing securities or acquiring property under the plan, for
services or for costs and expenses in or in connection with the case, or in
connection with the plan and incident to the case, must have been approved
by, or be subject to the approval of, the court as reasonable.
5. The proponent of the plan must disclose the identity and
affiliations of any individual proposed to serve, after confirmation of the
plan, as a director, officer or voting trustee of the debtor, an affiliate
of the debtor participating in a joint plan with the debtor or a successor
to the debtor under the plan; and
(a) the appointment to, or continuance in, such office of such
individual must be consistent with the interests of creditors and
equity security holders and with public policy; and
(b) the proponent of the plan must disclose the identity of any
insider that will be employed or retained by the reorganized debtor,
and the nature of any compensation for such insider.
6. Any governmental regulatory commission with jurisdiction, after
confirmation of the plan, over the rates of the debtor must have approved
any rate change provided for in the plan, or such rate change must be
expressly conditioned on such approval.
7. With respect to each impaired class of claims or interests
(a) each holder of a claim or interest of such class
(i) must have accepted the plan; or
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(ii) must receive or retain under the plan on account of
such claim or interest property of a value, as of the effective
date of the plan, that is not less than the amount that such
holder would receive or retain if the debtor were liquidated
under chapter 7 of the Code on such date; or
(b) if section 1111(b)(2) of the Code applies to the claims of
such class, each holder of a claim of such class must receive or
retain under the plan on account of such claim property of a value, as
of the effective date of the plan, that is not less than the value of
such holder's interest in the estate's interest in the property that
secures such claim.
8. With respect to each class of claims or interests
(a) such class must have accepted the plan; or
(b) such class must not be impaired under the plan.
9. Except to the extent that the holder of a particular claim has
agreed to a different treatment of such claim, the plan must provide that
(a) with respect to a claim of a kind specified in section
507(a)(1) or 507(a)(2) of the Code, on the effective date of the plan,
the holder of such claim will receive on account of such claim cash
equal to the allowed amount of such claim;
(b) with respect to a class of claims of a kind specified in
section 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6) and 507(a)(7) of
the Code, each holder of a claim of such class will receive
(i) if such class has accepted the plan, deferred cash
payments of a value, as of the effective date of the plan, equal
to the allowed amount of such claim; or
(ii) if such class has not accepted the plan, cash on the
effective date of the plan equal to the allowed amount of such
claim; and
(c) with respect to a claim of a kind specified in section
507(a)(8) of the Code, the holder of such claim must receive on
account of such claim deferred cash payments, over a period not
exceeding six years after the date of assessment of such claim, of a
value, as of the effective date of the plan, equal to the allowed
amount of such claim.
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10. If a class of claims is impaired under the plan, at least one
class of claims that is impaired under the plan must have accepted the
plan, determined without including any acceptance of the plan by any
insider.
11. Confirmation of the plan must not be likely to be followed by the
liquidation, or the need for further financial reorganization, of the
debtor or any successor to the debtor under the plan, unless such
liquidation or reorganization is proposed in the plan.
12. All fees payable under section 1930 of title 28, as determined by
the court at the hearing on confirmation of the plan, must have been paid
or the plan must provide for the payment of all such fees on the effective
date of the plan.
13. The plan must provide for the continuation after its effective
date of payment of all retiree benefits, as that term is defined in section
1114 of the Code, at the level established pursuant to subsection (e)(1)(B)
or (g) of section 1114 of the Code, at any time prior to confirmation of
the plan, for the duration of the period the debtor has obligated itself to
provide such benefits.
Section 5.3 of the Plan provides that because Classes 7, 8 and 9 are
deemed not to have accepted the Plan pursuant to section 1126(g) of the Code, as
to such Classes and any other Class that votes to reject the Plan, the Debtors
are seeking confirmation of the Plan in accordance with section 1129(b) of the
Code either under the terms provided herein or upon such terms as may exist if
the Plan is modified in accordance with section 1127(d) of the Code. Section
5.3 of the Plan further provides that 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) of the Plan.
THE DEBTORS BELIEVE THAT THE PLAN SATISFIES OR WILL SATISFY, AS OF THE
CONFIRMATION DATE, ALL OF THE REQUIREMENTS FOR CONFIRMATION.
C. Satisfaction of Conditions Precedent to Confirmation Under the Code
1. Best Interests Test.
-------------------
Section 1129(a)(7) of the Code requires, with respect to each impaired
class, that each holder of an allowed claim or interest in such class either (a)
has accepted the plan or (b) will receive or retain under the plan on account of
such claim or interest property of a value, as of the effective date of such
plan, that is not less than the amount that such person would receive or retain
if the debtor were liquidated under chapter 7 of the Code on the effective date.
This is the so-called "best interests test". This test considers,
hypothetically, the fair salable value of a debtor's assets through liquidation
in a chapter 7 bankruptcy proceeding and the costs that would be incurred and
the additional liabilities that would arise in such proceeding. The
hypothetical
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chapter 7 return to creditors is then calculated, giving effect to secured
claims, distribution priorities established by the Code that apply in a chapter
7 proceeding and subordination agreements.
The first step in meeting this test is to determine the dollar amount
that would be generated from the liquidation of the Debtors' assets and
properties in the context of a chapter 7 liquidation case. The total cash
available would be the sum of the proceeds (net of transaction costs) from the
disposition of the Debtors' assets and the cash held by the Debtors at the time
of the commencement of the chapter 7 case. The next step would be to reduce
that total by the amount of any claims secured by such assets, the costs and
expenses of the liquidation and such additional administrative expenses and
priority claims that may result from the termination of the Debtors' business
and the use of chapter 7 for the purposes of liquidation. Next, any remaining
cash would be allocated to creditors and shareholders in strict priority in
accordance with section 726 of the Code. Finally, the present value of such
allocations (taking into account the time necessary to accomplish the
liquidation) would be compared to the value of the property that is proposed to
be distributed under the Plan on the Effective Date.
The Debtors' costs of liquidation under chapter 7 would include the
fees payable to a trustee in bankruptcy, as well as those that might be payable
to attorneys and other professionals that such a trustee might engage, plus any
unpaid expenses incurred by the Debtors during their chapter 11 cases and
allowed in the chapter 7 case. These expenses could include compensation for
attorneys, financial advisors, appraisers, accountants and other professionals,
and costs and expenses of members of the statutory committee of unsecured
creditors appointed by the United States Trustee pursuant to section 1102 of the
Code and any other committee so appointed. In addition, claims would arise by
reason of the breach or rejection of obligations incurred and executory
contracts entered into by the Debtors both prior to, and during the pendency of,
the chapter 11 cases.
The foregoing types of claims, costs, expenses and fees and such other
claims that may arise in a liquidation case or result from the pending chapter
11 cases would be paid in full from the liquidation proceeds before the balance
of those proceeds would be made available to pay pre-chapter 11 priority and
unsecured claims.
The following liquidation analysis has been prepared to indicate the
net present value that would be allocated to creditors and shareholders (the
"Liquidation Value") in strict priority in accordance with section 726 of the
Code.
Underlying this liquidation analysis are a number of estimates and
assumptions that are inherently subject to significant uncertainties. There can
be no assurance that the recoveries shown, and Liquidation Value indicated, in
this analysis would be realized if the Debtors were, in fact, to undergo such a
liquidation.
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The Debtors have approached this liquidation analysis on an asset
liquidation basis because there can be no assurance that the Debtors' FCC
licenses would not be revoked by the FCC upon a conversion of these Cases to
chapter 7 cases, thereby eliminating the possibility that the Debtors could
continue operating and be liquidated as a "going concern" or "going concerns".
The Debtors' liquidation analysis assumes that their assets would be
broken up and sold by a chapter 7 trustee or its duly appointed advisors,
brokers or liquidators, irrespective of their current use. Some of the Debtors'
assets when broken up may not be able to be sold or may realize minimal
proceeds. The estimated liquidation value of the Debtors' assets, net of
transaction costs and discounted to take account of the estimated time it might
take to dispose of such assets, are set forth in the table below.
The costs associated with a chapter 7 liquidation of the Debtors,
including the fees that would be associated with a chapter 7 trustee, are
anticipated to be significant. Estimates of the major elements of such costs
are set forth in the table below.
The estimated amounts of claims secured by the Debtors' assets and the
administrative and priority claims that would be required to be paid in a
chapter 7 liquidation before any allocation of net proceeds to unsecured
creditors and shareholders have been set forth below.
ESTIMATED LIQUIDATION VALUE
($ MILLIONS)
As of June 30, 1998
PROCEEDS AVAILABLE
- ------------------ ---------------------
Cash and cash equivalents $22.3/1/
Major non-cash assets at liquidation value/2/
<TABLE>
<S> <C> <C>
- FCC licenses $ 86.1
- Radio Transmission Equipment $ 19.7/3/
- Pagers $ 10.3
</TABLE>
- ------------------------
/1/ Comprises book cash and cash equivalents of $11.6 million and outstanding
checks in the amount of $10.7 million.
/2/ Net present value.
/3/ Excludes the Tower Assets that are the subject of the Tower Transaction.
See Section II.B.4(g).
- --- -----------------
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<TABLE>
<S> <C>
- Accounts receivable $ 12.1
- Customer Lists $ 5.3
Other non-cash assets at liquidation value $ 7.8
-------
LIQUIDATION VALUE $ 163.6
Less: Costs associated with liquidation
- Chapter 7 trustee fees $ 4.7
- Employee costs $ 3.5
- Other liquidation costs $ 4.5
-------
$ 150.9
- Dip facility and professional
fee carve-out $ 6.5
-------
- Priority Tax Claims $ 7.5
-------
Available to 1995 Credit Agreement Claims $ 136.9
Less: 1995 Credit Agreement Claims $(479.0)/4/
-------
Shortfall $(342.1)
-------
</TABLE>
After consideration of the effects that a chapter 7 liquidation would
have on the ultimate proceeds available for distribution to creditors and equity
holders in these chapter 11 cases, including (a) the increased costs and
expenses of a liquidation under chapter 7 arising from fees payable to a trustee
in bankruptcy and professional advisors to such trustee, (b) the erosion in
value of the Debtors' assets in a chapter 7 case in the context of the
expeditious liquidation required under chapter 7 and the "forced sale"
atmosphere that would prevail, (c) the adverse effects on the salability of the
Debtors as a result of the departure of key employees and the loss of major
customers and suppliers, (d) substantial increases in claims that would be
satisfied on a priority basis or on a parity with creditors in the chapter 11
cases, and (e) the substantial time that would elapse before regulatory and
other hurdles could be cleared and, therefore, before which creditors would
receive any distribution in respect of their claims, the Debtors have determined
that confirmation of the Plan will provide each creditor and equity holder with
a recovery that is not less than it would receive pursuant to a liquidation of
the Debtors under chapter 7 of the Code. The Allowed Claims of Creditors in
Classes 1, 2, 3, 4 and 5 will be paid in cash in full under the Plan. There
would not be sufficient cash to achieve this result in a liquidation under
chapter 7. The holders of Allowed Claims in Class 6 will receive a substantial
equity stake in Arch under the Plan; they would receive no distribution in a
chapter 7 liquidation.
- -----------------
/4/ Represents the principal amount of the 1995 Credit Agreement indebtedness
less $170.0 million representing the Tower Sale Proceeds to be paid to holders
of Allowed Class 4 Claims.
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2. Acceptance by Impaired Classes.
------------------------------
By this Disclosure Statement, the Debtors are seeking the affirmative
vote of each impaired Class of Claims under the Plan that is proposed to receive
a distribution under the Plan. Pursuant to section 1126(f) of the Code, a class
that is not "impaired" under a plan will be conclusively presumed to have
accepted such plan; solicitation of acceptances with respect to any such class
is not required. Pursuant to section 1126(g) of the Code, a class of claims or
interests that does not receive or retain any property under a plan of
reorganization is deemed not to have accepted the plan, although members of that
class are permitted to consent, or waive objections, to its confirmation.
Pursuant to section 1124 of the Code, a class is "impaired" unless the
plan (a) leaves unaltered the legal, equitable and contractual rights to which
the claim or interest entitles the holder thereof, or (b) (i) cures any default
(other than defaults resulting from the breach of an insolvency or financial
condition provision), (ii) reinstates the maturity of such claim or interest,
(iii) compensates the holder of such claim or interest for any damages incurred
as a result of any reasonable reliance by such holder on any contractual
provision or applicable law entitling such holder to demand or receive
accelerated payments after the occurrence of a default, and (iv) does not
otherwise alter the legal, equitable or contractual rights to which the holder
of such claim or interest is entitled.
Pursuant to section 1126(c) of the Code, a class of impaired claims
has accepted a plan of reorganization when such plan has been accepted by
creditors (other than an entity designated under section 1126(e) of the Code)
that hold at least two-thirds in dollar amount and more than one-half in number
of the allowed claims of such class held by creditors (other than any entity
designated under section 1126(e) of the Code) that have actually voted to accept
or reject the plan. A class of interests has accepted a plan if the plan has
been accepted by holders of interests (other than any entity designated under
section 1126(e) of the Code) that hold at least two-thirds in amount of the
allowed interests of such class held by interest holders (other than any entity
designated under section 1126(e) of the Code) that have actually voted to accept
or reject the plan. Section 1126(e) of the Code allows the Bankruptcy Court to
designate the votes of any party that did not vote in good faith or whose vote
was not solicited or procured in good faith or in accordance with the Code.
Holders of claims or interests who fail to vote are not counted as either
accepting or rejecting the plan.
3. Confirmation Without Acceptance by All Impaired Classes.
-------------------------------------------------------
Because Classes 7, 8 and 9 are deemed not to have accepted the Plan,
the Debtors are seeking confirmation of the Plan as to such Classes, and as to
any other Class that votes to reject the Plan, pursuant to section 1129(b) of
the Code. Section 1129(b) of the Code provides that the Bankruptcy Court may
still confirm a plan at the request of the debtor if, as to each impaired class
that has not accepted the plan, the plan "does not discriminate unfairly" and is
"fair and equitable".
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<PAGE>
Section 1129(b)(2)(A) of the Code provides that with respect to a non-
accepting class of impaired secured claims, "fair and equitable" includes the
requirement that the plan provides (a) that each holder of a claim in such class
(i) retains the liens securing its claim to the extent of the allowed amount of
such claim and (ii) receives deferred cash payments at least equal to the
allowed amount of its claim with a present value as of the effective date of
such plan at least equal to the value of such creditor's interest in the
debtor's interest in the property securing the creditor's claim, (b) for the
sale, subject to section 363(k) of the Code, of the property securing the
creditor's claim, free and clear of the creditor's liens, with those liens
attaching to the proceeds of the sale, and such liens on the proceeds will be
treated in accordance with clauses (a) or (c) hereof, or (c) for the realization
by the creditor of the "indubitable equivalent" of its claim.
Section 1129(b)(2)(B) of the Code provides that with respect to a non-
accepting class of impaired unsecured claims, "fair and equitable" includes the
requirement that (a) the plan provide that each holder of a claim in such class
receives or retains property of a value as of the effective date equal to the
allowed amount of its claim, or (b) the holders of claims or interests in
classes that are junior to the claims of the dissenting class will not receive
or retain any property under the plan on account of such junior claim or
interest.
Section 1129(b)(2)(C) of the Code provides that with respect to a non-
accepting class of impaired equity interests, "fair and equitable" includes the
requirement that (a) the plan provides that each holder of an impaired interest
in such class receives or retains property of a value as of the effective date
equal to the greatest of (i) the allowed amount of any fixed liquidation
preference to which such holder is entitled, (ii) any fixed redemption price to
which such holder is entitled, and (iii) the value of such interest, or (b) the
holders of all interests that are junior to the interests of the dissenting
class will not receive or retain any property under the plan on account of such
junior interest.
The Debtors believe that the Plan does not discriminate unfairly
against, and is fair and equitable as to, each impaired Class under the Plan.
D. Voting Instructions
As noted previously, the Plan divides Claims (excluding administrative
expenses and priority tax claims) and Interests into nine Classes and sets forth
the treatment afforded each Class. Claimants in Classes 1, 2 and 3 are not
impaired under the Plan. Accordingly, holders of Claims in such Classes are
conclusively presumed to have accepted the Plan and are not offered the
opportunity to vote. The holders of the Claims and Interests in Classes 7, 8
and 9 are impaired but are not receiving or retaining any property under the
Plan and are therefore conclusively presumed not to have accepted the Plan and
are not offered the opportunity to vote. Because claimants in Classes 4, 5 and 6
are impaired and are receiving distributions under the Plan, the holders of
Claims in such Classes ("Voting Claims") are entitled to vote on the Plan.
-126-
<PAGE>
If you hold a Voting Claim, your vote on the Plan is important. If
you hold such a Voting Claim, a Ballot to be used for voting to accept or reject
the Plan is enclosed with this Disclosure Statement. Completed Ballots should
either be returned in the enclosed envelope or sent, by hand delivery, first
class mail postage prepaid or recognized overnight courier, to:
Bankruptcy Services, Inc.
70 E. 55th Street, 6th Floor
New York, New York 10022-3222
Attn: Kathy Gerber
Facsimile transmission of Ballots will not be accepted.
---
To the extent that any of the Debtors' securities are held in the name
of an entity (the "nominal holder") other than that of the beneficial holder of
such security, and to the extent that such beneficial security holder is
entitled to vote on the Plan pursuant to section 1126 of the Code, the Debtors
will provide for reimbursement, as an administrative expense, of all the
reasonable expenses of the nominal holder in distributing the Plan, Disclosure
Statement, Ballots and other Plan materials to said beneficial security holder.
Nominal holders will either forward the original ballots or prepare master
ballots in accordance with the terms of the Disclosure Statement Approval Order
attached hereto as Exhibit C.
---------
In the event that any Claim is disputed as of the Plan voting period,
then, pursuant to Bankruptcy Rule 3018(a), the holder of such disputed claim may
petition the Bankruptcy Court, after notice and hearing, to allow the Claim
temporarily for voting purposes in an amount that the Bankruptcy Court deems
proper.
BALLOTS OF CLAIM HOLDERS IN CLASSES 4, 5 AND 6 MUST BE ACTUALLY
RECEIVED BY BANKRUPTCY SERVICES, INC. ON OR BEFORE ____ _.M., NEW YORK CITY
TIME, ON _______ __, 1998. ANY BALLOTS RECEIVED AFTER SUCH TIME WILL NOT BE
COUNTED. ANY BALLOT EXECUTED BY A PERSON NOT AUTHORIZED TO SIGN SUCH BALLOT
WILL NOT BE COUNTED.
BY ENCLOSING A BALLOT, THE DEBTORS ARE NOT REPRESENTING THAT YOU ARE
ENTITLED TO VOTE ON THE PLAN. BY INCLUDING A CLAIM AMOUNT ON THE BALLOT, THE
DEBTORS ARE NEITHER ACKNOWLEDGING THAT YOU HAVE AN ALLOWED CLAIM IN THAT AMOUNT
NOR WAIVING ANY RIGHTS THEY MAY HAVE TO OBJECT TO YOUR VOTE OR CLAIM.
IF YOU HAVE ANY QUESTIONS REGARDING THE PROCEDURES FOR VOTING ON THE
PLAN, CONTACT BANKRUPTCY SERVICES, INC., 70 E. 55TH STREET, 6TH FLOOR, NEW YORK,
NEW YORK, 10022-3222, (212) 376-8494, ATTENTION: DIANE M. ROCANO.
-127-
<PAGE>
X. OTHER MATTERS
A. Voidable Transfer Analysis
1. Fraudulent Transfers.
--------------------
Generally speaking, fraudulent transfer law is designed to avoid two
types of transactions: (a) conveyances that constitute "actual fraud" upon
creditors; and (b) conveyances that constitute "constructive fraud" upon
creditors. In the bankruptcy context, fraudulent transfer liability arises
under sections 548 and 544 of the Code. Section 548 permits a bankruptcy
trustee or debtor-in-possession to "reach back" for a period of one year and
avoid fraudulent transfers made by the Debtors or fraudulent obligations
incurred by the Debtors. Section 544 permits a trustee or debtor-in-possession
to apply applicable state fraudulent transfer law. Assuming that New Jersey
state law were to apply, a bankruptcy trustee or debtor-in-possession could
challenge conveyances, transfers or obligations made or incurred by the Debtors
within the past four years or one year, depending on the type of transfer.
However, under section 544 of the Code, it is necessary to establish that, at
the time of the challenged conveyance or obligation, there in fact existed a
creditor whose claim remained unpaid as of the Petition Date.
The Debtors are not aware of any transfer during the applicable
limitation period that might reasonably be characterized as a fraudulent
conveyance, assuming the Debtors were insolvent at such time.
2. Preferences.
-----------
Under federal bankruptcy law, a trustee in bankruptcy may avoid
transfers of assets of the debtor as a "preferential transfer". To constitute a
preferential transfer, the transfer must be (a) of the debtor's property, (b) to
or for the benefit of a creditor, (c) for or on account of an antecedent debt,
(d) made while the debtor was insolvent, (e) made within 90 days before the
filing of a bankruptcy petition or made within one year if to or for the benefit
of an "insider" and (f) a transfer that enables the creditor to receive more
than it would receive under a chapter 7 liquidation of the debtor's assets. The
Code creates a rebuttable presumption that a debtor was insolvent during the 90
days immediately prior to the filing of the bankruptcy petition.
Within the 90-day period immediately preceding the Petition Date,
substantial payments were made by the Debtors for the following categories of
expenses:
(a) outside services (legal, accounting, financial advisors and
consulting);
(b) local, state and federal taxes (including property, sales, gross
receipts and employee withholding);
(c) severance and other employee-related payments; and
-128-
<PAGE>
(d) trade vendor and related, miscellaneous obligations.
The Debtors have not conducted a full analysis of the payments
described above to determine the propriety of such payments or their
susceptibility to avoidance as preferences. A complete analysis would include a
review of the amount of payment, the nature of goods or services or other
obligations that gave rise to the payment in each of the above-described
categories of payments and the availability of the various statutory defenses to
preference liability to the recipients of such payments. In the Debtors'
opinion, while the aggregate amount of such payments is not insignificant, most
of such payments were appropriately paid in the ordinary course of operations,
and the recapture of any individual amount would not materially change the
proposed recovery to the Debtors' creditors pursuant to the Plan.
B. Certain Effective Date Bonuses
As noted above, the Debtors compensate many of their professionals and
the professionals of the Committee on an hourly or monthly basis. The
compensation package approved by the Bankruptcy Court for Blackstone, the
Debtors' financial advisors, also provides for a significant lump-sum payment to
be made to Blackstone on the Effective Date. This Effective Date payment ranges
from 0.3% to 0.7% of the Debtors' reorganization value, with the percentage
payment increasing as reorganization value increases. The compensation package
approved by the Bankruptcy Court for Houlihan Lokey Howard & Zukin ("Houlihan"),
financial advisors to the Committee, provides that on the date that
distributions are received by unsecured creditors, Houlihan may receive a lump-
sum deferred compensation payment. This deferred payment will only be paid if
the distribution to unsecured creditors exceeds approximately $84 million, and
is based on the amount by which the distribution to unsecured creditors under
the Plan exceeds a number that is approximately $84 million. In addition,
Chilmark Partners, the financial advisors to the steering committee of the Pre-
Petition Lenders, is entitled to a payment of $500,000 on the Effective Date.
Moreover, on June 4, 1997, the Bankruptcy Court approved the
establishment of an Effective Date Incentive Program. This program is intended
to create incentives for and to reward various members of the Debtors'
management for the unique and extraordinary demands placed on them and the
contributions they have made to the resolution of the Debtors' restructuring and
bankruptcy efforts. The Debtors believe that under the circumstances, the
payments to be made under the Effective Date Incentive Program are fair and
reasonable. At reorganization values up to $1 billion, the Board of Directors
has authority to pay up to $2.8 million to the Debtors' management, to be
distributed in accordance with the Effective Date Incentive Program. In
addition, at reorganization values up to $1 billion, Ronald Grawert, the
Debtors' Chief Executive Officer, will be entitled to a payment under the
Effective Date Incentive Program of $1.5 million. Finally, at reorganization
values up to $1 billion, Alvarez & Marsal, Inc. will be entitled, subject to
final approval by the Bankruptcy Court, to an Effective Date Incentive Program
payment equal to .2% of reorganization value.
-129-
<PAGE>
XI. RECOMMENDATION
The Debtors believe that confirmation of the Plan is preferable to the
available alternatives because it provides a greater and more timely
distribution to Creditors than would otherwise result. In addition, any
alternative to confirmation of the Plan could result in extensive delays and
increased administrative expenses resulting in potentially smaller distributions
to the holders of Claims in the Cases. The Committee supports the Plan and will
recommend to all Unsecured Creditors that they vote to accept the Plan.
XII. CONCLUSION
The Debtors urge all holders of Claims that are or may be impaired
under the Plan to vote to accept the Plan and to evidence such acceptance by
returning their Ballots so that they will be timely received.
-130-
<PAGE>
YOUNG CONAWAY STARGATT
& TAYLOR, LLP
James L. Patton, Jr. (No. 2202)
Joel A. Waite (No. 2925)
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899
(302) 571-6600
SIDLEY & AUSTIN
J. Ronald Trost
James D. Johnson
Shelley C. Chapman
Lee M. Stein
875 Third Avenue
New York, New York 10022
(212) 906-2000
Attorneys for Debtors and
Debtors-in-Possession
<PAGE>
Respectfully submitted this 25th day of August, 1998.
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
<PAGE>
Exhibit D
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
<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 un-
collectible 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.
2
<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>
3
See accompanying notes.
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Additional Accumulated Accumulated
---------- ----------- -----------
Paid in Deficit Deficit
------- ------- -------
Capital Pre-Petition Post-Petition Total
------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 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.
4
<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
----------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
(unaudited)
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.
5
<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.
6
<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.
7
<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.
8
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Depreciation and amortization are computed using the straight-line method
over the following estimated useful lives:
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
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.
9
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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".
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.
10
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES 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:
Current assets....................... $ 55,301
Property and equipment............... 112,986
Intangible assets.................... 934,269
Other assets......................... 143
Liabilities assumed.................. (149,662)
---------
$ 953,037
=========
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:
Current assets........................ $ 3,441
Property and equipment................ 37,406
Intangible assets..................... 167,101
Other assets.......................... 74
Liabilities assumed................... (7,843)
--------
$200,179
========
11
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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,
--------------------------------------------------------- June 30, 1998
1996 1997 (unaudited)
----------------------------------- ------------------------------ ------------------------
FAS 121
-------
Accumulated Impairment Adjusted Accumulated Adjusted
------------ ---------- -------- ----------- --------
Cost Amortization Charge Net Cost Amortization Net Cost
----------- ------------ ------ ----- ----- ------------ ----- ----
<S> <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
Customer lists....... 288,137 (102,735) (120,972) 64,430 64,430 (21,477) 42,953 64,430
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
=========== ========== ========== ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
-----------
Amortization Net
------------ -----
<S> <C> <C>
FCC Licenses............. $ (12,872) $ 248,451
Customer lists........... (32,215) 32,215
Software................. -- --
Non-competition
Agreement.............. -- --
Excess of
Consideration
paid over fair
value of net
assets acquired........ -- --
--------- ---------
$ (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.
12
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
June 30,
December 31, 1998
------------------------ ---------
1996 1997 (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 3/4% 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.
13
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 MOBILEMEDIA
COMMUNICATIONS, INC. AND SUBSIDIARIES 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.
14
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
15
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 in book and tax basis
of fixed assets .................... 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 allowance for tax
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.
16
<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 $20,794 for the years ended December 31, 1995, 1996 and 1997 and the six
months ended June 30, 1997 and 1998 (unaudited), respectively. At December 31,
1997, the aggregate minimum rental commitments under leases were as follows:
1998 ...................................................$ 23,566
1999 ................................................... 18,953
2000 ................................................... 14,037
2001 ................................................... 7,625
2002 ................................................... 4,788
Thereafter ............................................. 7,707
--------
$ 76,676
========
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.
17
<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.
18
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
19
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to the New Jersey Actions, two lawsuits (together, the
"California Actions" and, together with the New Jersey Actions, the
"Securities Actions") were filed in September 1997 in the United States
District Court for the Northern District of California and the Superior Court of
California naming as defendants certain former officers and certain present and
former directors of MobileMedia, certain investment entities and the Debtors'
independent auditors. None of the Debtors is named as defendant in the
California Actions.
On November 4, 1997, the Debtors commenced an adversary proceeding in the
Bankruptcy Court seeking to stay the prosecution of the California Actions
against the named defendants. At hearings held on December 10, 1997 and May 29,
1998, the Bankruptcy Court enjoined the plaintiffs in the California Actions
until September 15, 1998 from taking certain actions in connection with the
California Actions, with certain exceptions.
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.
20
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
21
<PAGE>
EXHIBIT E
THE COMBINED COMPANY
UNAUDITED FINANCIAL PROJECTIONS AND OPERATIONAL COST SYNERGIES
Arch and Communications 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, except the pro forma combined
Statements of Operations for the 6-month period ending December 31, 1998, which
assume confirmation of the Amended Plan and consummation of the Merger Agreement
and the Amended Plan as of June 30, 1998.
The Unaudited Combined Company Projections, which were developed by
management of each of Arch and Communications, 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;
. Communications' projected financial results, as developed by
management of Communications, pro forma for the sale of tower
assets and the related rental by Communications of certain
transmitter space and equipment on such towers;
. Certain adjustments to Communications' 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 Communications'
Chapter 11 filing and the integration of Arch's and
Communications' 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 COMMUNICATIONS 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 COMMUNICATIONS DO NOT PUBLISH THEIR RESPECTIVE BUSINESS PLANS AND
STRATEGIES OR PROJECTIONS OF THEIR RESPECTIVE ANTICIPATED FINANCIAL POSITION OR
RESULTS OF OPERATIONS. 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.
1
<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 COMMUNICATIONS, 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 COMMUNICATIONS. 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 COMMUNICATIONS, 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 COMMUNICATIONS. 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.
2
<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>
3
<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 amortization................... 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.
4
<PAGE>
UNAUDITED COMBINED COMPANY PROJECTED STATEMENTS 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 Communications estimated operational expense
reductions and capital expenditure efficiencies they believed could be achieved
in connection with the Merger. Senior management from Arch and Communications,
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
Communications; (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.
5
<PAGE>
The following table presents the range of estimated annual ongoing expense
reductions and annual capital expenditure savings that management of Arch and
Communications 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 Communications, 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 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>
6
<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
Communications 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
Communications 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 $479.0 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 Communications, including the
respective notes thereto.
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 Communications
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. 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.
7
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ARCH COMMUNICATIONS PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------ -------------
<S> <C> <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
8
<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 COMMUNICATIONS PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------ -------------
<S> <C> <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) (6)
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
9
<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 COMMUNICATIONS PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------ -------------
<S> <C> <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
10
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) To eliminate liabilities of Communications that (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 Communications' 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 Communications 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 Communications
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 Communications 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 Communications' tower sites to
a third party. The proceeds of this transaction, approximately $170.0
million, will be utilized as partial payment of Communications' 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 Communications.
(8) To remove the interest expense associated with the various Communications
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 Communications 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:
11
<PAGE>
<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>
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
Communications. The Communications 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.
<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>
12
<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...................................... 4
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......................................................... 11
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............................................. 20
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 Prospectus, 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.................................... 48
8.2 No Third Party Beneficiaries........................................ 48
8.3 Entire Agreement.................................................... 48
8.4 Succession and Assignment........................................... 48
8.5 Counterparts........................................................ 48
8.6 Headings............................................................ 48
8.7 Notices............................................................. 48
8.8 Governing Law....................................................... 49
8.9 Amendments and Waivers.............................................. 49
8.10 Severability........................................................ 49
8.11 Expenses............................................................ 49
8.12 Specific Performance................................................ 49
8.13 Construction........................................................ 49
8.14 Incorporation of Exhibits and Schedules............................. 49
8.15 Knowledge........................................................... 49
8.16 Survival of Representations......................................... 49
8.17 Bankruptcy Process.................................................. 50
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") entered into as of
August 18, 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
<PAGE>
Purchasers will enter into a registration rights agreement in the form
attached hereto as Exhibit C (the "Registration Rights Agreement").
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
2
<PAGE>
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 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 "Directly
Distributed 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.
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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.
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
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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. 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
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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").
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
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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 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.
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(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 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
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(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.
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;
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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.
(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).
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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.
(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.
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(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 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,
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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.
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
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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 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
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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 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
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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 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 Prospectus 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 Prospectus, 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
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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 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
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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.
(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
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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.
(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.
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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), 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.
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(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 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
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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 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
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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.
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,
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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.
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
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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.
(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
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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
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
Prospectus (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
Prospectus, 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.
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
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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 Prospectus 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.
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
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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
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
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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, materially 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 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;
provided, that (x) without such consent, the Company may enter into the
Master Lease (as defined in the Debtor Tower Agreement) and (y) with such
consent, which shall not be unreasonably withheld, terminate the Debtor
Tower Agreement and, in connection therewith, enter into a Replacement
Tower Agreement and a Comparable Tower Lease;
(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;
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(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;
(vi) enter into, materially 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;
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(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".
(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,
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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 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
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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 any 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 ("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 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),
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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
Buyer will (i) subject to Section 4.7(e), recommend in the Prospectus (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
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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 Prospectus, 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 "Prospectus"). The
Prospectus 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 Prospectus. 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 Prospectus.
(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 Prospectus 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 Prospectus, 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 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
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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 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.
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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.
(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.
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(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;
(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;
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<PAGE>
(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 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;
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(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;
(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;
41
<PAGE>
(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 or a
Replacement 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 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);
42
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(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 agreement
(herein called a "Replacement Tower Agreement") shall be comparable in form
and substance to the Debtor Tower Agreement, and any lease (herein called a
"Comparable Tower 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 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
43
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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>
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<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
Comparable Tower Lease................................... 6.1(j)
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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<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)
Most Recent Buyer Balance Sheet........................... 3.5(b)
MobileMedia............................................... Preliminary Statement
Most Recent Buyer Balance Sheet........................... 3.5(b)
Ordinary Course of Business............................... 2.3
Parties................................................... Introduction
Parent.................................................... Introduction
Pinnacle.................................................. 2.10
Pinnacle Breakup Amount................................... 4.8(a)
Plan Cash................................................. 1.3
Plan Shares............................................... 1.3
Preferred Rights.......................................... 3.2(a)
Prior Plan................................................ Preliminary Statement
Prospectus................................................ 4.13(a)
Registration Rights Agreement............................. Preliminary Statement
Registration Statement.................................... 4.20(c)
Replacement Tower Agreement............................... 6.7(j)
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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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
48
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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.
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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
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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>
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 18, 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>
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<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..................................................... 15
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 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.................................. 24
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...................................................... 29
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.................................................. 30
7.10 Successors and Assigns......................................... 30
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..................................... 31
</TABLE>
<TABLE>
<S> <C> <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.
"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 Insolvency Proceedings were filed on January 30,
1997, or any other court with jurisdiction over the Insolvency Proceedings.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as
amended from time to time to the extent applicable to the Insolvency
Proceedings.
"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 Insolvency Proceedings),
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).
"Insolvency Proceedings" 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
3
<PAGE>
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 Insolvency
Proceedings.
"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.
"Directly Distributed 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 Directly Distributed 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.
- --------
(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.
4
<PAGE>
"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 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.
5
<PAGE>
"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 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 Insolvency Proceedings 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) 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 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 Insolvency
Proceedings.
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 Directly
Distributed 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 Insolvency
Proceedings are pending, or in the district court in the district in which the
claim arose, as determined by the district court in which the Insolvency
Proceedings 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 Directly Distributed 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
Directly Distributed 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 Directly
Distributed Creditor Stock Pool, if any, on such date; provided, that if
there are fewer than 10,000 Arch Common Shares remaining in the Directly
Distributed 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 Directly Distributed
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.
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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.
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 Insolvency Proceedings 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
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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 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 Insolvency Proceedings 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
Insolvency Proceedings 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
Insolvency Proceedings. 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.
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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 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 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 Directly Distributed 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 Directly
Distributed 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.
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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 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 Directly Distributed Creditor Stock Pool. Thereafter, on each Semi-Annual
Distribution Date, distributions of a holder's Pro Rata Share of the Directly
Distributed 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 Directly Distributed 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
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(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.
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 Directly Distributed Creditor Stock
Pool. Thereafter, on each Semi-Annual Distribution Date, distributions of a
holder's Pro Rata Share of the Directly Distributed 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 Directly Distributed 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. 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
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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.
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
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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.
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 Warrants. On and as of the Effective Date, Arch will issue
the 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
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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 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
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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.
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
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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
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 Insolvency Proceedings 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;
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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
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 Insolvency
Proceedings 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 Insolvency Proceedings 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 Insolvency Proceedings or
this Plan (collectively, the
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"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 Insolvency Proceedings 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 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 Insolvency Proceedings 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 Insolvency Proceedings 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.
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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 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 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.
29
<PAGE>
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.
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.
30
<PAGE>
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
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
31
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ARCH SINCE THE DATE HEREOF OR THAT ANY INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 13
The Rights Offering........................................................ 25
Use of Proceeds............................................................ 36
Dilution................................................................... 36
Selected Historical Consolidated Financial and Operating Data.............. 39
Unaudited Selected Pro Forma Combined Financial Data....................... 41
Comparative Per Share Data................................................. 42
Market Price Information and Dividend Policy............................... 43
The Merger and the Reorganization.......................................... 44
The Merger Agreement....................................................... 51
The MobileMedia Plan of Reorganization..................................... 66
The Combined Company....................................................... 71
Unaudited Pro Forma Condensed Consolidated Financial Statements............ 78
Industry Overview.......................................................... 84
Business................................................................... 90
Certain Federal Income Tax Considerations.................................. 136
Description of Securities.................................................. 137
Description of Certain Arch Indebtedness................................... 143
Legal Matters.............................................................. 152
Experts.................................................................... 152
Index to Financial Statements.............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
ARCH COMMUNICATIONS GROUP, INC.
[ ] SHARES OF COMMON STOCK
[ ] SHARES OF CLASS B COMMON STOCK
[ ] STOCK PURCHASE WARRANTS
[ ] TRANSFERABLE RIGHTS TO PURCHASE SUCH STOCK AND WARRANTS
---------------
PROSPECTUS
---------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Arch's Restated Certificate of Incorporation provides that Arch will, to the
fullest extent permitted by the Delaware General Corporation Law (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.
Arch's Restated Certificate of Incorporation 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 18, 1998 by and among
Arch Communications Group, Inc., Farm Team Corp., MobileMedia
Corporation and MobileMedia Communications, Inc., included as Annex B.
3.1 Restated Certificate of Incorporation. (1)
3.2 Certificate of Designations establishing the Series B Junior
Participating Preferred Stock. (2)
3.3 Certificate of Correction, filed with the Secretary of State of
Delaware on February 15, 1996. (1)
3.4 Certificate of Designations establishing the Series C Convertible
Preferred Stock. (3)
3.5 By-laws, as amended. (1)
4.1 Indenture, dated February 1, 1994, between Arch Communications, Inc.
(formerly known as USA Mobile Communications, Inc. II) and United
States Trust Company of New York, as Trustee, relating to the 9 1/2%
Senior Notes due 2004 of Arch Communications, Inc.(4)
4.2 Indenture, dated December 15, 1994, between Arch Communications, Inc.
and United States Trust Company of New York, as Trustee, relating to
the 14% Senior Notes due 2004 of Arch Communications, Inc. (5)
4.3 Indenture, dated June 29, 1998, between Arch Communications, Inc. and
U.S. Bank Trust National Association, as Trustee, relating to the 12
3/4% Senior Notes due 2007 of Arch Communications, Inc. (3)
5.1* Opinion of Hale and Dorr LLP
8.1* Tax opinion of Hale and Dorr LLP
10.1 Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities), dated June 29, 1998, among Arch Paging, Inc., the Lenders
party thereto, The Bank of New York, Royal Bank of Canada and Toronto
Dominion (Texas), Inc. (3)
10.2 Second Amended and Restated Credit Agreement (Tranche B Facility),
dated June 29, 1998, among Arch Paging, Inc., the Lenders party
thereto. The Bank of New York, Royal Bank of Canada and Toronto
Dominion (Texas), Inc. (3)
10.3 Asset Purchase and Sale Agreement, dated April 10, 1998, among
OmniAmerica, Inc. and certain subsidiaries of Arch Communications
Group, Inc. (3)
10.4 Letter agreement, dated June 10, 1998, between Arch Communications
Group, Inc. and Motorola, Inc. (3)(6)
10.5 Debtors' First Amended Joint Plan of Reorganization, dated as of
August 18, 1998, included as Annex C.
10.6* Commitment Letters to Purchase Stock and Warrants, dated as of August
18, 1998, by and among Arch Communications Group, Inc., MobileMedia
Communications Inc. and W. R. Huff Asset Management Co., L.L.C., The
Northwestern Mutual Life Insurance Company, Northwestern Mutual Series
Fund, Inc., Credit Suisse First Boston Corporation and Whippoorwill
Associates, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.7* Registration Rights Agreement, dated as of August 18, 1998, among
Arch Communications Group, Inc. and W. R. Huff Asset Management Co.,
L.L.C., The Northwestern Mutual Life Insurance Company, Northwestern
Mutual Series Fund, Inc., Credit Suisse First Boston Corporation and
Whippoorwill Associates, Inc.
10.8* Amendment No. 1 to Rights Agreement, dated June 29, 1998, between
Arch Communications Group, Inc. and the Bank of New York.
10.9* Amendment No. 2 to Rights Agreement, dated as of August 18, 1998,
amending the Rights Agreement between Arch Communications Group, Inc.
and Bank of New York.
10.10 Disclosure Statement to Debtors' First Amended Joint Plan of
Reorganization, dated August 25, 1998, included as Annex A.
10.11* Warrant Agreement, dated as of August 18, 1998, between Arch
Communications Group, Inc. and Bank of New York.
10.12* Commitment Letter, dated as of August 18, 1998, by and among Arch
Paging, Inc. and The Bank of New York, BNY Capital Markets, Inc.,
Toronto Dominion (Texas) Inc., TD Securities (USA) Inc., Royal Bank
of Canada and Barclays Bank PLC amending the Second and Amended
Restated Credit Agreements, dated June 29, 1998 (Tranche A, B and C
Facilities).
10.13* Bridge Commitment Letter, dated as of August 18, 1998, among Arch
Communications, Inc., Arch Communications Group, Inc. and The Bear
Stearns Companies, Inc., The Bank of New York, TD Securities (USA)
Inc. and the Royal Bank of Canada.
10.14* Amendment No. 1 to Registration Rights Agreement, dated August 19,
1998, amending the Registration Rights Agreement dated as of June 29,
1998 by and among Arch Communications Group, Inc. and the Sandler
Capital Partners IV, LP, Sandler Capital Partners IV, FTE LP, South
Fork Partners, The Georgica International Fund Limited, Aspen
Partners and Consolidated Press International Limited.
12.1* Statement re computation of earnings to fixed charges
21.1* Subsidiaries of the Registrant.
23.1* Consent of Hale and Dorr LLP (contained in its opinion filed as
Exhibit 5.1).
23.2** Consent of Arthur Andersen LLP.
23.3** Consent of Ernst & Young LLP
23.4** Consent of Wilkinson, Barker, Knauer & Quinn, LLP.
23.5** Consent of Wiley, Rein & Fielding
24.1 Power of Attorney (included on signature page to this Registration
Statement).
27.1* Financial Data Schedule. (7)
99.1** Form of Subscription Certificate and related documents.
99.2** Forms of Notices of Guaranteed Delivery.
</TABLE>
--------
* To be filed by amendment.
** Filed herewith.
(1) Incorporated by reference from the Registration Statement on Form S-3
(file No. 333-542) of Arch Communications Group, Inc.
(2) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated October 13, 1995 and filed on October
24, 1995.
(3) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated June 26, 1998.
(4) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-72646) of Arch Communications, Inc.
(5) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-85580) of Arch Communications, Inc.
(6) A Confidential Treatment Request has been filed with respect to
portions of this exhibit so incorporated by reference.
(7) Incorporated by reference from the Quarterly Report on Form 10-Q of
Arch Communications Group, Inc. for the quarter ended June 30, 1998.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any
II-2
<PAGE>
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such offering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(b) The registrant undertakes that every prospectus: (1) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of a registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WESTBOROUGH,
COMMONWEALTH OF MASSACHUSETTS ON AUGUST 25, 1998.
Arch Communications, Inc.
/s/ C. Edward Baker, Jr.
By: _________________________________
C. EDWARD BAKER, JR.CHAIRMAN OF
THE BOARD AND CHIEF EXECUTIVE
OFFICER
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints J.
Roy Pottle, Gerald Cimmino and David A. Westenberg as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments and any Registration Statement pursuant to Rule 462(b)) to this
Registration Statement on Form S-4 and to file the same with all exhibits
thereto and any other documents in connection therewith, with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ C. Edward Baker, Jr. Chairman of the Board and August 25,
- ------------------------- Chief Executive Officer 1998
C. EDWARD BAKER, JR. Director (principal executive officer)
/s/ J. Roy Pottle Executive Vice President and August 25,
- ------------------------- Chief Financial Officer 1998
J. ROY POTTLE (principal financial officer and
principal accounting officer)
/s/ R. Schorr Berman Director August 25,
- ------------------------- 1998
R. SCHORR BERMAN
/s/ James S. Hughes Director August 25,
- ------------------------- 1998
JAMES S. HUGHES
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ John Kornreich Director August 25,
- ------------------------- 1998
JOHN KORNREICH
/s/ Allan L. Rayfield Director August 25,
- ------------------------- 1998
ALLAN L. RAYFIELD
Director August 25,
- ------------------------- 1998
JOHN B. SAYNOR
/s/ John A. Shane Director August 25,
- ------------------------- 1998
JOHN A. SHANE
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
(A) EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 18, 1998 by and
among Arch Communications Group, Inc., Farm Team Corp., MobileMedia
Corporation and MobileMedia Communications, Inc., included as Annex
B.
3.1 Restated Certificate of Incorporation. (1)
3.2 Certificate of Designations establishing the Series B Junior
Participating Preferred Stock. (2)
3.3 Certificate of Correction, filed with the Secretary of State of
Delaware on February 15, 1996. (1)
3.4 Certificate of Designations establishing the Series C Convertible
Preferred Stock. (3)
3.5 By-laws, as amended. (1)
4.1 Indenture, dated February 1, 1994, between Arch Communications, Inc.
(formerly known as USA Mobile Communications, Inc. II) and United
States Trust Company of New York, as Trustee, relating to the 9 1/2%
Senior Notes due 2004 of Arch Communications, Inc.(4)
4.2 Indenture, dated December 15, 1994, between Arch Communications, Inc.
and United States Trust Company of New York, as Trustee, relating to
the 14% Senior Notes due 2004 of Arch Communications, Inc. (5)
4.3 Indenture, dated June 29, 1998, between Arch Communications, Inc. and
U.S. Bank Trust National Association, as Trustee, relating to the 12
3/4% Senior Notes due 2007 of Arch Communications, Inc. (3)
5.1* Opinion of Hale and Dorr LLP
8.1* Tax opinion of Hale and Dorr LLP
10.1 Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities), dated June 29, 1998, among Arch Paging, Inc., the
Lenders party thereto, The Bank of New York, Royal Bank of Canada and
Toronto Dominion (Texas), Inc. (3)
10.2 Second Amended and Restated Credit Agreement (Tranche B Facility),
dated June 29, 1998, among Arch Paging, Inc., the Lenders party
thereto. The Bank of New York, Royal Bank of Canada and Toronto
Dominion (Texas), Inc. (3)
10.3 Asset Purchase and Sale Agreement, dated April 10, 1998, among
OmniAmerica, Inc. and certain subsidiaries of Arch Communications
Group, Inc. (3)
10.4 Letter agreement, dated June 10, 1998, between Arch Communications
Group, Inc. and Motorola, Inc. (3)(6)
10.5 Debtors' First Amended Joint Plan of Reorganization, dated as of
August 18, 1998, included as Annex C.
10.6* Commitment Letters to Purchase Stock and Warrants, dated as of August
18, 1998, by and among Arch Communications Group, Inc., MobileMedia
Communications Inc. and W. R. Huff Asset Management Co., L.L.C., The
Northwestern Mutual Life Insurance Company, Northwestern Mutual
Series Fund, Inc., Credit Suisse First Boston Corporation and
Whippoorwill Associates, Inc.
10.7* Registration Rights Agreement, dated as of August 18, 1998, among
Arch Communications Group, Inc. and W. R. Huff Asset Management Co.,
L.L.C., The Northwestern Mutual Life Insurance Company, Northwestern
Mutual Series Fund, Inc., Credit Suisse First Boston Corporation and
Whippoorwill Associates, Inc.
10.8* Amendment No. 1 to Rights Agreement, dated June 29, 1998, between
Arch Communications Group, Inc. and the Bank of New York.
10.9* Amendment No. 2 to Rights Agreement, dated as of August 18, 1998,
amending the Rights Agreement between Arch Communications Group, Inc.
and Bank of New York.
10.10 Disclosure Statement to Debtors' First Amended Joint Plan of
Reorganization, dated August 25, 1998, included as Annex A.
10.11* Warrant Agreement, dated as of August 18, 1998, between Arch
Communications Group, Inc. and Bank of New York.
10.12* Commitment Letter, dated as of August 18, 1998, by and among Arch
Paging, Inc. and The Bank of New York, BNY Capital Markets, Inc.,
Toronto Dominion (Texas) Inc., TD Securities (USA) Inc., Royal Bank
of Canada and Barclays Bank PLC amending the Second and Amended
Restated Credit Agreements, dated June 29, 1998 (Tranche A, B and C
Facilities).
10.13* Bridge Commitment Letter, dated as of August 18, 1998, among Arch
Communications, Inc., Arch Communications Group, Inc. and The Bear
Stearns Companies, Inc., The Bank of New York, TD Securities (USA)
Inc. and the Royal Bank of Canada.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.14* Amendment No. 1 to Registration Rights Agreement, dated August 19,
1998, amending the Registration Rights Agreement dated as of June 29,
1998 by and among Arch Communications Group, Inc. and the Sandler
Capital Partners IV, LP, Sandler Capital Partners IV, FTE LP, South
Fork Partners, The Georgica International Fund Limited, Aspen
Partners and Consolidated Press International Limited.
12.1* Statement re computation of earnings to fixed charges
21.1* Subsidiaries of the Registrant.
23.1* Consent of Hale and Dorr LLP (contained in its opinion filed as
Exhibit 5.1).
23.2** Consent of Arthur Andersen LLP.
23.3** Consent of Ernst & Young LLP
23.4** Consent of Wilkinson, Barker, Knauer & Quinn, LLP.
23.5** Consent of Wiley, Rein & Fielding
24.1 Power of Attorney (included on signature page to this Registration
Statement).
27.1* Financial Data Schedule. (7)
99.1** Form of Subscription Certificate and related documents.
99.2** Forms of Notices of Guaranteed Delivery.
</TABLE>
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* To be filed by amendment.
** Filed herewith.
(1) Incorporated by reference from the Registration Statement on Form S-3
(file No. 333-542) of Arch Communications Group, Inc.
(2) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated October 13, 1995 and filed on October
24, 1995.
(3) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated June 26, 1998.
(4) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-72646) of Arch Communications, Inc.
(5) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-85580) of Arch Communications, Inc.
(6) A Confidential Treatment Request has been filed with respect to
portions of this exhibit so incorporated by reference.
(7) Incorporated by reference from the Quarterly Report on Form 10-Q of
Arch Communications Group, Inc. for the quarter ended June 30, 1998.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated February 9, 1998 (except with
respect to the matter discussed in Notes 3, 4 and 8, as to which the date is
June 29, 1998) included herein and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
August 25, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 31, 1998, except for the third paragraph of
Note 15 as to which the date is August 20, 1998, with respect to the financial
statements of MobileMedia Communications, Inc. as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
included in the Registration Statement (Form S-4 No. 33-00000) and Prospectus
of Arch Communications Group, Inc. for the registration of shares of its
common stock, stock purchase warrants and transferable rights to purchase such
stock and warrants.
/s/ Ernst & Young LLP
MetroPark, New Jersey
August 24, 1998
<PAGE>
EXHIBIT 23.4
CONSENT
We hereby consent to the reference to our firm under the heading "Experts"
in the Prospectus constituting part of the Registration Statement on Form S-4
(File Number 333- ) of Arch Communications Group, Inc.
Wilkinson, Barker, Knauer & Quinn,
LLP
/s/ Kenneth D. Patrich
By: _________________________________
KENNETH D. PATRICH
<PAGE>
EXHIBIT 23.5
CONSENT
We hereby consent to the reference to our firm under the heading "Experts"
in the Prospectus constituting part of the Registration Statement on Form S-4
(File Number 333- ) of Arch Communications Group, Inc. As noted therein, our
review and input has only pertained to 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."
Stockholders of Arch should not rely on Wiley, Rein & Fielding with respect to
any other matters or any other sections of the document.
WILEY, REIN & FIELDING
/s/ Nancy J. Victory
By: _________________________________
Nancy J. Victory
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EXHIBIT 99.1
THE REGISTERED OWNER OF THIS SUBSCRIPTION CERTIFICATE IS ENTITLED TO THE
NUMBER OF RIGHTS SHOWN IN THE UPPER RIGHT HAND CORNER OF THE OTHER SIDE OF
THIS FORM AND TO SUBSCRIBE FOR UNITS CONSISTING OF SHARES OF COMMON STOCK OR
CLASS B COMMON STOCK AND WARRANTS OF ARCH COMMUNICATIONS GROUP, INC. UPON THE
TERMS AND CONDITIONS SPECIFIED IN THE PROSPECTUS RELATING THERETO, WHICH ARE
INCORPORATED HEREIN BY REFERENCE.
PLEASE FILL IN ALL APPLICABLE INFORMATION:
I hereby irrevocably subscribe for
the number of Units indicated
above upon the terms and
conditions specified in the
Prospectus relating hereto.
Receipt of the Prospectus is
hereby acknowledged.
1.(A) Number of Units Subscripted Signature of Subscriber: __________
for (not to exceed the ratio
of one (1) Unit for every
Right held):
(Joint owners should each sign. If
signing as executor,
administrator, attorney, trustee,
or guardian, give title as such.
If a corporation, sign in full
corporate name by authorized
officer. If a partnership, sign in
the name of authorized person.)
TO BE EXECUTED ONLY BY NON-UNITED
2. Method of Payment: Check (A) STATES RESIDENTS:
and (B): _______________________
I hereby certify that the
(A)Notice of Guaranteed Delivery foregoing purchase of Common Stock
of Payment _______________________ has been effected in accordance
with the applicable laws of the
or jurisdiction in which I reside.
(B) Multiply number of Shares Dated:_______________________, 1998
on Line 1(A) by $6.75 (and
enclose money order or
check in this amount
payable to "Arch
Communications Group,
Inc.")** __________________
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**The Purchase Price of $6.75 used
herein is assumed and may be more
or less than the actual
Subscription Price. See page of
the Prospectus.
SUBSCRIPTION CERTIFICATE NUMBER: _____________ NUMBER OF RIGHTS: _________
SUBSCRIPTION CERTIFICATE
ARCH COMMUNICATIONS GROUP, INC.
SUBSCRIPTION RIGHT FOR UNITS CONSISTING OF SHARES OF COMMON STOCK
OR CLASS B COMMON STOCK AND WARRANTS
This Subscription Certificate represents the number of Rights set forth in
the upper right hand corner of this Form. The Holder is entitled to acquire
one unit consisting of one (1) Share of Common Stock or Class B Common Stock
and a fraction of one warrant of Arch Communications Group, Inc. ("Arch") for
each Right held.
To subscribe for Shares of Common Stock and warrants, the Holder must
present to the Subscription Agent, prior to 5:00 p.m., New York City time, on
the Expiration Date, either (i) a notice of guaranteed delivery attached
hereto, guaranteeing delivery of (a) payment for the subscription Units and
(b) a properly completed and executed copy of this Subscription Certificate;
or (ii) a properly completed and executed copy of this Subscription
Certificate, together with a money order or check drawn on a bank located in
the United States of
<PAGE>
America and payable to Arch Communications Group, Inc. Securities Fund for an
amount equal to the number of Units subscribed for multiplied by $6.75.
Subscribers will be subsequently notified as to the number of Units subscribed
and the total amount owed based on the Subscription Price as set on the
pricing date. See page of the Prospectus. Payment for any balance will be
due three (3) business days after the Confirmation Date.
If an outstanding balance as described above is not received within the
three (3) business day period, Arch reserves the right to (i) find other
purchasers for the subscribed-for and unpaid-for Units; (ii) apply any payment
actually received by it toward the purchase of the greatest whole number of
Units which could be acquired by such holder upon exercise of the Rights;
and/or (iii) exercise any and all other rights and/or remedies to which it may
be entitled, including, without limitation, the right to set-off against
payments actually received by it with respect to such subscribed Units and to
enforce the relevant guaranty of payment.
REGISTERED OWNER ARCH COMMUNICATIONS GROUP, INC.
THE BANK OF NEW YORK as Subscription
Agent
By: _________________________________
TO: The Bank of New York
Subscription Agent
Tender and Exchange
Department
P.O. Box 11248
Church Street Station
New York, New York 10286-1248
THIS CERTIFICATE MAY NOT BE
TRANSFERRED
THIS RIGHTS OFFERING HAS BEEN QUALIFIED OR IS BELIEVED TO BE EXEMPT FROM
QUALIFICATION ONLY UNDER THE FEDERAL LAWS OF THE UNITED STATES AND THE LAWS OF
EACH OF THE STATES IN THE UNITED STATES. RESIDENTS OF OTHER JURISDICTIONS MAY
NOT PURCHASE THE SHARES OF COMMON STOCK OFFERED HEREBY UNLESS THEY CERTIFY
THAT THEIR PURCHASES OF SUCH SHARES ARE EFFECTED IN ACCORDANCE WITH THE
APPLICABLE LAWS OF SUCH JURISDICTIONS.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON STOCK AND WARRANTS OF ARCH
COMMUNICATIONS GROUP, INC. SUBSCRIBED FOR IN RIGHTS OFFERING
As set forth on pages and of the Prospectus under "Payment for
Shares," this form or one substantially equivalent hereto may be used as a
means of effecting subscription and payment for all Units consisting of Arch's
Common Stock and warrants subscribed for in connection with the Rights
Offering. Such form may be delivered by hand or sent by facsimile
transmission, overnight courier or mail to the Subscription Agent.
THE SUBSCRIPTION AGENT IS:
THE BANK OF NEW YORK
ATTENTION: TENDER AND EXCHANGE DEPARTMENT
BY MAIL: BY FACSIMILE: BY HAND, EXPRESS MAIL OR
P.O. BOX 11248 (TELECOPIER): OVERNIGHT COURIER:
CHURCH STREET (212) 815-6213 101 BARCLAY STREET
STATION CONFIRM BY TELEPHONE RECEIVE & DELIVERY
NEW YORK, NEW YORK (800) 507-9357 WINDOW
10286-1248 NEW YORK, NEW YORK 10286
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT
CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Units
subscribed for to the Subscription Agent and must deliver this Notice of
Guaranteed Delivery of Payment, guaranteeing delivery of (i) payment in full
for all Subscribed Shares and (ii) a properly completed and signed copy of the
Subscription Agreement, to the Subscription Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. Failure to do so will result in a
forfeiture of the Rights.
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company, (i) guarantees delivery to the Subscription Agent by the close
of business (5:00 p.m., New York City time) on of (A) a properly completed
and executed Subscription Certificate, and (B) payment of the full
Subscription Price for Shares subscribed for, as subscription for such Shares
is indicated herein or in the Subscription Certificate.
_________________________________
NUMBER OF SHARES ON SUBSCRIPTION
_________________________________
Name of Firm
_________________________________
Address
_________________________________
Zip Code
_________________________________
Telephone Number
