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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED] X
For the Fiscal Year Ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file numbers 0-23232/1-14248
Arch Communications Group, Inc.
(Exact name of Registrant as specified in its Charter)
DELAWARE 31-1358569
(State of incorporation) (I.R.S. Employer Identification No.)
1800 West Park Drive, Suite 250
Westborough, Massachusetts 01581
(address of principal executive offices) (Zip Code)
(508) 870-6700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES
EXCHANGE ACT OF 1934:
10 7/8% Senior Discount Notes due 2008 American Stock Exchange
(Title of Class) (Name of exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934:
Common Stock Par Value $.01 Per Share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 24, 1998 was approximately $111,580,000.
The number of shares of Registrant's Common Stock outstanding on March 24, 1998
was 20,958,570
Portions of Registrant's Definitive Proxy Statement for the 1998 Annual Meeting
of Stockholders of the Registrant to be held on May 19, 1998, are incorporated
by reference into Part III.
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PART I
ITEM 1. BUSINESS
General
Arch Communications Group, Inc. ("Arch" or the "Company") is a leading
provider of wireless messaging services, primarily paging services, and had 3.9
million pagers in service as of December 31, 1997. Arch has operations in a
total of 41 states and 180 of the 200 largest markets in the United States.
The Company 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: digital display, alphanumeric
display, tone-only and tone-plus-voice. Arch also offers enhanced or
complementary services, including voice mail, personalized greetings, message
storage and retrieval, pager loss protection and pager maintenance. As part of
its business, the Company rents, sells and repairs pagers. The Company is
licensed by the Federal Communications Commission ("FCC") to provide paging and
related services in the markets it serves. Generally, such licenses are
exclusive to a particular radio frequency, although multiple frequencies may be
licensed in any given market. See "Business -- Regulation".
Arch has grown rapidly through a combination of internal growth and
acquisitions since it began operations in 1986. The Company's net revenues (the
sum of service revenues and product sales, less the cost of product sales), the
normal presentation of revenues in the paging industry, were $367,683,000 in the
year ended December 31, 1997. The Company's operating cash flow, or earnings
before interest, taxes, depreciation and amortization ("EBITDA"), the most
relevant measure of operating performance for the paging industry, was
$130,332,000 for the year. Because paging is a capital intensive industry,
particularly during periods of rapid growth, and because the Company has made
sizeable acquisitions accounted for by the purchase method of accounting,
significant depreciation and amortization expenses are charged against Arch's
operations. Because the Company has incurred large amounts of debt in its growth
and in the course of its acquisition program, significant interest expense is
charged against its operations. As a result of these charges, the Company
historically has incurred net losses, including a net loss of $181,874,000 for
the year ended December 31, 1997.
The following table sets forth certain information regarding the
approximate number of pagers in service with Company subscribers and net
increases in number of pagers through internal growth and acquisitions during
the periods indicated:
Pagers in
Service at Net Increase in Increase in Pagers in
Year Ended Beginning of Pagers through Pagers through Service at
August 31, Period Internal Growth(1) Acquisitions(2) End of Period
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
Four Months
Ended
December 31,
1994.... 410,000 64,000 64,000 538,000
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Pagers in
Service at Net Increase in Increase in Pagers in
Year Ended Beginning of Pagers through Pagers through Service at
December 31, Period Internal Growth(1) Acquisitions(2) End of Period
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
(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.
Acquisition of USA Mobile
On September 7, 1995, Arch Communications Group, Inc., a Delaware
corporation ("Old Arch"), completed its acquisition of USA Mobile, a Delaware
corporation, through the merger (the "Merger") of Old Arch with and into USA
Mobile, which simultaneously changed its name to Arch Communications Group, Inc.
In accordance with generally accepted accounting principles, Old Arch was
treated as the acquirer in the Merger for accounting and financial reporting
purposes, and the Company reports the historical financial statements of Old
Arch as the historical financial statements of the Company. As used herein,
unless the context otherwise requires, the terms "Arch" or the "Company" refer
to Arch Communications Group, Inc. from and after the Merger and Old Arch prior
to the Merger, in each case together with its wholly-owned direct and indirect
subsidiaries, and the term "USA Mobile" refers to USA Mobile Communications
Holdings, Inc. prior to the Merger together with its wholly-owned direct and
indirect subsidiaries.
Paging Industry Overview
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 broadcast 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.
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 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.
Paging subscribers generally pay a flat monthly service fee for pager services,
regardless of the number of messages, unlike cellular telephone 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.
Industry sources estimate that, since 1991, the number of pagers in service
in the United States has grown at an annual rate of approximately 30% and will
continue to grow at an annual rate of approximately 15% until the year 2000.
Based on industry sources, Arch believes that there are in excess of 45 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)
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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.
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 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.
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 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. Arch also believes that major
paging companies need to have national scope and presence in order to attract
marketing affiliations and other opportunities for growth. Arch's two most
recent acquisitions, USA Mobile and Westlink Holdings, Inc. ("Westlink") have
enabled the Company to effectively compete on a national level and position Arch
to exploit such opportunities while continuing to pursue its growth strategy.
Arch employs a three-part growth strategy to expand its subscriber base and
geographic operations:
Continued Market Development and Penetration. Arch increases its subscriber
base through continued development and penetration of its existing markets,
primarily through sales and marketing efforts. Expansion of Arch's sales and
marketing activities within areas of existing service coverage broadens Arch's
potential subscriber base with minimal incremental capital investment and, over
time, contributes to higher margins through increased system utilization.
Expansion of Sales and Marketing Activities. Arch expands its marketing
coverage, principally by opening new sales offices, to areas contiguous to
existing sales operations within Arch's current system coverage. Expansion of
sales and marketing activities into new markets contiguous to existing sales
operations may solidify Arch's presence in existing markets and enable Arch to
leverage further its infrastructure within these markets.
Acquisitions. Arch makes two types of acquisitions; fold-in and strategic.
Fold-in acquisitions are acquisitions of paging businesses located within or
adjacent to Arch's current system coverage. Fold-in acquisitions increase Arch's
subscriber base and revenues and offer opportunities to achieve operating
efficiencies by consolidating staff, eliminating duplicative overhead and
integrating the acquired subscribers into Arch's own paging system and billing
and collection processes. Arch also makes strategic acquisitions to expand
Arch's geographic coverage into new markets outside of Arch's current system
coverage.
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Although today Arch operates in 90 of the top 100 U.S. markets, the Company
historically has focused on medium-sized and small market areas with lower rates
of pager penetration and attractive demographics and Arch believes that such
markets will continue to offer significant opportunities for growth. In
addition, Arch believes that its increasing national scope and presence will
provide Arch with growth opportunities in larger markets, including major
metropolitan areas adjacent to certain of Arch's existing markets.
Arch believes that its selection of low-cost operator status as its
competitive tactic provides it with 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 efficient, high-quality
transmission systems.
Arch believes that its decentralized organizational structure enables it to
offer superior customer service and to respond to subscriber needs quickly and
effectively. Arch's operating regions operate largely as independent entities,
while strategic planning, equipment purchasing, capital formation, legal,
acquisition and similar functions are conducted on a centralized basis. The
management of each operating region makes staffing, administrative, operational
and marketing decisions within guidelines established by the senior management
of Arch.
Arch has taken steps to position itself to participate in new and emerging
services and applications in narrowband wireless personal communications
("N-PCS"). These initiatives include (i) Arch's equity investment in Benbow PCS
Ventures, Inc. ("Benbow"), which gives Arch access to two regional narrowband
PCS licenses controlled by Benbow which will provide coverage to a substantial
portion of the western United States, and (ii) an equity investment in CONXUS
Communications, Inc. (formerly PCS Development Corporation), which holds
exclusive rights to regional two way messaging licenses which provide nationwide
coverage.
Paging Operations
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.
Arch also 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 the pager. Pager maintenance
services are offered to subscribers who own their own equipment.
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. In addition, Arch believes that pager use among consumers will
increase significantly in the future, although consumers do not currently
account for a substantial portion of Arch's subscriber base.
Arch markets its paging services through a direct marketing and sales
organization which, as of December 31, 1997, operated approximately 200 retail
stores. Arch also markets its paging services indirectly through independent
resellers,
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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 mark-up. 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.
Competition
Arch experiences competition from one or more competitors in all markets in
which it operates, but no single competitor competes with Arch in all of its
markets, although certain competitors hold nationwide licenses that would enable
them to compete in all of Arch's markets if they choose to do so. Although some
of Arch's competitors are small, privately owned companies serving one market
area, others are large diversified telecommunications companies, including AT&T.
Some of Arch's competitors possess financial, technical and other resources
greater than those of Arch. Major paging carriers that currently compete in one
or more of Arch's markets include Paging Network, Inc., MobileMedia Corporation,
Metrocall, Inc. 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 markets may broaden. For example, in 1995, the FCC commenced issuing
licenses for the provision of broadband personal communications services
("PCS"), with many grants going to major telecommunications companies or
conglomerates with greater financial resources than Arch. Some of these carriers
have initiated broadband PCS services in many major markets which include "short
messaging", a form of advanced alphanumeric paging, as part of its two-way voice
communications product. In addition, the FCC has created potential sources of
competition by opening up new spectrum for such services as General Wireless
Communications Services ("GWCS") and Wireless Communications Services ("WCS") as
well as speeding up licensing of other services through auctions including the
Local Multipoint Distribution Service ("LMDS") and 220-222 MHz.
Arch believes that competition for paging subscribers is based on quality
of service, geographic coverage and price. Arch believes it generally competes
effectively based on these factors.
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.
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.
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 of 1934, as amended (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 paging operations.
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Federal Regulation
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 ("PCP") operator or as a
reseller. Arch'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 paging services are
classified as commercial mobile radio service ("CMRS"). As a CMRS provider, Arch
is regulated as a common carrier, 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 requirements.
The classification of Arch's paging operations as CMRS affects the level of
permissible foreign ownership and the nature and extent of state regulation to
which Arch is subject. In addition, the FCC now is required to resolve competing
requests for CMRS spectrum by conducting an auction, which may have the effect
of increasing the costs of acquiring additional spectrum in markets in which
Arch operates. Also, Arch is obligated to pay certain regulatory fees in
connection with its paging operations.
The FCC's review and revision of rules affecting paging companies is
ongoing and the regulatory requirements to which Arch is subject may change
significantly over time. For example, the FCC has adopted 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 an auction. After auction, existing paging facilities will be
entitled to protection as grandfathered systems. Arch is participating actively
in this proceeding in order to protect its existing operations and retain
flexibility, on an interim and long-term basis, to modify systems as necessary
to meet subscriber demands. The FCC is also considering whether CMRS operators
should be obligated to interconnect their systems with others and be prohibited
from placing restrictions on the resale of their services (except with respect
to paging, which has already been relieved of the obligation to provide resale).
Arch depends in its business on the assignment and use of standard and toll free
telephone numbers for its paging units. The FCC, in some states, have
proceedings underway that may have a significant impact on the manner in which
telephone numbers are assigned and utilized by common carriers, including paging
companies, and on the ability of subscribers to retain their telephone numbers
if, or when, they change paging companies. Some of the alternatives under
consideration by the FCC, if adopted, could increase the cost to Arch of
telephone numbers, restrict the manner in which certain numbers could be used or
affect the ability of Arch to retain certain numbers previously assigned.
The Communications Act requires that Arch obtain licenses from the FCC to
use radio frequencies to conduct its paging operations within specified
geographic areas, and Arch is licensed by the FCC to provide paging services in
each geographic area in which it has operations. Licenses issued by the FCC to
Arch set forth the technical parameters, such as power strength and tower
height, under which Arch is authorized to use those frequencies. In many
instances, Arch requires the prior approval of the FCC before it can implement
any significant changes to its radio systems. Once the FCC's market area
licensing rules are implemented, all of 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 licenses granted to Arch are for varying terms of up to ten years,
at the end of which time renewal applications must be approved by the FCC. Some
of the authorizations held by Arch are subject to FCC construction obligations
which must be met for the licenses to be retained. In the past, FCC renewal
applications routinely have been granted in most cases upon a demonstration of
compliance with FCC regulations and adequate service to the public. The FCC has
granted each renewal application Arch has filed. Although Arch is unaware of any
circumstances which would prevent the grant of any pending or future renewal
applications, no assurance can be given that any of Arch's renewal applications
will be free of challenge or will be granted by the FCC. Furthermore, although
revocation and involuntary
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modification of licenses are extraordinary regulatory measures, the FCC has the
authority to restrict the operation of licensed facilities or to revoke or
modify licenses.
The Communications Act requires licensees, such as Arch, to obtain prior
approval from the FCC for the assignment or transfer of control of any
construction permit or station license, or any rights thereunder. The
Communications Act also requires prior approval by the FCC for acquisitions of
the licenses of, or controlling equity interests in, other paging companies by
Arch. To date, the FCC has approved each assignment and transfer of control for
which Arch has sought approval. Although there can be no assurance that any
requests for approval or applications filed by Arch will be acted upon in a
timely manner by the FCC, or that the FCC will grant the approval or relief
requested, Arch knows of no reason to believe any such requests, applications or
relief will not be approved or granted. Currently underway at the FCC is a
proceeding wherein the FCC's Wireless Telecommunications Bureau (the Bureau
directly regulating Arch's paging activities) is proposing to eliminate all
filing requirements associated with pro forma assignments and transfers of
control of wireless authorizations. This proposal would expedite the process and
reduce the cost related to corporate reorganizations.
The Communications Act also limits foreign ownership of entities that hold
licenses from the FCC. Because Arch, through its subsidiaries, holds licenses
from the FCC, in general, no more than 25% of Arch's 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 in the public interest for an
individual licensee to exceed the 25 percent foreign ownership benchmark.
The Telecommunications Act of 1996 directly affects Arch. Some aspects of
the new statute could have a beneficial effect on Arch'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. In addition, efforts to increase competition in the local
exchange and interexchange industries may reduce the cost to Arch of acquiring
necessary communications services and facilities. On the other hand, some
provisions relating to the assignment of new area codes and universal service
obligations (and potentially, provisions relating to telephone number
portability) place additional burdens upon Arch or subject Arch to increased
competition.
State Regulation
In addition to regulation by the FCC, certain states impose various
regulations on the common carrier paging operations of Arch. Regulation in some
states historically required Arch 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 provided services, or any changes to those rates, have also been subject to
state regulation. However, under the Federal Budget Reconciliation Act of 1993
(the "Budget Act"), 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). The preemption of state entry regulation was confirmed in
the Telecommunications Act of 1996. 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. States also were accorded an opportunity to petition the FCC for
authority to continue to regulate CMRS rates under the Budget Act if certain
conditions were 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.
States also may regulate terms and conditions (other than entry or rates)
of paging services provided within such states. Arch believes that to date all
required state filings for Arch's paging operations have been made.
Future Regulation
From time to time, legislation which could potentially affect Arch, 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
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might materially adversely affect the business of Arch. Changes such as the
allocation by the FCC of radio spectrum for services that compete with Arch's
business could adversely affect Arch's results of operations.
Trademarks
The Company holds a federal registration for the service mark "Arch
Nationwide Paging(R)".
Employees
At December 31, 1997, Arch employed approximately 2,800 personnel. None of
Arch's employees is represented by a labor union. Arch believes that its
employee relations are good.
ITEM 2. PROPERTIES
At December 31, 1997, 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 also owned 141 transmitter
sites in 20 states and the transmitter broadcast towers on most of those sites.
Arch leases transmitter sites and/or owns transmitters on commercial broadcast
towers, buildings and other fixed structures in approximately 3,189 locations in
45 states. Arch's leases are for various terms and provide for monthly lease
payments at various rates. As of December 31, 1997, Arch was obligated to make
total lease payments of approximately $16.9 million under its office facility
and tower site leases for the year ending December 31, 1998. Arch believes that
it will be able to obtain additional space as needed at an acceptable cost.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various lawsuits and claims arising in the
normal course of business. The Company believes that none of such matters will
have a material adverse effect on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the three months ended
December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is included in the Nasdaq National Market under
the symbol "APGR". The following table sets forth for the periods indicated the
high and low last sales prices per share of the common stock as reported by the
Nasdaq National Market.
1997 High Low
First Quarter........................................ 9 3/4 3 7/8
Second Quarter....................................... 8 1/8 3 13/16
Third Quarter........................................ 9 3/8 6 1/4
Fourth Quarter....................................... 8 7/8 4 1/2
1996
First Quarter........................................ 26 3/4 20
Second Quarter....................................... 26 1/4 18 5/8
Third Quarter........................................ 19 1/2 12 1/2
Fourth Quarter....................................... 13 1/2 8 3/8
The number of stockholders of record as of March 18, 1998 was 164. The
Company believes that the number of beneficial stockholders is in excess of
1500.
The Company has never declared or paid cash dividends on the common stock
and does not intend to declare or pay cash dividends on the common stock in the
foreseeable future. Certain covenants in the credit facilities and debt
obligations of the Company and its subsidiaries will effectively prohibit the
declaration or payment of cash dividends by the Company for the foreseeable
future. See Note 3 to the Company's Consolidated Financial Statements.
10
<PAGE> 11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following Selected Consolidated Financial and Operating Data should be
read in conjunction with Item 1 - "Business," Item 7 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto. Dollars in thousands except
per share amounts.
<TABLE>
<CAPTION>
FOUR MONTHS ENDED Year Ended
YEAR ENDED DECEMBER 31, DECEMBER 31, (1) AUGUST, 31, (1)
--------------------------------------- ----------------- ------------------
1997 1996 1995 1994 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service, rental & maintenance
revenues ...................... $ 351,944 $ 291,399 $ 138,466 $ 61,529 $ 22,847 $ 16,457 $ 55,139 $ 39,610
Product sales ................... 44,897 39,971 24,132 14,374 5,178 2,912 12,108 5,698
--------- --------- --------- -------- -------- -------- -------- --------
Total revenues .................. 396,841 331,370 162,598 75,903 28,025 19,369 67,247 45,308
Cost of products sold ........... (29,158) (27,469) (20,789) (12,787) (4,690) (2,027) (10,124) (4,031)
--------- --------- --------- -------- -------- -------- -------- --------
367,683 303,901 141,809 63,116 23,335 17,342 57,123 41,277
Operating expenses:
Service, rental & maintenance .. 79,836 64,957 29,673 14,395 5,231 3,959 13,123 9,532
Selling ........................ 51,474 46,962 24,502 11,523 4,338 3,058 10,243 7,307
General & administrative ....... 106,041 86,181 40,448 19,229 7,022 5,510 17,717 13,123
Depreciation & amortization .... 232,347 191,871 60,205 18,321 6,873 5,549 16,997 13,764
--------- --------- --------- -------- -------- -------- -------- --------
Operating income (loss) ......... (102,015) (86,070) (13,019) (352) (129) (734) (957) (2,449)
Interest & non-operating
expenses, net .................. (97,159) (75,927) (22,522) (4,973) (1,993) (1,132) (4,112) (2,861)
Equity in loss of affiliate(2) .. (3,872) (1,968) (3,977) - - - - -
--------- --------- --------- -------- -------- -------- -------- --------
Income (loss) before income
tax benefit and extraordinary
item ........................... (203,046) (163,965) (39,518) (5,325) (2,122) (1,866) (5,069) (5,310)
Income tax benefit .............. 21,172 51,207 4,600 - - - - -
--------- --------- --------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item ............. (181,874) (112,758) (34,918) (5,325) (2,122) (1,866) (5,069) (5,310)
Extraordinary item(3) ........... - (1,904) (1,684) (1,137) (1,137) - - (415)
--------- --------- --------- -------- -------- -------- -------- --------
Net income (loss) ............... $(181,874) $(114,662) $ (36,602) $ (6,462) $ (3,259) $ (1,866) $ (5,069) $ (5,725)
========= ========= ========= ======== ======== ======== ======== ========
Basic income (loss) per common
share before extraordinary item $ (8.77) $ (5.53) $ (2.60) $ (.74) $ (.29) $ (.26) $ (.71) $ (.74)
Extraordinary item(3) ........... - (.09) (.12) (.16) (.16) - - (.06)
Basic net income (loss) per
common share(4) ................ $ (8.77) $ (5.62) $ (2.72) $ (.90) $ (.45) $ (.26) $ (.71) $ (.80)
Basic weighted average shares
outstanding(4) ................. 20,746,240 20,445,943 13,497,734 7,182,955 7,238,624 7,149,136 7,153,044 7,125,164
OTHER OPERATING DATA:
EBITDA(5) ....................... $ 130,332 $ 105,801 $ 47,186 $ 17,969 $ 6,744 $ 4,815 $ 16,040 $ 11,315
EBITDA margin (6) ............... 35% 35% 33% 28% 29% 28% 28% 27%
Capital expenditures, excluding
acquisitions ................... $ 102,769 $ 165,206 $ 60,468 $ 33,450 $ 15,279 $ 7,486 $ 25,657 $ 20,853
Pagers in service, at end of
period ......................... 3,890,000 3,295,000 2,006,000 538,000 538,000 288,000 410,000 254,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
----------------------------------------------------- -----------------------
1997 1996 1995 1994 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets .................. $ 51,025 $ 43,611 $ 33,671 $ 8,483 $ 6,751 $ 4,690
Total assets .................... 1,020,720 1,146,756 785,376 117,858 76,255 62,209
Long-term debt, less current
maturities ..................... 968,896 918,150 457,044 93,420 67,328 49,748
Redeemable preferred stock ...... - 3,712 3,376 - - -
Stockholders' equity (deficit) .. (33,255) 147,851 246,884 9,368 (3,304) 1,563
</TABLE>
11
<PAGE> 12
(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 pro rata share of USA Mobile's net losses for the period
of time from Arch's acquisition of its initial 37% interest in USA Mobile
on May 16, 1995 through the completion of Arch's acquisition of USA Mobile
on September 7, 1995 and Arch's pro rata share of Benbow PCS Ventures,
Incorporated's losses since May 21, 1996.
(3) Reflects extraordinary charge resulting from prepayment of indebtedness.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations".
(4) Net income (loss) per common share is based on the weighted average number
of common shares outstanding. Other shares of stock issuable pursuant to
stock options and upon conversion of Arch's convertible subordinated
debentures 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.
(5) EBITDA is a standard 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 the 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 generally accepted accounting principles.
EBITDA does not reflect equity in loss of affiliate, income tax benefit,
interest expense, net and extraordinary items.
(6) Calculated by dividing EBITDA by total revenues less cost of products sold.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Arch is a leading provider of wireless messaging services, primarily paging
services, and had 3.9 million pagers in service as of December 31, 1997. From
January 1, 1995 through December 31, 1997, the Company's total subscriber base
grew at a compound annual rate of 93.4% and its compound annual rate of internal
subscriber base growth (excluding pagers added through acquisitions) was 62.6%.
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 as
a result of 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.
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 has reported 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 earnings before
interest, taxes, depreciation and amortization ("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 standard 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 generally accepted accounting principles. 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.
Forward-Looking Statements
This Form 10-K contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ materially from
those indicated or suggested by such forward-looking statements. These factors
include, without limitation, those set forth below under the caption "Factors
Affecting Future Operating Results".
Shift in Operating Focus
In April 1997, the Company announced it was shifting its operating focus to
put a higher priority on leverage reduction than subscriber unit growth. Arch's
deleveraging efforts are focusing on, but are not limited to, slowing capital
expenditures, implementing across-the-board efficiencies and the possible sale
of non-strategic assets.
13
<PAGE> 14
Results of Operations
The following table presents certain items from Arch's Consolidated
Statements of Operations as a percentage of net revenues (total revenues less
cost of products sold) and certain other information for the periods indicated:
Year Ended December 31,
1997 1996 1995
Total revenues.................... 107.9% 109.0% 114.7%
Cost of products sold............. (7.9) (9.0) (14.7)
Net revenues...................... 100.0 100.0 100.0
Operating expenses:
Service, rental and
maintenance .................. 21.7 21.4 20.9
Selling........................ 14.0 15.4 17.3
General and administrative..... 28.8 28.4 28.5
Depreciation and amortization.. 63.2 63.1 42.5
Operating income (loss)........... (27.7)% (28.3)% (9.2)%
Net income (loss)................. (49.5)% (37.7)% (25.8)%
EBITDA............................ 35.4% 34.8% 33.3%
Annual service, rental and
maintenance expenses per pager.. $ 22 $ 25 $ 28
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,
which consist primarily of recurring revenues associated with the sale or lease
of pagers, 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 3,295,000 at December 31, 1996 to 3,890,000 at December
31, 1997 and the full year impact of the Westlink Holdings, Inc. ("Westlink")
acquisition which was completed in May 1996. All net new subscribers were
generated through internal growth. Maintenance revenues represented less than
10% of total service, rental and maintenance revenues in the years ended
December 31, 1996 and 1997. Arch does not differentiate between service and
rental revenues. 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, which consist primarily of
telephone line and site rental 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. 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. 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.
14
<PAGE> 15
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 primarily due
to the full year impact of the Westlink acquisition and the marketing costs
incurred to promote the Company'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. Most selling expenses are directly related to the
number of net new subscribers added. Therefore, such expenses may increase in
the future if pagers in service are added at a more rapid rate than in the past.
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.
Depreciation and amortization expenses increased to $232.3 million (63.2%
of net revenues) in the year ended December 31, 1997 from $191.9 million (63.1%
of net revenues) in the year ended December 31, 1996. These expenses reflect
Arch's acquisitions of paging businesses, accounted for as purchases, and
continued investment in pagers and other system expansion equipment to support
continued growth.
Operating loss increased to $102.0 million in the year ended December 31,
1997 from $86.1 million in the year ended December 31, 1996 as a result of the
factors outlined above.
Net interest expense increased to $97.2 million in the year ended December
31, 1997 from $75.9 million in the year ended December 31, 1996. The increase
was attributable to an increase in Arch's average outstanding debt. In 1997 and
1996 interest expense includes approximately $33 million and $24 million,
respectively, of non-cash interest accretion on the Company's 107/8% 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, the Company 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 Communications Holdings, Inc. ("USA Mobile") and Westlink which
were available to offset deferred tax liabilities arising from the Company's
acquisitions of USA Mobile in September 1995 and Westlink in May 1996.
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 separate prior credit facilities.
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 PCS Ventures, Inc.'s ("Benbow")
losses since May 21, 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.
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 2,006,000 at December 31, 1995 to 3,295,000 at December
31, 1996. Acquisitions of paging companies added 474,000 pagers in service
during 1996, with the remaining 815,000 pagers added through internal growth.
Maintenance revenues represented less
15
<PAGE> 16
than 10% of total service, rental and maintenance revenues in the years ended
December 31, 1995 and 1996. Product sales, less cost of products sold, increased
274.0% to $12.5 million in the year ended December 31, 1996 from $3.3 million in
the year ended December 31, 1995 as a result of a greater number of pager unit
sales.
Service, rental and maintenance expenses, increased to $65.0 million (21.4%
of net revenues) in the year ended December 31, 1996 from $29.7 million (20.9%
of net revenues) in the year ended December 31, 1995. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of subscribers. Annual service,
rental and maintenance expenses per subscriber decreased to $25 in the year
ended December 31, 1996 from $28 in the year ended December 31, 1995.
Selling expenses increased to $47.0 million (15.4% of net revenues) in the
year ended December 31, 1996 from $24.5 million (17.3% of net revenues) in the
year ended December 31, 1995. The increase in selling expenses was due to the
addition of sales personnel to support continued growth in the subscriber base,
as the number of net new pagers in service resulting from internal growth
increased by 122.7% from the year ended December 31, 1995 to the year ended
December 31, 1996. Arch's selling cost per net new pager in service decreased to
$58 in the year ended December 31, 1996 from $67 in the year ended December 31,
1995, primarily due to increased sales through indirect distribution channels.
General and administrative expenses increased to $86.2 million (28.4% of
net revenues) in the year ended December 31, 1996 from $40.4 million (28.5% of
net revenues) in the year ended December 31, 1995. The increase was due
primarily to increased expenses associated with supporting more pagers in
service.
Depreciation and amortization expenses increased to $191.9 million (63.1%
of net revenues) in the year ended December 31, 1996 from $60.2 million (42.5%
of net revenues) in the year ended December 31, 1995. These expenses reflect
Arch's acquisitions of paging businesses, accounted for as purchases, and
continued investment in pagers and other system expansion equipment to support
continued growth.
Operating loss increased to $86.1 million in the year ended December 31,
1996 from $13.0 million in the year ended December 31, 1995 as a result of the
factors outlined above.
Net interest expense increased to $75.9 million in the year ended December
31, 1996 from $22.5 million in the year ended December 31, 1995. The increase
was attributable to an increase in Arch's average outstanding debt. Interest
expense in 1996 includes approximately $24 million of non-cash interest
accretion on the Company's 107/8% 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, 1996 and 1995, the Company 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 the Company'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.
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 the 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 May 21, 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.
16
<PAGE> 17
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 finance acquisitions and to service debt.
Capital Expenditures and Commitments
Excluding acquisitions of paging businesses, Arch's capital expenditures
were $60.5 million in the year ended December 31, 1995, $165.2 million in the
year ended December 31, 1996 and $102.8 million in the year ended December 31,
1997. To date, Arch has funded its capital expenditures with net cash provided
by operating activities, the issuance of equity securities and the incurrence of
debt.
Arch has agreed, 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 its acquisition of its narrowband PCS
licenses and to finance the build out of a regional narrowband PCS system. Arch
estimates that the total cost to Benbow of servicing such debt obligations and
constructing such regional narrowband PCS system will be approximately $100
million over the next five years.
Arch currently anticipates capital expenditures of approximately $90
million to $100 million for the year ending December 31, 1998, primarily for the
purchase of pagers and paging system equipment. Such amounts are subject to
change based on the Company's internal growth rate and acquisition activity, if
any, during 1998. Arch believes that it will have sufficient cash available from
operations and credit facilities to fund these expenditures.
Acquisitions
In May 1996, Arch completed its acquisition of Westlink for aggregate
consideration of $325.4 million in cash (including direct transaction costs).
See Note 2 to the Company's Consolidated Financial Statements.
In September 1995, Arch completed its acquisition of USA Mobile for an
aggregate consideration of $582.2 million, consisting of $88.9 million in cash
(including direct transaction costs), 7,599,493 shares of common stock valued at
$209.0 million on the date of completion and the assumption of liabilities of
$284.3 million, including $241.2 million of long-term debt. See Note 2 to the
Company's Consolidated Financial Statements.
During 1995, the Company also completed five additional acquisitions for
aggregate consideration of $36.1 million in cash plus the issuance of 395,000
shares of common stock valued at $6.9 million on the date of completion. See
Note 2 to the Company's Consolidated Financial Statements.
The Company has pursued and intends to continue to pursue acquisitions of
paging businesses as part of its growth strategy. As a result, the Company
evaluates acquisition opportunities on an ongoing basis and from time to time is
engaged in discussions with respect to possible acquisitions.
Sources of Funds
Arch's net cash provided by operating activities was $63.6 million, $37.8
million and $14.7 million in the years ended December 31, 1997, 1996 and 1995,
respectively.
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 the Company's needs and market
conditions, possible sales of equity or debt securities. For additional
information, see Note 3 to the Company's Consolidated Financial Statements.
17
<PAGE> 18
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.
Factors Affecting Future Operating Results
The following important factors, among others, could cause the Company's
actual operating results to differ materially from those indicated or suggested
by forward-looking statements made in this Form 10-K or presented elsewhere by
the Company's management from time to time.
Indebtedness and High Degree of Leverage
The Company is highly leveraged. At December 31, 1997, the Company had
outstanding $993.4 million of total debt, including: (i) $332.5 million accreted
value of the 10 7/8% Senior Discount Notes due 2008; (ii) $125 million principal
amount of the 9 1/2% Senior Notes due 2004 of USA Mobile II; (iii) $100 million
principal amount of the 14% Senior Notes due 2004 of USA Mobile II; (iv) $359.5
million borrowed under the Arch Enterprises Credit Facility; (v) $63.0 million
borrowed under the USA Mobile II Credit Facility; and (vi) $13.4 million
principal amount of the Company's 6 3/4% Convertible Subordinated Debentures due
2003. The ability of the Company to make payments of principal and interest on
its indebtedness will be dependent upon the Company's subsidiaries achieving and
sustaining levels of performance in the future that will permit such
subsidiaries to pay sufficient dividends, distributions or fees to the Company.
Many factors, some of which will be beyond the Company's control, such as
prevailing economic conditions, will affect the performance of the Company and
its subsidiaries. In addition, covenants imposed by the current and future
credit facilities and other indebtedness of the Company and its subsidiaries
could restrict the ability of the Company and its subsidiaries to incur
additional indebtedness and prohibit certain activities and may limit other
aspects of the Company's operations. There can be no assurance that the Company
or its subsidiaries will be able to generate sufficient cash flow to cover
required interest and principal payments on their current and future
indebtedness. If the Company is unable to meet interest and principal payments
in the future, it may, depending upon the circumstances which then exist, seek
additional equity or debt financing, attempt to refinance its existing
indebtedness or sell all or part of its business or assets to raise funds to
repay its indebtedness. There can be no assurance that sufficient equity or debt
financing will be available or, if available, that it will be on terms
acceptable to the Company, that the Company will be able to refinance its
existing indebtedness or that sufficient funds could be raised through asset
sales. The Company's high degree of leverage may have important consequences for
the Company, including: (i) the ability of the Company and its subsidiaries to
obtain additional financing for acquisitions, working capital, capital
expenditures or other purposes, if necessary, may be impaired or such financing
may not be on favorable terms; (ii) a substantial portion of the cash flow of
the Company's subsidiaries will be used to pay interest expense, which will
reduce the funds which would otherwise be available for operations and future
business opportunities; (iii) the Company may be more highly leveraged than its
competitors which may place it at a competitive disadvantage; and (iv) the
Company's high degree of leverage will make it more vulnerable to a downturn in
its business or the economy generally.
Future Capital Needs
The Company's business strategy requires the availability of substantial
funds to service debt and finance the continued development and future growth
and expansion of its operations, including possible acquisitions. The amount of
capital required by the Company will depend upon a number of factors, including
subscriber growth, technological developments, marketing and sales expenses,
competitive conditions, acquisition strategy and acquisition opportunities. No
assurance can be given that additional equity or debt financing will be
available to the Company on acceptable terms, if at all. The unavailability of
sufficient financing when needed would have a material adverse effect on the
Company.
18
<PAGE> 19
History of Losses
The Company has not reported any net income since its inception. The
Company reported net losses of $181.9 million, $114.7 million and $36.6 million
in the years ended December 31, 1997, 1996 and 1995, respectively. These net
losses have resulted principally from (i) substantial depreciation and
amortization expenses, primarily related to intangible assets and pager
depreciation and (ii) interest expense on debt incurred primarily to finance
acquisitions of paging operations 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 substantial negative impact on the Company. The Company expects to
continue to report net losses for the foreseeable future.
Growth and Acquisition Strategy
The Company has pursued and intends to continue to pursue acquisitions of
paging businesses as well as the continued internal growth of the Company's
paging business. The process of integrating acquired paging businesses may
involve unforeseen difficulties and may require a disproportionate amount of the
time and attention of the Company's management and the financial and other
resources of the Company. No assurance can be given that suitable additional
acquisitions can be identified, financed and completed on acceptable terms, or
that the Company's future acquisitions will be successful. Implementation of the
Company's growth strategies will be subject to numerous other contingencies
beyond the control of the Company, including general 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 the Company's growth strategies will prove effective or that
the goals of the Company will be achieved.
Dependence on Key Personnel
The success of the Company will be dependent, to a significant extent, upon
the continued services of a relatively small group of executive personnel. The
Company does not have employment agreements with any of its current executive
officers, although all current executive officers have entered into
non-competition and executive retention agreements with the Company. 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 an adverse effect upon
the Company's operations.
Competition and Technological Change
The Company faces competition from other paging service providers in all
markets in which it operates as well as from certain competitors who hold
nationwide licenses. The Company believes that competition for paging
subscribers is based on quality of service, geographic coverage and price and
that the Company generally competes effectively based on these factors. Monthly
fees for basic paging services have, in general, declined since the Company
commenced operations in September 1986, due in part to competitive conditions,
and the Company may face significant price-based competition in the future which
could adversely affect the Company. Some of the Company's competitors possess
greater financial, technical and other resources than the Company. 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 its strategy on the Company's markets, the Company's results of
operations could be adversely affected. A variety of wireless two-way
communication technologies currently are in use or under development. Although
such technologies generally are higher priced than paging services or not widely
available, technological improvements could result in increased capacity and
efficiency for wireless two-way communication and, accordingly, could result in
increased competition for the Company. Two-way service providers also could
elect to provide paging service as an adjunct to their primary services. Future
technological advances in the telecommunications industry could increase new
services or products competitive with the paging services provided by the
Company or could require the Company to reduce the price of its 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. For example, the FCC has created
potential sources of competition by opening up new spectrum for such services as
the General Wireless Communications Service ("GWCS") and the Wireless
Communications Service ("WCS") as well as speeding up licensing of other
services through auctions, including the Local Multipoint Distribution Service
("LMDS"), 220-222 MHz and broadband PCS services. Entities offering service on
wireless two-way communications technology, including cellular
19
<PAGE> 20
telephones and specialized mobile radio services, also compete with the paging
services that the Company provides. There can be no assurance that the Company
will be able to compete successfully with its current and future competitors in
the paging business or with competitors offering alternative communication
technologies.
Subscriber Turnover
The results of operations of wireless messaging service providers, such as
the Company, can be significantly affected by subscriber cancellations. 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,
disconnection's directly and adversely affect operating cash flow. An increase
in its subscriber cancellation rate may adversely affect the Company's results
of operations.
Dependence on Suppliers
The Company does not manufacture any of the pagers used in its paging
operations. The Company buys pagers primarily from Motorola, Inc. ("Motorola")
and NEC America, Inc. ("NEC") and therefore is dependent on such manufacturers
to obtain sufficient pager inventory for new subscriber and replacement needs.
In addition, the Company purchases terminals and transmitters primarily from
Glenayre Technologies, Inc. ("Glenayre") and Motorola and thus is dependent on
such manufacturers for sufficient terminals and transmitters to meet its
expansion and replacement requirements. To date, the Company has not experienced
significant delays in obtaining pagers, terminals or transmitters, but there can
be no assurance that the Company will not experience such delays in the future.
The Company has never had a purchase agreement with Glenayre or NEC. The
Company's purchase agreement with Motorola expired in December 1997, with a
provision for automatic renewal for a one-year term. Although the Company
believes that sufficient alternative sources of pagers, terminals and
transmitters exist, there can be no assurance that the Company would not be
adversely affected if it were unable to obtain these items from current supply
sources or on terms comparable to existing terms.
Government Regulation, Foreign Ownership and Possible Redemption of Capital
Stock
The paging operations of the Company are subject to regulation by the FCC
and various state regulatory agencies. There can be no assurance that those
agencies will not propose or adopt regulations or take actions that would have a
material adverse effect on the Company's business. Changes in regulation of the
Company's paging business or the allocation of radio spectrum for services that
compete with the Company's business could adversely affect the Company's results
of operations. Indeed, the FCC has created potential sources of competition by
opening up new spectrum for such services as the GWCS and the WCS as well as,
speeding up licensing of other services through auctions, including the LMDS,
220-222 MHz and broadband PCS services. Further, the FCC has recently adopted
rules implementing a market area licensing scheme. In addition, some aspects of
the recently enacted Telecommunications Act of 1996 could have a beneficial
effect on Arch's business, but other provisions may place additional burdens
upon Arch or subject Arch to increased competition. The Communications Act of
1934, as amended, limits foreign ownership of entities that hold certain
licenses from the FCC. Because the Company, through its subsidiaries, holds FCC
licenses, in general, no more than 25% of the Company's stock can be owned or
voted by aliens or their representatives, a foreign government or its
representative or a foreign corporation, the Company's Restated Certificate of
Incorporation permits the redemption of shares of the Company's capital stock
from foreign stockholders where necessary to protect the Company's regulatory
licenses, but such redemption would be subject to the availability of capital to
the Company and any restrictions contained in the debt instruments of the
Company and under Delaware law. The failure to redeem such shares promptly could
jeopardize the Company's FCC licenses.
Impact of the Year 2000 Issue
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company'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 the Company'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
20
<PAGE> 21
temporary inability to process transactions, send invoices, or engage in similar
normal business activities. Based on preliminary information, costs of
addressing potential problems are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in future periods. However, if the Company, its customers or vendors
are unable to resolve such processing issues in a timely manner, it could result
in a material financial risk. Accordingly, the Company plans to devote the
necessary resources to resolve all significant year 2000 issues in a timely
manner.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14(a)(1) and (2)
are included in this Report beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10 through 13 are incorporated by
reference to the Registrant's definitive Proxy Statement for its 1998 annual
meeting of stockholders scheduled to be held on May 19, 1998.
21
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 1997
Consolidated Statements of Stockholders' Equity (Deficit) for Each of
the Three Years in the Period Ended December 31, 1997
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 1997
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K
Noreports on Form 8-K were filed during the three months ended December
31, 1997.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed as
part of this Annual Report on Form 10-K.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARCH COMMUNICATIONS GROUP, INC.
By: /s/ C. Edward Baker, Jr.
------------------------
C. Edward Baker, Jr.
Chairman of the Board and
Chief Executive Officer
March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
on the dates indicated.
/S/ C. EDWARD BAKER, JR. Chairman of the Board and March 27, 1998
- -------------------------- Chief Executive Officer
(principal executive officer)
/S/ JOHN B. SAYNOR Executive Vice President, March 27, 1998
- ------------------------- Director
/S/ J. ROY POTTLE Executive Vice President March 27, 1998
- ------------------------- and Chief Financial Officer
(principal financial officer and
principal accounting officer)
/S/ R. SCHORR BERMAN Director March 27, 1998
- -------------------------
/S/ JAMES S. HUGHES Director March 27, 1998
- -------------------------
/S/ ALLAN L. RAYFIELD Director March 27, 1998
- -------------------------
/S/ JOHN A. SHANE Director March 27, 1998
- -------------------------
23
<PAGE> 24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996........ F-3
Consolidated Statements of Operations for Each of the Three
Years in the Period Ended December 31, 1997....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for Each
of the Three Years in the Period Ended December 31, 1997.......... F-5
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1997....................... F-6
Notes to Consolidated Financial Statements.......................... F-7
F-1
<PAGE> 25
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, 1997 and 1996 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 and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arch Communications Group,
Inc. and subsidiaries as of December 31, 1997 and 1996 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.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 9, 1998
F-2
<PAGE> 26
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(in thousands, except share amounts)
1997 1996
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 3,328 $ 3,497
Accounts receivable (less reserves of $5,744
and $4,111 in 1997 and 1996, respectively) ..... 30,147 25,344
Inventories ..................................... 12,633 10,239
Prepaid expenses and other ...................... 4,917 4,531
---------- ----------
Total current assets ......................... 51,025 43,611
---------- ----------
Property and equipment, at cost:
Land, buildings and improvements ................ 10,089 8,780
Paging and computer equipment ................... 361,713 339,391
Furniture, fixtures and vehicles ................ 16,233 9,921
---------- ----------
388,035 358,092
Less accumulated depreciation and amortization .. 146,542 96,448
---------- ----------
Property and equipment, net ..................... 241,493 261,644
---------- ----------
Intangible and other assets (less accumulated
amortization of $260,932 and $141,710 in 1997 and
1996, respectively) ............................... 728,202 841,501
---------- ----------
$1,020,720 $1,146,756
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ............ $ 24,513 $ 46
Accounts payable ................................ 22,486 17,395
Accrued expenses ................................ 11,894 14,287
Accrued interest ................................ 11,249 10,264
Customer deposits ............................... 6,150 6,698
Deferred revenue ................................ 8,787 7,181
---------- ----------
Total current liabilities .................... 85,079 55,871
---------- ----------
Long-term debt, less current maturities ............ 968,896 918,150
---------- ----------
Deferred income taxes .............................. -- 21,172
---------- ----------
Commitments and Contingencies
Redeemable preferred stock ......................... -- 3,712
---------- ----------
Stockholders' equity (deficit):
Preferred stock -- $.01 par value, authorized
10,000,000 shares, no shares issued ............ -- --
Common stock -- $.01 par value, authorized
75,000,000 shares, issued and outstanding:
20,863,563 and 20,712,220 shares in 1997 and
1996, respectively ............................. 209 207
Additional paid-in capital ...................... 351,210 350,444
Accumulated deficit ............................. (384,674) (202,800)
---------- ----------
Total stockholders' equity (deficit) ......... (33,255) 147,851
---------- ----------
$1,020,720 $1,146,756
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE> 27
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service, rental and maintenance revenues ........................ $ 351,944 $ 291,399 $ 138,466
Product sales ................................................... 44,897 39,971 24,132
------------ ------------ ------------
Total revenues ............................................. 396,841 331,370 162,598
Cost of products sold ........................................... (29,158) (27,469) (20,789)
------------ ------------ ------------
367,683 303,901 141,809
------------ ------------ ------------
Operating expenses:
Service, rental and maintenance ............................... 79,836 64,957 29,673
Selling ....................................................... 51,474 46,962 24,502
General and administrative .................................... 106,041 86,181 40,448
Depreciation and amortization ................................. 232,347 191,871 60,205
------------ ------------ ------------
Total operating expenses ................................... 469,698 389,971 154,828
------------ ------------ ------------
Operating income (loss) ......................................... (102,015) (86,070) (13,019)
Interest expense ................................................ (98,063) (77,353) (22,560)
Interest income ................................................. 904 1,426 38
Equity in loss of affiliate ..................................... (3,872) (1,968) (3,977)
------------ ------------ ------------
Income (loss) before income tax benefit and extraordinary item... (203,046) (163,965) (39,518)
Benefit from income taxes ....................................... 21,172 51,207 4,600
------------ ------------ ------------
Income (loss) before extraordinary item ......................... (181,874) (112,758) (34,918)
Extraordinary charge from early extinguishment of debt .......... -- (1,904) (1,684)
------------ ------------ ------------
Net income (loss) ............................................... (181,874) (114,662) (36,602)
Accretion of redeemable preferred stock ......................... (32) (336) (102)
------------ ------------ ------------
Net income (loss) to common stockholders ........................ $ (181,906) $ (114,998) $ (36,704)
============ ============ ============
Basic income (loss) per common share before extraordinary item
and accretion of preferred stock .............................. $ (8.77) $ (5.51) $ (2.59)
Basic extraordinary charge from early extinguishment of
debt per common share .......................................... -- (.09) (.12)
Basic accretion of redeemable preferred stock per common share .. -- (.02) (.01)
------------ ------------ ------------
Basic net income (loss) per common share ........................ $ (8.77) $ (5.62) $ (2.72)
============ ============ ============
Basic weighted average number of common shares outstanding ...... 20,746,240 20,445,943 13,497,734
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 28
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity(Deficit)
----- ------- ------- ---------------
<S> <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)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 29
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................. $(181,874) $(114,662) $ (36,602)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................. 232,347 191,871 60,205
Deferred income tax benefit ................................... (21,172) (51,207) (4,600)
Extraordinary charge from early extinguishment of debt ........ -- 1,904 1,684
Equity in loss of affiliate ................................... 3,872 1,968 3,977
Accretion of discount on senior notes ......................... 33,259 24,273 --
Accounts receivable loss provision ............................ 7,181 8,198 3,915
Changes in assets and liabilities, net of effect from
acquisitions of paging companies:
Accounts receivable ........................................ (11,984) (15,513) (9,582)
Inventories ................................................ (2,394) 1,845 (3,176)
Prepaid expenses and other ................................. (386) 89 (511)
Accounts payable and accrued expenses ...................... 3,683 (12,520) (551)
Customer deposits and deferred revenue ..................... 1,058 1,556 (10)
--------- --------- ---------
Net cash provided by operating activities ....................... 63,590 37,802 14,749
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment, net ...................... (87,868) (138,899) (45,331)
Additions to intangible and other assets ...................... (14,901) (26,307) (15,137)
Acquisition of paging companies, net of cash acquired ......... -- (325,420) (132,081)
--------- --------- ---------
Net cash used for investing activities .......................... (102,769) (490,626) (192,549)
--------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt .................................... 91,000 676,000 191,617
Repayment of long-term debt ................................... (49,046) (225,166) (63,705)
Repayment of redeemable preferred stock ..................... (3,744) -- --
Net proceeds from sale of common stock ........................ 800 1,844 51,180
--------- --------- ---------
Net cash provided by financing activities ....................... 39,010 452,678 179,092
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............ (169) (146) 1,292
Cash and cash equivalents, beginning of period .................. 3,497 3,643 2,351
--------- --------- ---------
Cash and cash equivalents, end of period ........................ $ 3,328 $ 3,497 $ 3,643
========= ========= =========
Supplemental disclosure:
Interest paid ................................................. $ 62,231 $ 48,905 $ 20,933
========= ========= =========
Issuance of common stock for acquisition of paging companies .. $ -- $ -- $ 215,899
========= ========= =========
Issuance of common stock for convertible debentures ........... $ -- $ 14,121 $ 6,990
========= ========= =========
Accretion of redeemable preferred stock ....................... $ 32 $ 336 $ 102
========= ========= =========
Liabilities assumed in acquisition of paging companies ........ $ -- $ 58,233 $ 314,139
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 30
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization -- Arch Communications Group, Inc. ("Arch") is a leading
provider of wireless messaging services, primarily paging services.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Arch 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:
Estimated
Asset Classification Useful Life
-------------------- -----------
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
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.
Depreciation and amortization expense related to property and equipment
totaled $108,019,000, $87,450,000 and $25,034,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
F-7
<PAGE> 31
Intangible and Other Assets -- Intangible and other assets, net of
accumulated amortization, are composed of the following at December 31, 1997 and
1996 (in thousands):
1997 1996
---- ----
Goodwill ..................................... $312,017 $351,969
Purchased FCC licenses ....................... 293,922 330,483
Purchased subscriber lists ................... 87,281 120,981
Deferred financing costs ..................... 8,752 12,449
Investment in CONXUS Communications, Inc. .... 6,500 6,500
Investment in Benbow PCS Ventures,Inc ........ 6,189 3,642
Non-competition agreements ................... 2,783 3,594
Other ........................................ 10,758 11,883
-------- --------
$728,202 $841,501
======== ========
Amortization expense related to intangible and other assets totaled
$124,328,000, $104,421,000 and $35,171,000 for the years ended December 31,
1997, 1996 and 1995, 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.
A charge of $1,684,000 was recognized in the second quarter of 1995 in
connection with the closing of a new credit facility and a charge of $1,904,000
was recognized in the second quarter of 1996 in connection with the closing of
another new credit facility.
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 has agreed,
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 build out its narrowband personal
communications 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.
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, 1997 and 1996.
F-8
<PAGE> 32
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 is unable to determine the fair value of the convertible
subordinated debentures due to the specific terms and conversion features
available in their respective agreements. These various facilities were
negotiated with the creditors based on the facts and circumstances available at
the time the debt was incurred. Since Arch has undergone significant change over
the past year, management is unable to determine what rates and terms would be
available currently.
Arch's fixed rate senior notes are traded publicly. The following table
depicts the fair value of this debt based on the current market quote as of
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------- --------------------
Carrying Fair Carrying Fair
Description Value Value Value Value
----------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
10 7/8% Senior Discount Notes due 2008 .......... $332,532 $288,418 $299,273 $265,236
9 1/2% Senior Notes due 2004 of USA Mobile II ... 125,000 122,488 125,000 117,500
14% Senior Notes due 2004 of USA Mobile II ...... 100,000 112,540 100,000 115,000
</TABLE>
Arch had off balance sheet interest rate protection agreements consisting
of interest rate swaps and interest rate caps with notional amounts of $140
million and $80 million, respectively at December 31, 1997 and $165 million and
$55 million, respectively, at December 31, 1996. The fair values of the interest
rate swaps and interest rate caps were $47,000 and $9,000, respectively, at
December 31, 1997 and $361,000 and $10,000, respectively, at December 31, 1996.
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) 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
On May 21, 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.
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 it's 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 Merger"). Upon consummation of the Merger, USA Mobile was renamed Arch
Communications Group, Inc. In the Merger, each share of USA Mobile's outstanding
common stock was exchanged for Arch common stock on a .8020-for-one basis (an
aggregate of 7,599,493 shares of Arch common stock) and the 5,450,000 USA Mobile
shares purchased by Arch in May 1995 were retired. Outstanding shares of USA
Mobile's Series A Redeemable Preferred Stock were not affected by the Merger
(see Note 4). Arch is treated as the acquirer in the 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 Merger was $582.2 million, consisting of
F-9
<PAGE> 33
cash paid of $88.9 million, including direct transaction costs, 7,599,493 shares
of Arch common stock valued at $209.0 million and the assumption of liabilities
of $284.3 million, including $241.2 million of long-term debt.
During the year ended December 31, 1995, Arch completed five acquisitions
of paging companies, in addition to the Merger, for purchase prices aggregating
approximately $43.0 million, consisting of cash of $36.1 million and 395,000
shares of Arch common stock valued at $6.9 million. Goodwill resulting from the
acquisitions and the Merger is being amortized over a ten-year period using the
straight-line method.
These acquisitions 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.
(unaudited and in thousands except
for per share amounts)
Year Ended December 31,
--------------------------------------
1996 1995
Revenues.................................. $ 358,900 $321,963
Income (loss) before extraordinary item... (128,444) (92,395)
Net income (loss)......................... (130,348) (94,079)
Basic net income (loss) per common share.. (6.39) (6.97)
3. Long-term Debt
Long-term debt consisted of the following at December 31, 1997 and 1996 (in
thousands):
1997 1996
---- ----
Senior bank debt ................................ $422,500 $380,500
10 7/8% Senior Discount Notes due 2008 .......... 332,532 299,273
9 1/2% Senior Notes due 2004 of USA Mobile II ... 125,000 125,000
14% Senior Notes due 2004 of USA Mobile II ...... 100,000 100,000
Convertible subordinated debentures ............. 13,364 13,364
Other ........................................... 13 59
-------- --------
993,409 918,196
Less-current maturities ......................... 24,513 46
-------- --------
Long-term debt .................................. $968,896 $918,150
======== ========
Senior Bank Debt -- Arch, through its operating subsidiaries, has entered
into two credit agreements. Arch Communications Enterprises, Inc. ("Arch
Enterprises"), a wholly-owned subsidiary of Arch, 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 "Arch Enterprises
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 Arch Enterprises Revolver, which is available for working capital
and other purposes, the Tranche A Term Loan and the Tranche B Term Loan are
collectively referred to as the Arch Enterprises Credit Facility. The Arch
Enterprises Credit Facility is secured by all assets of the operating
subsidiaries of Arch Enterprises and a pledge of all the stock of Arch's direct
and indirect subsidiaries. In addition, Arch and the operating subsidiaries of
Arch Enterprises have guaranteed all obligations under the Arch Enterprises
Credit Facility.
The Arch Enterprises Revolver is subject to scheduled mandatory reductions
commencing on December 31, 1999. The Tranche A Term Loan and Tranche B Term Loan
will be amortized in quarterly installments commencing on March 31, 1998.
F-10
<PAGE> 34
Except for the Tranche B Term Loan, borrowings under the Credit Facilities
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 plus 1.75%, or the agent bank's LIBOR rate plus
3.00%. Interest is payable quarterly in arrears. In addition, a commitment fee
of .375% per annum is payable on the average daily unused portion of the Arch
Enterprises Revolver.
Arch Enterprises is also required to maintain interest rate protection on
at least 50% of outstanding borrowings under the Arch Enterprises 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, Arch Enterprises would be subject to the prevailing interest rates
specified in the Arch Enterprises Credit Facility.
Under the interest rate swap agreements, the Company will pay the
difference between LIBOR and the fixed swap rate if the swap rate exceeds LIBOR,
and the Company will receive the difference between LIBOR and the fixed swap
rate if LIBOR exceeds the swap rate. Settlement occurs on the quarterly reset
dates specified by the terms of the contracts. 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 Arch Enterprises Credit Facility was
5.872% at December 31, 1997. At December 31, 1997 and 1996, the Company had a
net receivable of $18,000 and a net payable of $124,000, 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 Arch Enterprises Credit Facility contains restrictive and financial
covenants which, among other things, limit the ability of Arch Enterprises 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 Arch Enterprises Credit Facility. As of
December 31, 1997, Arch Enterprises and its operating subsidiaries were in
compliance with the covenants of the Arch Enterprises Credit Facility.
As of December 31, 1997, $359.5 million was outstanding and $28.7 million
was available under the Arch Enterprises Credit Facility. At December 31, 1997,
such advances bore interest at an average annual rate of 8.76%.
USA Mobile Communications, Inc. II ("USA Mobile II") and the direct
subsidiaries of USA Mobile II (the "USA Mobile II 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 "USA Mobile II
Credit Facility").
Upon the closing of the USA Mobile II Credit Facility, the banks did not
require the contemporaneous grant of a security interest in the assets of USA
Mobile II and its subsidiaries but they have reserved the right to require such
a security interest upon the occurrence of certain triggering events. Arch and
USA Mobile II have guaranteed the obligations of the USA Mobile II Borrowing
Subsidiaries under the USA Mobile II Credit Facility. Arch's guarantee is
secured by the pledge of the stock of Arch Enterprises and USA Mobile II.
Obligations under the USA Mobile II 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 USA Mobile II's total indebtedness to annualized operating cash
flow. A commitment fee of .375% per annum is also payable on the average daily
unused portion of the USA Mobile II Credit Facility.
The USA Mobile II Credit Facility contains restrictive and financial
covenants which, among other things, limit the ability of USA Mobile II 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
F-11
<PAGE> 35
under the USA Mobile II Credit Facility. As of December 31, 1997, USA Mobile II
and the USA Mobile Borrowing Subsidiaries were in compliance with the covenants
of the USA Mobile II Credit Facility.
As of December 31, 1997, $63.0 million was outstanding and $4.6 million was
available under the USA Mobile II Credit Facility. At December 31, 1997, such
advances bore interest at an average annual rate of 8.55%.
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 USA Mobile II 14% Notes and the USA Mobile II 9 1/2% Notes
(collectively, the "Senior Notes") is payable semi-annually. The Senior Discount
Notes and the Senior Notes contain certain restrictive and financial covenants
which, among other things, limit the ability of Arch or USA Mobile II to: incur
additional indebtedness; pay dividends; grant liens on its assets; sell assets;
enter into transactions with related parties; merge, consolidate or transfer
substantially all of its assets; redeem capital stock or subordinated debt; and
make certain investments.
Convertible Subordinated Debentures - On March 6, 1996, the holders of
$14.1 million principal amount of Arch's 6 3/4% Convertible Subordinated
Debentures due 2003 ("Arch Convertible Debentures") elected to convert their
Arch Convertible Debentures into Arch common stock at a conversion price of
$16.75 per share and received approximately 843,000 shares of Arch common stock
together with a $1.6 million cash premium.
Interest on the remaining outstanding Arch Convertible Debentures is
payable semiannually on June 1 and December 1. The Arch Convertible Debentures
are unsecured and are subordinated to all existing indebtedness of Arch.
The Arch Convertible Debentures are redeemable, at the option of Arch, in
whole or in part, at certain prices declining annually to 100% of the principal
amount at maturity plus accrued interest. The Arch Convertible Debentures also
are subject to redemption at the option of the holders, at a price of 100% of
the principal amount plus accrued interest, upon the occurrence of certain
events.
The Arch Convertible Debentures are convertible at their principal amount
into shares of Arch's common stock at any time prior to redemption or maturity
at an initial conversion price of $16.75 per share, subject to adjustment.
Maturities of Debt -- Scheduled long-term debt maturities at December 31,
1997, are as follows (in thousands):
Year Ending December 31,
------------------------
1998 ................... $ 24,513
1999 ................... 37,750
2000 ................... 83,000
2001 ................... 74,750
2002 ................... 122,500
Thereafter ............. 650,896
--------
$993,409
========
F-12
<PAGE> 36
4. Redeemable Preferred Stock and Stockholders' Equity
Redeemable Preferred Stock -- In connection with the 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 $3,744,000 in cash.
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 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 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
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
Merger.
In January 1995, Arch adopted a 1995 Outside Directors' Stock Option Plan
(the "1995 Directors' Plan"), which terminated upon completion of the 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 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
F-13
<PAGE> 37
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.
The following table summarizes the activity under Arch's stock option plans
for the periods presented:
Number of Weighted Average
Options Exercise Price
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 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
========== =========
The following table summarizes the options outstanding and options
exercisable by price range at December 31, 1997:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
$ 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
=============== ========= ==== ======= ======= =======
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 1997 and 1996, 151,343 and
46,842 shares were issued at an average price per share of $5.29 and $7.97,
respectively. At December 31, 1997, 51,815 shares are available for future
issuance.
F-14
<PAGE> 38
Accounting for Stock-Based Compensation -- Arch accounts for its stock
option and stock purchase plans under APB Opinion No. 25 "Accounting for Stock
Issued to Employees", since all options have been issued at a grant price equal
to fair market value, no compensation cost has been recognized in the 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:
(in thousands except per share amounts)
Year Ended December 31,
1997 1996 1995
Net income (loss): As reported $ (181,874) $ (114,662) $ (36,602)
Pro forma (183,470) (115,786) (36,740)
Basic net income (loss)
per common share: As reported (8.77) (5.62) (2.72)
Pro forma (8.85) (5.68) (2.73)
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 1997, 1996 and 1995, were $3.37, $4.95 and
$11.89, respectively. The weighted average fair value of shares sold under the
ESPP in 1997 and 1996 was $2.83 and $5.46, respectively.
Stockholders Rights Plan -- Upon completion of the 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, 1997 and 1996 are as
follows (in thousands):
1997 1996
---- ----
Deferred tax assets .......... $ 134,944 $ 94,597
Deferred tax liabilities ..... (90,122) (115,769)
--------- ---------
44,822 (21,172)
Valuation allowance .......... (44,822) --
--------- ---------
$ -- $ (21,172)
========= =========
F-15
<PAGE> 39
The approximate effect of each type of temporary difference and
carryforward at December 31, 1997 and 1996 is summarized as follows (in
thousands):
1997 1996
---- ----
Net operating losses ................... $ 106,214 $ 89,764
Intangibles and other assets ........... (87,444) (115,769)
Depreciation of property & equipment ... 24,388 3,692
Accruals and reserves .................. 1,664 1,141
--------- ---------
44,822 (21,172)
Valuation allowance .................... (44,822) --
--------- ---------
$ -- $ (21,172)
========= =========
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
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):
Year Ending December 31,
------------------------
1998 ................... $16,909
1999 ................... 7,706
2000 ................... 4,546
2001 ................... 2,689
2002 ................... 950
Thereafter ............. 1,680
-------
Total .................. $34,480
=======
Total rent expense under operating leases for the years ended December 31,
1997, 1996 and 1995 approximated $19,836,000, $14,746,000 and $6,423,000,
respectively.
7. Employee Benefit Plans
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 Arch matching contributions. Matching contributions
for the years ended December 31, 1997, 1996 and 1995 approximated $302,000,
$217,000 and $124,000, respectively.
F-16
<PAGE> 40
8. Quarterly Financial Results (unaudited)
Quarterly financial information for the years ended December 31, 1997 and
1996 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, 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)
Year Ended December 31, 1996:
Revenues ................................... $ 67,171 $ 78,983 $ 90,886 $ 94,330
Operating income (loss) .................... (12,949) (18,821) (23,647) (30,653)
Income (loss) before extraordinary item .... (19,377) (25,678) (32,178) (35,525)
Extraordinary charge ....................... -- (1,904) -- --
Net income (loss) .......................... (19,377) (27,582) (32,178) (35,525)
Basic net income (loss) per common share:
Income (loss) before extraordinary item .. (.98) (1.26) (1.56) (1.72)
Extraordinary charge ..................... -- (.09) -- --
Net income (loss) ........................ (.98) (1.35) (1.56) (1.72)
</TABLE>
F-17
<PAGE> 41
SCHEDULE II
ARCH COMMUNICATIONS GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Balance
at Other Balance
Beginning Charged Addition to at End
Allowance for Doubtful Accounts of Period to Expense Allowance(1) Write-Offs of Period
- ------------------------------- --------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997 . $ 4,111 $ 7,181 $ -- $ (5,548) $ 5,744
Year ended December 31, 1996 . $ 2,125 $ 8,198 $ 1,757 $ (7,969) $ 4,111
Year ended December 31, 1995 . $ 707 $ 3,915 $ 1,251 $ (3,748) $ 2,125
</TABLE>
(1) Additions arising through acquisitions of paging companies
S-1
<PAGE> 42
INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
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 - By-laws, as amended.(1)
4.1 - Indenture, dated February 1, 1994, between USA Mobile Communications, Inc. II
("USA Mobile II") and United States Trust Company of New York, as Trustee,
relating to the 91/2% Senior Notes due 2004 of USA Mobile II. (3)
4.2 - Indenture, dated December 15, 1994, between USA Mobile II and United States
Trust Company of New York, as Trustee, relating to the 14% Senior Notes due
2004 of USA Mobile II. (4)
4.3 - Indenture, dated as of December 1, 1993, between Arch and The Bank of New York,
relating to the 63/4% Convertible Subordinated Debentures due 2003 of Arch. (5)
4.4 - Indenture, dated March 12, 1996, between Arch and IBJ
Schroder Bank & Trust Company, relating to the 107/8% Senior
Discount Notes due 2008 of Arch.(9)
10.1 - First Amended and Restated Credit Agreement Dated May 21, 1996 By and Among
Arch Communications Enterprises, Inc., the Lenders party thereto, the Co-Agents
party thereto, and The Bank of New York as Administrative Agent(8)
10.2 - Amendment No. 2 to the First Amended and Restated Credit Agreement Dated May
21, 1996 By and Among Arch Communications Enterprises, Inc., The Lenders party
thereto, the Co-Agents party thereto, and The Bank of New York as
Administrative Agent. (12)
10.3*! - Amendment No. 5 and Waiver No. 1 to and under the First Amended and Restated
Credit Agreement Dated May 21, 1996.
10.4 - First Amended and Restated Credit Agreement, dated March 19, 1997 (the "USA
Mobile II Credit Agreement"), among Premiere Page of Kansas, Inc., Q Media
Paging-Alabama, Inc., USA Mobile Communications, Inc. III, Q Media
Company-Paging, Inc., W.Q. Communications, Inc., USA Mobile II, The Lenders
Party Hereto, and The Bank of New York, as Administrative Agent.(12)
10.5*! - Amendment No. 3 to the USA Mobile II Credit Agreement.
+10.6 - Amended and Restated Stock Option Plan. (6)
+10.7 - Non-Employee Directors' Stock Option Plan. (7)
+10.8 - 1989 Stock Option Plan, as amended.(1)
+10.9 - 1995 Outside Directors' Stock Option Plan (5)
+10.10 - 1996 Employee Stock Purchase Plan(10)
+10.11 - 1997 Stock Option Plan(11)
+10.12* - Deferred Compensation Plan for Nonemployee Directors
+10.13* - Form of Executive Retention Agreement by and between Arch and Messrs. Baker,
Daniels, Kuzia. Pottle and Saynor
10.15 - Letter Agreement dated January 7, 1997 and Amendment 1 dated May 1, 1997
between Arch and Motorola, Inc. (12)
21.1* - Subsidiaries of the Registrant.
23.1* - Consent of Arthur Andersen LLP.
27.1* - Financial Data Schedule
</TABLE>
* Filed herewith
+ Identifies exhibits constituting a management contract or compensatory plan
! Confidential treatment requested with respect to portions of this exhibit
(1) Incorporated by reference from the Registration Statement on Form S-3 (File
no. 333-542) of Arch.
(2) Incorporated by reference from the Current Report on Form 8-K of Arch dated
October 13, 1995 and filed on October 24, 1995.
(3) Incorporated by reference from the Registration Statement on Form S-1 (File
no. 33-72646) of USA Mobile II
(4) Incorporated by reference from the Registration Statement on Form S-1 (File
no. 33-85580) of USA Mobile II
<PAGE> 43
(5) Incorporated by reference from the Registration Statement on Form S-3 (File
no. 33-87474) of Arch.
(6) Incorporated by reference from the Annual Report on Form 10-K of Arch (then
known as USA Mobile) for the fiscal year ended December 31, 1994.
(7) Incorporated by reference from the Registration Statement on Form S-4 (File
no. 33-83648) of Arch (then known as USA Mobile).
(8) Incorporated by reference from the Quarterly Report on Form 10-Q of Arch
for the quarter ended June 30, 1996. Confidential treatment previously
granted with respect to portions of this exhibit.
(9) Incorporated by reference from Amendment No. 1 to the Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1995. Confidential
treatment previously granted with respect to portions of this exhibit.
(10) Incorporated by reference from the Annual Report on Form 10-K of Arch for
the fiscal year ended December 31, 1995.
(11) Incorporated by reference from the Annual Report on Form 10-K of Arch for
the fiscal year ended December 31, 1996.
(12) Incorporated by reference from the Quarterly Report on Form 10-Q of Arch
for the quarter ended March 31, 1997. Confidential Treatment previously
granted with respect to portions of this exhibit.
<PAGE>
EXHIBIT 10.3
*CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY
AMENDMENT NO. 5 AND WAIVER NO. 1
TO AND UNDER THE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 5 AND WAIVER NO. 1 (this "AMENDMENT AND WAIVER"), dated as of
March 9, 1998, to and under the First Amended and Restated Credit Agreement,
dated as of May 21, 1996, by and among ARCH COMMUNICATIONS ENTERPRISES, INC., a
Delaware corporation (the "Borrower"), ARCH COMMUNICATIONS GROUP, INC., a
Delaware corporation (the "Parent"), the Lenders party thereto, the Co-Agents
party thereto and THE BANK OF NEW YORK, as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), as amended by Amendment No. 1,
dated as of June 25, 1996, Amendment No. 2, dated as of March 25, 1997,
Amend-ment No. 3, dated as of June 17, 1997, and Amendment No. 4, dated as of
January 7, 1998 (as so amended, the "Credit Agreement").
RECITALS
A. Capitalized terms used herein which are not defined herein shall have
the respective meanings ascribed thereto in the Credit Agreement.
B. The Parent and the Borrower have requested that the Administrative Agent
and the Lenders amend the Credit Agreement and waive compliance with Section 8.4
of the Credit Agreement, in each case to the extent and in the manner set forth
below, and the Administrative Agent and the Lenders executing this Amendment and
Waiver are willing to do so subject to the terms and conditions hereof.
Accordingly, in consideration of the covenants, conditions and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. Pursuant to Section 2.6(a) of the Credit Agreement, the amount of the
Aggregate Revolving Credit Commitments is permanently reduced to $212,250,000
(notwithstanding any requirements contained in the last sentence of such Section
2.6(a) regarding the amount of any such voluntary reduction).
2. The definitions of "Available Amount", "Fixed Charges", "Pro-forma Debt
Service" and "Tower Net Sales Proceeds" contained in Section 1.1 of the Credit
Agreement are amended to read as follows:
"Available Amount": as of any date of determination,
an amount equal to 50% of Excess Cash Flow for the
immediately preceding fiscal year, minus (i) all
Restricted Payments made pursuant to Section 8.5(e) during
the fiscal year in which such determination is being made,
and minus (ii) all Additional Benbow Investments made
pursuant to Section 8.6(o)(iv)(B) during the fiscal year
in which such determination is being made.
<PAGE>
"FIXED CHARGES": for any period, with respect to the
Restricted Subsidiaries on a Consolidated basis, the sum
of (i) scheduled payments of principal on Total Debt made
or required to be made during such period, (ii) the
amount, if positive, equal to (a) the amount of the
Revolving Credit Loans outstanding at the beginning of
such period minus (b) the Aggregate Revolving Credit
Commitments at the end of such period (without giving
effect to reductions thereof during such period required
by Section 2.6(c)), (iii) Capital Expenditures and
Unconsolidated Investments made during such period, (iv)
payments under Capital Leases made or required to be made
in such period, (v) without duplication, taxes and
payments under the Tax Sharing Agreement, in each case
paid or required to be paid in cash during such period,
and (vi) Cash Interest Expense.
"PRO-FORMA DEBT SERVICE": at any date of
determination, the sum of (i) Cash Interest Expense for
the period of the four fiscal quarters immediately
succeeding such date of determination, (ii) all current
maturities of Total Debt of the Restricted Subsidiaries
(determined on a Consolidated basis in accordance with
GAAP) for such four fiscal quarter period and (iii) for
periods beginning after June 30, 1999, the amount, if
positive, equal to (a) the amount of the Revolving Credit
Loans outstanding at the beginning of such period minus
(b) the Aggregate Revolving Credit Commitments at the end
of such period (after giving effect to any mandatory
reductions during such period pursuant to Section 2.6(b).
Where any item of interest varies or depends upon a
variable rate of interest (or other rate of interest which
is not fixed for such entire four fiscal quarter period),
such rate, for purposes of calculating Pro-forma Debt
Service, shall be assumed to equal the Alternate Base Rate
plus the Applicable Margin in effect on the date of such
calculation, or, if such rate is a Eurodollar Rate, the
applicable Eurodollar Rate plus the Applicable Margin in
effect on the date of such calculation. Also, for purposes
of calculating Pro-forma Debt Service, the principal
amount of Total Debt outstanding on the date of any
calculation of Pro-forma Debt Service shall be assumed to
be outstanding during the entire four fiscal quarter
period immediately succeeding such date, except to the
extent that such Indebtedness is subject to mandatory
payment of principal during such period.
"TOWER NET SALES PROCEEDS": with respect to any Tower
Sale, an amount equal to the greater of (i) 100% of the
Net Sales Proceeds of such Tower Sale and (ii) 100% of the
Net Cash Proceeds (as defined in the Discount Note
Indenture) of such Tower Sale.
- 2 -
<PAGE>
3. Section 1.1 of the Credit Agreement is amended by adding the following
definitions in their appropriate alphabetical order:
"AGGREGATE AVAILABLE CAPEX/INVESTMENT AMOUNT": at any
time, an amount equal to (i) the sum of $50,000,000 PLUS
the Excess Tower Proceeds Amount at such time, MINUS (ii)
the sum of, without duplication, the aggregate amount
expended by the Restricted Subsidiaries from January 1,
1998 through and including such time in respect of (a)
Capital Expenditures and (b) Unconsolidated Investments.
"AGGREGATE CREDIT EXPOSURE": at any date, the sum of
the out- standing principal amount of the Loans of all
Lenders on such date.
"EXCESS TOWER PROCEEDS AMOUNT": at any time, an
amount (if positive) equal to (i) aggregate amount of
Tower Net Sales Proceeds received by the Restricted
Subsidiaries in the fiscal year ended December 31, 1998
MINUS (ii) $13,000,000.
"PAGE CALL": Page Call, Inc., a Delaware corporation.
"PAGE CALL INVESTMENT": the contribution by the
Parent to the Borrower, and the contribution by the
Borrower to Westlink Company, of shares of common Stock of
the Parent to the extent necessary to enable Westlink
Company to sell to Benbow (in exchange for a promissory
note) sufficient shares of such common stock as are
necessary to satisfy Benbow's obligations under the Page
Call Purchase Agreement.
"PAGE CALL PURCHASE AGREEMENT": the Stock Purchase
Agreement, dated as of April 30, 1997, among Page Call,
Lisa-Gaye Shearing, Adelphia Communications Corporation,
Benbow and the Parent, as the same may be amended in form
and substance satisfactory to the Administrative Agent to
provide for consideration in the form of common stock of
the Parent as provided in Section 8.6(g)(i).
- 3 -
<PAGE>
*CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY
"QUARTERLY AVAILABLE CAPEX/INVESTMENT AMOUNT": in
respect of each fiscal quarter of the fiscal year ended
December 31, 1998, (i) the sum of the amount set forth
below opposite such quarter plus the Excess Tower Proceeds
Amount MINUS, (ii) the sum of, without duplication, the
aggregate amount expended by the Restricted Subsidiaries
during such fiscal quarter through and including such time
in respect of (a) Capital Expenditures and (b)
Unconsolidated Investments:
FISCAL QUARTER AMOUNT
First Quarter $20,000,000
Second Quarter $10,000,000
Third Quarter $10,000,000
Fourth Quarter $10,000,000;
PROVIDED, HOWEVER, that Capital Expenditures
permitted by this Section to be made in a fiscal quarter
which are not expended in such fiscal quarter may be
carried over and expended in subsequent fiscal quarters.
"QUARTERLY AVAILABLE UNCONSOLIDATED INVESTMENT
AMOUNT": an amount equal to (i) in respect of (A) the
first and second fiscal quarters of the fiscal year ended
December 31, 1998, $6,000,000, in the aggregate for such
fiscal quarters and (B) each of the third and fourth
fiscal quarter of such fiscal year, the Excess Tower
Proceeds Amount (not in excess of $2,000,000) MINUS (ii)
the sum of, without duplication, the aggregate amount
expended by the Restricted Subsidiaries during such fiscal
quarter through and including such time in respect of
Unconsolidated Investments.
"REVOLVING CREDIT DOLLAR LIMITATION": at any time, an
amount equal to (i) $ * MINUS (ii) the lesser of (x) the
aggregate amount of Tower Net Sales Proceeds received by
any Restricted Subsidiary from January 1, 1998 to and
including such time and (y) $13,000,000.
"UNCONSOLIDATED INVESTMENT": means, as of any date,
any Investment made by any Restricted Subsidiary in any
other Person that, pursuant to GAAP as in effect on such
date, would not be consolidated with the Borrower for
financial reporting purposes immediately after giving
effect to such investment, including, without limitation,
Investments in minority interests in Paging-Relating
Businesses, Additional Benbow Investments and Investments
in other personal communication services.
- 4 -
<PAGE>
*CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY
4. Section 2.1 of the Credit Agreement is amended in its entirety to read
as follows:
2.1 REVOLVING CREDIT LOANS.
Subject to the terms and conditions hereof, each
Revolving Credit Lender severally agrees to make revolving
credit loans (each a "REVOLVING CREDIT LOAN" and, as the
context may require, collectively with all other Revolving
Credit Loans of such Revolving Credit Lender and/ or with
the Revolving Credit Loans of each other Revolving Credit
Lender, the "REVOLVING CREDIT LOANS") to the Borrower from
time to time during the Revolving Credit Commitment
Period, PROVIDED THAT immediately after giving effect
thereto (i) the outstanding principal balance of such
Revolving Credit Lender's Revolving Credit Loans shall not
exceed such Revolving Credit Lender's Revolving Credit
Commitment, (ii) the outstanding principal balance of all
Revolving Credit Lenders' Revolving Credit Loans shall not
exceed the Aggregate Revolving Credit Commitments, and
(iii) if the Leverage Ratio would be greater than or equal
to * before or after giving effect thereto, the Aggregate
Credit Exposure shall not exceed the Revolving Credit
Dollar Limitation. During the Revolving Credit Commitment
Period, the Borrower may borrow, prepay in whole or in
part and reborrow under the Aggregate Revolving Credit
Commitments, all in accordance with the terms and
conditions of this Agreement.
5. Section 2.7 of the Credit Agreement is amended by adding the following
new subsection (e) to the end thereof:
(e) Notwithstanding anything in this Agreement to the
contrary, during the fiscal year ended December 31, 1998,
the Borrower shall not have the right to increase the
amount of the Aggregate Revolving Credit Commitments.
6. Section 2.8 of the Credit Agreement is amended by adding a new
subsection (g) to read as follows and relettering current subsection (g) as
subsection (h):
(g) ADDITIONAL PREPAYMENTS OF THE REVOLVING CREDIT
LOANS.
(i) On any day during the fiscal year ended
December 31, 1998 on which any Restricted Subsidiary
receives Tower Net Sales Proceeds, the Borrower shall
make a prepayment of the Revolving Loans by an amount
equal to the amount of Tower Net Sales Proceeds so
received.
- 5 -
<PAGE>
*CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY
(ii) If on any day the Leverage Ratio is greater
than or equal to * and the Aggregate Credit Exposure
exceeds the Revolving Credit Dollar Limitation, the
Borrower shall prepay the Revolving Loans on such day
in an amount equal to the lesser of the following:
(x) such excess and (y) the portion of such excess
which will reduce the Leverage Ratio to below * after
giving effect to such prepayment.
7. Section 7.13 of the Credit Agreement is amended in its entirety to read
as follows:
7.13. PRO-FORMA DEBT SERVICE COVERAGE Ratio.
Maintain, or cause to be maintained, as of the last
day of each fiscal quarter ended during the periods set
forth below, a Pro-forma Debt Service Coverage Ratio of
not less than the ratios set forth below:
PERIODS RATIO
December 31, 1996 through
December 31, 1998 *
March 31, 1999 and
thereafter *.
8. Section 7.14 of the Credit Agreement is amended in its entirety to read
as follows:
7.14. INTEREST COVERAGE RATIO.
Maintain, or cause to be maintained, as of the last
day of each fiscal quarter ended during the periods or on
the date set forth below, an Interest Coverage Ratio of
not less than the ratios set forth below:
PERIODS RATIO
December 31, 1996 through
June 30, 1997 *
September 30, 1997 through
December 31, 1998 *
March 31, 1999 *
June 30, 1999 and
thereafter *.
- 6 -
<PAGE>
*CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY
9. Section 7.15 of the Credit Agreement is amended in its entirety to read
as follows:
7.15. LEVERAGE RATIO.
Maintain, or cause to be maintained, at all times
during the periods set forth below, a Leverage Ratio of
not greater than the ratios set forth below:
PERIODS RATIO
December 31, 1996 through
June 29, 1998 *
June 30, 1998 through
December 30, 1998 *
December 31, 1998 through
March 30, 1999 *
March 31, 1999 and
thereafter *.
Notwithstanding the foregoing, in the event that the
Borrower makes a Restricted Payment permitted by Section
8.5(e), the maximum permitted Leverage Ratio shall be
reduced for all periods after such payment to *.
10. Section 8 of the Credit Agreement is amended by adding a new Section
8.21 thereto to read as follows:
8.21 CAPITAL EXPENDITURES
Make any Capital Expenditure during the fiscal year
ended December 31, 1998, or permit any of its Subsidiaries
so to do, except that the Restricted Subsidiaries may make
Capital Expenditures in a fiscal quarter during such
fiscal year PROVIDED THAT (i) immediately after giving
effect to any Capital Expenditure made during such fiscal
quarter, the Quarterly Available CapEx/Investment Amount
shall not be less than $1.00, and (ii) immediately after
giving effect to any Capital Expenditure made during the
fiscal year ended December 31, 1998, the Aggregate
Available CapEx/Investment Amount shall not be less than
$1.00.
11. Section 8.5(f) of the Credit Agreement is amended in its entirety to
read as follows:
-7 -
<PAGE>
(f) provided that no Default or Event of Default
would exist immediately before or after giving effect
thereto, on or after June 30, 1999, the Borrower may
declare and pay dividends to the Parent (i) in an
aggregate amount not exceeding $1,000,000 to enable the
Parent to repurchase shares of its common Stock and (ii)
in an aggregate amount not exceeding $4,000,000 to enable
the Parent to repurchase shares of its preferred Stock.
12. Sections 8.6(e), (f), (g) and (o) of the Credit Agreement are amended
in their entirety to read as follows:
(e) Unconsolidated Investments by the Borrower after
the Restatement Effective Date, provided that (i) no
Default or Event of Default shall exist immediately before
or after giving effect thereto, (ii) the aggregate amount
of such Unconsolidated Investments shall not exceed
$25,000,000, (iii) in the case of Additional Benbow
Investments, the provisions of Section 8.6(o) and (p) are
satisfied, (iv) immediately after giving effect to the
making of any Unconsolidated Investment during any fiscal
quarter of the fiscal year ended December 31, 1998, (A)
the Quarterly Available CapEx/Investment Amount shall not
be less than $1.00 and (B) the Quarterly Available
Unconsolidated Investment Amount for such fiscal quarter
shall not be less than $1.00, and (v) immediately after
giving effect to the making of any Unconsolidated
Investment during such fiscal year, the Aggregate
Available CapEx/Investment Amount shall not be less than
$1.00;
(f) Capital Expenditures to the extent not prohibited
by Section 8.21;
(g) except as provided in subsection (n) below with
respect to Investments in Foreign Subsidiaries:
(i) provided that the Page Call Acquisition is
consummated, the Parent may contribute to the
Borrower, and the Borrower may contribute to Westlink
Company, shares of common stock of the Parent to the
extent necessary to enable Westlink Company to sell
to Benbow at fair market value (in exchange for a
promissory note) sufficient shares of such common
stock as are necessary to satisfy Benbow's
obligations under the Page Call Purchase Agreement,
PROVIDED THAT the consideration for such common stock
sold by Westlink Company to Benbow shall be evidenced
by a promissory note of Benbow pledged by Westlink
Company to the Administrative Agent (which promissory
note may be
- 8 -
<PAGE>
repaid by Benbow (x) in cash funded by additional
loans from Westlink Company (to the extent permitted
by this Agreement) and June Walsh, (y) by the
delivery of nonvoting, preferred Stock of Benbow or
(z) a combination thereof), it being understood that
such sale of Parent common stock to Benbow in
exchange for such note shall not constitute an
Additional Benbow Investment or an Unconsolidated
Investment; and
(ii) Investments made after the Restatement
Effective Date by the Borrower in its Subsidiaries
and Investments by the Parent in the Restricted
Subsidiaries, PROVIDED THAt (A) each such Investment
shall be made as a demand loan, (B) such loan is
evidenced by a promissory note pledged to the
Administrative Agent under the Borrower Security
Agreement or the Parent Security Agreement,as the
case may be, and (C) no Default or Event of Default
shall exist immediately before or after giving effect
thereto;
(o) subject to Section 8.6(e), Additional Benbow
Investments, PROVIDED THAT (i) each such Additional Benbow
Investment shall be made as a demand loan evidenced by a
promissory note in form and substance satisfactory to the
Administrative Agent, which note shall be pledged to the
Administrative Agent under the Subsidiary Guaranty, (ii)
immediately after giving effect to any such Additional
Benbow Investment made during the fiscal year ended
December 31, 1998, the Aggregate Available
CapEx/Investment Amount shall not be less than $1.00,
(iii) immediately after giving effect to any such
Additional Benbow Investment made during any fiscal
quarter of such fiscal year, the Quarterly Available
Unconsolidated Investment Amount shall not be less than
$1.00, and (iv) on and after the date upon which the
Additional Benbow Investments exceed $25,000,000 in the
aggregate, any further Additional Benbow Investment shall
be made either:
(A) with the proceeds of the issuance by the
Parent of additional equity securities to the extent
permitted by Section 8.13(c); or
(B) out of Excess Cash Flow for a fiscal year in
an amount not to exceed (after giving effect to any such
Additional Benbow Investment) the then Available Amount,
provided, however, that (1) no Default or Event of Default
would exist immediately before or after giving effect
thereto and (2) the Borrower has delivered financial
- 9 -
<PAGE>
*CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY
statements pursuant to Section 7.1(a) or (b) that
demonstrate that the Leverage Ratio has been less than *
for the immediately preceding two consecutive fiscal
quarters.
13. Section 8.8(iii) of the Credit Agreement is amended by deleting
subsection (e) thereof and by adding new subsections (e), (f), (g) and (h)
thereto to read as follows:
(e) on any day on which any Restricted
Subsidiary receives Tower Net Sales Proceeds, the
Borrower shall apply 100% of such Tower Net Sales
Proceeds to the prepayment of the Revolving Credit
Loans in accordance with the provisions of Section
2.8(g)(i);
(f) on the last day of the Reinvestment Period
applicable to any Tower Sale, the Borrower shall
apply to the prepayment of the Loans and the
permanent reduction of the Aggregate Revolving Credit
Commitments in accordance with the provisions of
Section 2.8(f)(iii) and (iv) as if such prepayment
were being made pursuant to Section 2.8(d), the
amount (if positive) equal to (1) 100% of the Tower
Net Sales Proceeds of such Tower Sale minus (2) the
amount thereof which was used by one or more of the
Restricted Subsidiaries during such Reinvestment
Period applicable thereto to invest (or enter into a
legally binding agreement to invest) in properties
and assets that will be used in the
telecommunications businesses of the Restricted
Subsidiaries, PROVIDED, HOWEVER, that (x) if any such
legally binding agreement to invest such Tower Net
Sales Proceeds is terminated, such Restricted
Subsidiary may, within 90 days of such termination or
during the Reinvestment Period, whichever is later,
invest such Tower Net Sales Proceeds as described in
clause (2) (without regard to the parenthetical
contained therein) and, to the extent not so
invested, apply such Tower Net Sales Proceeds to the
prepayment of the Loans and the permanent reduction
of the Aggregate Revolving Credit Commitments in
accordance with the provisions of Section 2.8(f)(iii)
and (iv) as if such prepayment were being made
pursuant to Section 2.8(d), and (y) pending any
investment of such Tower Net Sales Proceeds, the
Borrower shall prepay the Revolving Credit Loans by
an amount equal to such Tower Net Sales Proceeds;
- 10 -
<PAGE>
(g) upon the consummation of each Tower Sale,
the Borrower shall deliver to the Administrative
Agent and each Lender a certificate of a financial
officer certifying the amount of Tower Net Sales
Proceeds received by a Restricted Subsidiary in
connection therewith and containing calculations in
reasonable detail of the Aggregate Available
CapEx/Investment Amount and the Excess Tower Proceeds
Amount, in each case after giving effect to the
receipt of such Tower Sale Net Proceeds; and
(g) Required Lenders shall have consented to
each Tower Sale after the fiscal year ended December
31, 1998.
14. Section 9.1(d) of the Credit Agreement is amended in its entirety to
read as follows:
(d) The failure of the Borrower or the Parent to
observe or perform any covenant or agreement contained in
Section 7.3, 7.11, 7.12, 7.13, 7.14 or 7.15, Section 8 or
Section 11.1; or
15. Section 10.7 of the Credit Agreement is amended by deleting the word
"solely" in the first sentence thereof.
16. Section 12.7(b) of the Credit Agreement is amended by replacing the
amount "$10,000,000" contained in the twelfth line thereof with the amount
"$5,000,000".
17. The Lenders hereby waive compliance with Section 8.4 of the Agreement
solely to the extent that the execution by the Parent of the Page Call Purchase
Agreement was in violation thereof, provided, however, this waiver shall not be
construed as consenting to the performance by the Parent thereunder except as
specifically permitted in this Amendment and Waiver.
18. Exhibit D in the form annexed hereto is substituted for Exhibit D to
the Credit Agreement.
19. Paragraphs 1-18 of this Amendment and Waiver shall not be effective
until the prior or simultaneous fulfillment of the following conditions:
(a) The Administrative Agent shall have received this Amendment and
Waiver executed by a duly authorized officer or officers of the Borrower,
the Parent, the Subsidiary Guarantors, the Administrative Agent and the
Required Lenders.
(b) The Administrative Agent shall have received a certificate of
the Secretary or Assistant Secretary of the Borrower (i) attaching a true
and complete copy of the resolutions of its Managing Person authorizing
this Amendment and
- 11 -
<PAGE>
Waiver, in form and substance satisfactory to the Administrative Agent,
(ii) certifying that its certificate of incorporation and by-laws have not
been amended since January 28, 1998, or, if so, setting forth the same and
(iii) setting forth the incumbency of its officer or officers who may sign
this Amendment and Waiver, including therein a signature specimen of such
officer or officers.
(c) The Administrative Agent shall have received a certificate of
the Secretary or Assistant Secretary of the Parent (i) attaching a true
and complete copy of the resolutions of its Managing Person authorizing
this Amendment and Waiver and Amendment No. 3 to the USA Mobile Credit
Agreement and Amendment No. 5 to the USA Mobile Parent Guaranty, in form
and substance satisfactory to the Administrative Agent, (ii) certifying
that its certificate of incorporation and by-laws have not been amended
since January 28, 1998, or, if so, setting forth the same and (iii)
setting forth the incumbency of its officer or officers who may sign this
Amendment and Waiver, including therein a signature specimen of such
officer or officers.
(d) The Administrative Agent shall have received Amendment No. 3 to
the USA Mobile Credit Agreement and Amendment No. 5 to the USA Mobile
Par-ent Guaranty, duly executed by the parties thereto and in form and
substance satisfactory to the Administrative Agent and the conditions to
the effectiveness thereof shall have been satisfied.
(e) The Administrative Agent shall have received an opinion of Hale
and Dorr, counsel to the Parent and the Borrower, substantially in the
form of Attachment A.
(f) The Administrative Agent shall have received for the account of
each Lender executing this Amendment and Waiver and, if applicable,
Amendment No. 3 to the USA Mobile Credit Agreement and Amendment No. 5 to
the USA Mobile Parent Guaranty, an amendment fee equal to 0.30% of the sum
of (i) the amount of such Lender's Revolving Credit Commitment (as reduced
pursuant to this Amendment and Waiver) PLUS (ii) the outstanding principal
balance of such Lender's Term Loans.
(g) All fees and expenses payable on the effectiveness of this
Amendment and Waiver, including the reasonable fees and expenses of
Special Counsel incurred to date, shall have been paid.
(h) The Administrative Agent shall have received such other
documents as it shall reasonably request.
20. The Borrower and the Parent each hereby (i) reaffirms and admits the
validity and enforceability of the Credit Agreement and the other Loan Documents
and all of its obligations thereunder, (ii) represents and warrants that there
exists no Default or Event of Default, and (iii) represents and warrants that
the representations and warranties contained in the Loan Documents, including
the Credit Agreement as amended by this Amendment and Waiver (other than the
representations and warranties made as of a specific date) are true and correct
in all material respects on and as of the date hereof, except
- 12 -
<PAGE>
to the extent that such representations and warranties are no longer true or
correct as a result of events, acts, transactions or occurrences after the
Restatement Effective Date which are permitted under the Credit Agreement.
21. This Amendment and Waiver may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement. It shall not be necessary in making proof of this
Amendment and Waiver to produce or account for more than one counterpart signed
by the party to be charged.
22. This Amendment and Waiver is being delivered in and is intended to be
performed in the State of New York and shall be construed and enforceable in
accordance with, and be governed by, the internal laws of the State of New York
without regard to principles of conflict of laws.
23. Except as amended hereby, the Credit Agreement shall in all other
respects remain in full force and effect.
- 13 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 and
Waiver No. 1 to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ARCH COMMUNICATIONS ENTERPRISES, INC.
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title: VICE PRESIDENT AND TREASURER
ARCH COMMUNICATIONS GROUP, INC.
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title: VICE PRESIDENT AND TREASURER
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THE BANK OF NEW YORK, individually and as
Administrative Agent
By: /S/ GEOFFREY C. BROOKS
Name: GEOFFREY C. BROOKS
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
BANKBOSTON, N.A.
By: /S/ SHEPARD D. RAINIE
Name: SHEPARD D. RAINIE
Title: DIRECTOR
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
FIRST UNION NATIONAL BANK, individually and
as Co-Agent
By: /S/ JIM REDMAN
Name: JIM REDMAN
Title: SVP
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
FLEET NATIONAL BANK, individually and as
Co-Agent
By: /S/ CHRIS SWINDELL
Name: CHRIS SWINDELL
Title: VP
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
MELLON BANK, N.A., individually and as
Co-Agent
By: /S/ GARY SAUL
Name: GARY SAUL
Title:VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
PNC BANK, NATIONAL ASSOCIATION,
individually and as Co-Agent
By: /S/ JEFFREY E. HAUSER
Name: JEFFREY E. HAUSER
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
ROYAL BANK OF CANADA, individually and as
Co- Agent
By: /S/ THOMAS BYRNE
Name: THOMAS BYRNE
Title:
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
TORONTO DOMINION (NEW YORK), INC.,
individually and as Co-Agent
By: /S/ DEBBIE GREENE
Name: DEBBIE GREENE
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
BANQUE NATIONALE DE PARIS
By: /S/ SERGE DESRAYAJO
Name: SERGE DESRAYAJO
Title: VICE PRESIDENT/TEAM LEADER
By: /S/ MARCUS C. JONES
Name: MARCUS C. JONES
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
CIBC, INC.
By: /S/ HAROLD BIRK
Name: HAROLD BIRK
Title:EXECUTIVE DIRECTOR
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
COMPAGNIE FINANCIERE DE CIC
ET DE L'UNION EUROPEENNE
By: /S/ MARCUS EDWARD
Name: MARCUS EDWARD
Title:VICE PRESIDENT
By: /S/ BRIAN O'LEARY
Name: BRIAN O'LEARY
Title:VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
CORESTATES BANK, N.A.
By: /S/ LYNDA S. YOUNG
Name: LYNDA S. YOUNG
Title:VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN
BRANCHES
By: /S/ BRIAN HAUGHNEY /S/ ROBERT GRELLA
Name: BRIAN HAUGHNEY ROBERT GRELLA
Title:ASSISTANT TREASURER VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
GENERAL ELECTRIC CAPITAL CORPORATION
By: /S/ EDWARD SMITH CHRISTIE
Name: EDWARD SMITH CHRISTIE
Title:MANAGER - OPERATIONS
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
HOWARD BANK, N.A.
By: /S/ CASSANDRA POLHEMUS
Name: CASSANDRA POLHEMUS
Title:VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
LTCB TRUST COMPANY
By: /S/ SHUICHI TAJIMA
Name: SHUICHI TAJIMA
Title:SENIOR VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
PAMCO CAYMAN LTD.
By: Protective Asset Management Company,
as Collateral Manager
By: /S/ JAMES DONDERO
Name: JAMES DONDERO
Title:PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
SOCIETE GENERALE
By: /S/ MARK VIGIL
Name: MARK VIGIL
Title:VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /S/ MICHAEL R. BUTLER
Name: MICHAEL R. BUTLER
Title:SENIOR VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
U.S. BANK OF WASHINGTON, N.A.
By: /S/ THOMAS G. GUNDER
Name: THOMAS G. GUNDER
Title:V.P.
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
USTRUST
By: /S/ ANTHONY WILSON
Name: ANTHONY WILSON
Title:SVP
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
BEAR STEARNS INVESTMENT PRODUCTS INC.
By: /S/ HARRY ROSENBERG
Name: HARRY ROSENBERG
Title: AUTHORIZED SIGNATORY
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as
Investment Advisor
By: /S/ PAYSON F. SWAFFIELD
Name: PAYSON F. SWAFFIELD
Title:VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
INDOSUEZ CAPITAL FUNDING II, LIMITED
By: Indosuez Capital Luxembourg, S.A., as
Collateral Manager
By: /S/ FRANCOISE BERTHILOT
Name: FRANCOISE BERTHILOT
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: /S/ LYNN C. BARANSKI
Name: LYNN C. BARANSKI
Title: AUTHORIZED SIGNATORY
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By: /S/ LYNN C. BARANSKI
Name: LYNN C. BARANSKI
Title:AUTHORIZED SIGNATORY
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By: /S/ JEFFREY W. MAILLET
Name: JEFFREY W. MAILLET
Title:SENIOR VICE PRESIDENT & DIRECTOR
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
NATIONSBANK, N.A.
By: /S/ CYNDY BLACKBURN
Name: CYNDY BLACKBURN
Title: VP
<PAGE>
AMENDMENT NO. 5 AND WAIVER NO. 1 TO ACE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
CONSENTED TO:
ARCH MICHIGAN, INC.
ARCH CAPITOL DISTRICT, INC.
ARCH CONNECTICUT VALLEY, INC.
ARCH SOUTHEAST COMMUNICATIONS, INC.
ARCH COMMUNICATIONS SERVICES, INC.
BECKER BEEPER, INC.
THE BEEPER COMPANY OF AMERICA, INC.
THE WESTLINK COMPANY
LUND PRODUCTS SALES COMPANY
THE WESTLINK PAGING COMPANY OF NEW MEXICO, INC.
KELLEY'S RADIO TELEPHONE, INC.
ANSWER IOWA, INC.
WESTLINK LICENSEE CORPORATION
WESTLINK OF NEW MEXICO LICENSEE CORPORATION
ANSWER IOWA LICENSEE CORPORATION
KELLEY'S LICENSEE CORPORATION,
AS TO EACH OF THE FOREGOING:
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title:VP & TREASURER
CASCADE MOBILE COMMUNICATIONS LIMITED PARTNERSHIP
By: The Westlink Company, its General Partner
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title:VP & TREASURER
<PAGE>
AMENDMENT NO. 5 TO ARCH
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
TELECOMM/KRT PARTNERSHIP
By: The Westlink Company, a General Partner
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title:VP & TREASURER
By: Kelley's Radio Telephone, Inc., a General Partner
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title:VP & TREASURER
<PAGE>
ARCH EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
I, __________________, do hereby certify that I am the Chief Financial
Officer of Arch Communications Enterprises, Inc., a Delaware corporation (the
"Borrower"), and that, as such, I am duly authorized to execute and deliver this
Compliance Certificate pursuant to Section 7.1(c) of the First Amended and
Restated Credit Agreement, dated as of May 21, 1996, by and among the Borrower,
Arch Communications Group, Inc., the Lenders party thereto, the Co-Agents party
thereto, and The Bank of New York, as Administrative Agent, as amended by
Amendment No. 1, dated as of June 25, 1996, Amendment No. 2, dated as of March
25, 1997, Amendment No. 3, dated as of June 17, 1997, Amendment No. 4, dated as
of January 7, 1998, and Amendment No. 5 and Waiver No. 1, dated as of March 9,
1998 (as so amended and as the same may hereafter be amended from time to time,
the "Agreement"). Capitalized terms used herein which are defined in the
Agreement shall have the same meanings as therein defined.
I hereby certify as follows:
1. I have conducted a review of the activities of the Restricted
Subsidiaries for the following fiscal period (the "Applicable Computation
Period"): (i) with respect to the calculation of the Pro-forma Debt Service
Coverage Ratio and the Leverage Ratio, the fiscal quarter ending __________ __,
[199_] [200_], and (ii) with respect to the calculation of the Fixed Charge
Coverage Ratio and the Interest Coverage Ratio, the four consecutive fiscal
quarters ending on such date.
2. Each Loan Party is in compliance with all terms, covenants and
conditions of the Loan Documents to which it is a party, there exists no Default
or Event of Default and there has occurred no Material Adverse Change since
December 31, 1995, except for the Westlink Acquisition, the Westlink Merger and
the issuance of the Discount Notes.
3. The Fixed Charge Coverage Ratio is ______:1.00, computed as shown on
Schedule 1, which is not less than the minimum permissible ratio pursuant to
Section 7.12.
4. The Pro-forma Debt Service Coverage Ratio is ______:1.00, computed as
shown on Schedule 2, which is not less than the minimum permissible ratio
pursuant to Section 7.13.
5. The Interest Coverage Ratio is ______:1.00, computed as shown on
Schedule 3, which is not less than the minimum permissible ratio pursuant to
Section 7.14.
6. The Leverage Ratio is ______:1.00, computed as shown on Schedule 4,
which is not greater than the maximum permissible ratio
pursuant to Section 7.15.
7. The Applicable Margin for Revolving Credit Loans and Tranche A Term
Loans is _.__%, computed as shown on Schedule 5.
8. As of the last day of the fiscal quarter ending __________ __, 1998, (i)
the Aggregate Available CapEx/Investment Amount is $_______, (ii) the Quarterly
Available
<PAGE>
CapEx/Investment Amount, is $_______, and (iii) the Quarterly Available
Unconsolidated Investment Amount is $_______, in each case computed as shown on
Schedule 6.
IN WITNESS WHEREOF, I have executed this Compliance Certificate on this
____ day of ___________, [199_] [200_].
-------------------------
Chief Financial Officer
- 2 -
<PAGE>
Schedule 1 to
Compliance Certificate
dated __/__/__
COMPUTATION OF THE FIXED CHARGE COVERAGE RATIO
OPERATING CASH FLOW
1. Net income (or loss) of the Restricted
Subsidiaries on a Consolidated
basis for the Applicable Computation
Period, determined in accordance with
GAAP without giving effect to
extraordinary gains and losses
from acquisitions, sales, exchanges
and other dispositions of Property
not in the ordinary course of
business, and non-recurring items $__________
2. Cash Interest Expense: sum of (i)
interest expense on Total Debt (adjusted
to give effect to all Interest Rate
Protection Agreements and fees and
expenses paid in connection with the
same, all as determined in accordance with
GAAP), to the extent paid or accrued in cash
during the Applicable Computation Period,
and (ii) without duplication, Restricted
Payments made to the Parent to satisfy the
interest payment obligations of the Parent
under the Discount Note Indenture $__________
3. Taxes and payments under the Tax Sharing
Agreement, in each case paid or required
to be paid or accrued by the Restricted
Subsidiaries in cash during the Applicable
Computation Period $__________
4. Depreciation and amortization
charges for the Applicable
Computation Period $__________
5. Other non-cash charges for the Applicable
Computation Period (Specify) $__________
<PAGE>
6. Operating Cash Flow for the Applicable
Computation Period (sum of Items 1
through 5, without duplication) $__________
FIXED CHARGES
7. Scheduled payments of principal on Total
Debt of the Restricted Subsidiaries on a
Consolidated basis during the Applicable
Computation Period $__________
8. The amount, if positive, equal to
(a) the amount of the Revolving Credit
Loans outstanding at the beginning of
the Applicable Computation Period MINUS
(b) the Aggregate Revolving Credit
Commitments at the end of the Applicable
Computation Period (without giving effect
to reductions during such period required
by Section 2.6(c) of the Agreement) $__________
9. Capital Expenditures made during
the Applicable Computation Period $__________
10. Unconsolidated Investments made during
the Applicable Computation Period $__________
11. Payments made or required to be made under
Capital Leases during the Applicable
Computation Period $__________
12. Taxes and payments under the Tax Sharing
Agreements, in each case paid or required
to be paid by the Borrower and its
Subsidiaries in cash during the Applicable
Computation Period $__________
13. Cash Interest Expense
(from Item 2 above) $__________
14. Fixed Charges for the Applicable
Computation Period (sum of Items 7
through 13, without duplication) $__________
15. Fixed Charge Coverage Ratio
(Item 6:Item 14) _.__:1.00
- 2 -
<PAGE>
16. Minimum permissible ratio pursuant
to Section 7.12 of the Agreement _.__:1.00
- 3 -
<PAGE>
Schedule 2 to
Compliance Certificate
dated __/__/__
COMPUTATION OF THE PRO-FORMA DEBT SERVICE COVERAGE RATIO
OPERATING CASH FLOW
1. Net income (or loss) of the Restricted
Subsidiaries on a Consolidated
basis for the Applicable Computation
Period, determined in accordance with
GAAP without giving effect to
extraordinary gains and losses
from acquisitions, sales, exchanges
and other dispositions of Property
not in the ordinary course of
business, and non-recurring items $__________
2. Cash Interest Expense: sum of (i)
interest expense on Total Debt (adjusted
to give effect to all Interest Rate
Protection Agreements and fees and
expenses paid in connection with the
same, all as determined in accordance with
GAAP), to the extent paid or accrued in cash
during the Applicable Computation Period, and
(ii) without duplication, Restricted
Payments made to the Parent to satisfy the
interest payment obligations of the Parent
under the Discount Note Indenture $__________
3. Taxes and payments under the Tax Sharing
Agreement, in each case paid or required to be
paid by the Restricted Subsidiaries during the
Applicable Computation Period $__________
4. Depreciation and amortization
charges for the Applicable
Computation Period $__________
5. Other non-cash charges for the Applicable
Computation Period (Specify) $__________
<PAGE>
6. Operating Cash Flow for the Applicable
Computation Period (sum of Items 1
through 5, without duplication) $__________
7. Annualized Operating Cash Flow
for the Applicable Computation
Period (Item 6 multiplied by four) $__________
PRO-FORMA DEBT SERVICE
8. Cash Interest Expense: sum of (i)
interest expense on Total Debt (adjusted
to give effect to all Interest Rate
Protection Agreements and fees and
expenses paid in connection with the
same, all as determined in accordance with
GAAP), for the period of the four fiscal
quarters of the Borrower immediately succeeding
the last day of the Applicable Computation
Period and (ii) without duplication, Restricted
Payments to be made to the Parent for the period
of the four fiscal quarters of the Borrower
immediately succeeding the last day of the
Applicable Computation Period to satisfy the
interest payment obligations of the Parent
under the Discount Note Indenture. $__________
9. All current maturities of
Total Debt of the Restricted
Subsidiaries (determined on a
Consolidated basis in accordance
with GAAP) for the period
of the four fiscal quarters of the
Borrower immediately succeeding the
last day of the Applicable Computation
Period $__________
10. for periods beginning after June 30, 1999,
the amount, if positive, equal to (a) the amount
of the Revolving Credit Loans outstanding at the
beginning of
- 2 -
<PAGE>
the four fiscal quarters of the Borrower
immediately succeeding the last day of the
Applicable Computation Period MINUS (b) the
Aggregate Revolving Credit Commitments at the
end of the four fiscal quarters of the Borrower
immediately succeeding the last day of the
Applicable Computation Period (after giving effect
to the mandatory reductions required by Section
2.6(b) of the Agreement during such
four fiscal quarter period) $__________
11. Pro-forma Debt Service as of the last day of
the Applicable Computation
Period (sum of Items 8 through 10) $__________
12. Pro-forma Debt Service Coverage
Ratio (Item 7:Item 11) _.__:1.00
13. Minimum permissible ratio pursuant
to Section 7.13 of the Agreement _.__:1.00
- 3 -
<PAGE>
Schedule 3 to
Compliance Certificate
dated __/__/__
COMPUTATION OF THE INTEREST COVERAGE RATIO
OPERATING CASH FLOW
1. Operating Cash Flow for the
Applicable Computation Period
(from Item 6, Schedule 1) $__________
2. Cash Interest Expense for the
Applicable Computation Period
(from Item 2, Schedule 1) $__________
3. Interest Coverage Ratio
(Item 1:Item 2) _.__:1.00
4. Minimum permissible ratio pursuant
to Section 7.14 of the Agreement _.__:1.00
<PAGE>
Schedule 4 to
Compliance Certificate
dated ___/___/___
COMPUTATION OF THE LEVERAGE RATIO
1. The aggregate outstanding principal
balance of the Loans $__________
2. The total Indebtedness for borrowed
money (other than trade payables
incurred in the ordinary course of business)
of the Restricted Subsidiaries (determined on
a Consolidated basis in accordance
with GAAP) $__________
3. Total Debt (sum of Items 1
and 2, without duplication) $__________
4. Annualized Operating Cash
Flow (from Item 7, Schedule 2) $__________
5. Leverage Ratio (Item 3:Item 4) _.__:1.00
6. Maximum permitted ratio pursuant
to Section 7.15 of
the Agreement _.__:1.00
<PAGE>
Schedule 5 to
Compliance Certificate
dated ___/___/___
COMPUTATION OF THE APPLICABLE MARGIN
FOR REVOLVING CREDIT LOANS AND TRANCHE A TERM LOANS
1. Leverage Ratio
(from Item 5, Schedule 4) _.__:1.00
2. Applicable Margin for ABR
Advances _.__%
3. Applicable Margin for Eurodollar
Advances _.__%.
<PAGE>
Schedule 6 to
Compliance Certificate
dated __/__/__
CALCULATION OF AGGREGATE AVAILABLE CAPEX/INVESTMENT AMOUNT,
QUARTERLY AVAILABLE CAPEX/INVESTMENT AMOUNT,
AND QUARTERLY AVAILABLE UNCONSOLIDATED INVESTMENT AMOUNT
Aggregate Available CapEx/Investment Amount
1. Aggregate amount of Tower Net Sales
Proceeds received by the Restricted Subsidiaries
in the fiscal year ended December 31, 1998 $__________
2. $13,000,000
3. Excess Tower Proceeds Amount
(Item 1 minus Item 2) $__________
4. Amount expended for Capital Expenditures
during the current fiscal year through the last
day of the most recently completed fiscal quarter $__________
5. Amount expended for Unconsolidated Investments
during the current fiscal year through the last day
of the most recently completed fiscal quarter $__________
6. Sum of Item 4 plus Item 5 $__________
7. Available Excess Tower Proceeds Amount
(Item 3 minus Item 6) $__________
8. Sum of $50,000,000 plus Item 3 $__________
9. Aggregate Available CapEx/Investment Amount
(Item 7 minus Item 6) $__________
Quarterly Available CapEx/Investment Amount
10. Amount applicable for the quarter
($20,000,000 for first quarter and
$10,000,000 for each other quarter) $__________
11. Available Excess Tower Proceeds Amount
(from Item 7 above) $__________
12. Sum of Item 10 plus Item 11 $__________
<PAGE>
13. Amount expended for Capital Expenditures
during the most recently completed fiscal
quarter $__________
14. Amount expended for Unconsolidated Investments
during the most recently completed fiscal
quarter $__________
15. Sum of Item 13 plus Item 14 $__________
16. Quarterly Available CapEx/Investment Amount
(Item 12 minus Item 15) $__________
Quarterly Available Unconsolidated Investment Amount
17. Amount applicable for the quarter
($6,000,000 for first and second
quarters and zero for each other quarter) $__________
18. Permitted Available Excess Tower Proceeds Amount
(enter zero for first and second quarters and the
amount thereof but not more than $2,000,000 for
the third and fourth quarters) $__________
19. Sum of Item 17 plus Item 18 $__________
20. Quarterly Available Unconsolidated Investment
Amount (Item 19 minus Item 15) $__________
<PAGE>
Attachment A
FORM OF OPINION OF COUNSEL TO THE PARENT AND THE BORROWER
March __, 1998
The Bank of New York, as Administrative Agent, and the Lenders under the Amended
Agreement referred to below
We have acted as special counsel to (i) Arch Communications Group, Inc., a
Delaware corporation (the "Parent"), and (ii) Arch Communications Enterprises,
Inc., a Delaware corporation (the "Borrower" and, together with the Parent, the
"Corporations"), in connection with Amendment No. 5 and Waiver No. 1 (the
"Amendment and Waiver"), dated as of March __, 1998, to the First Amended and
Restated Credit Agreement, dated as of May 21, 1996, by and among the Borrower,
the Parent, the Lenders party thereto, the Co-Agents party thereto and The Bank
of New York, as Administrative Agent, as amended by Amendment No. 1, dated as of
June 25, 1996, Amendment No. 2, dated as of March 25, 1997, Amendment No. 3,
dated as of June 17, 1997, and Amendment No. 4, dated as of January 7, 1998 (as
so amended, the "Agreement"). The Agreement, as amended by the Amendment and
Waiver, is referred to herein as the "Amended Agreement". Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to them
in the Amended Agreement.
For purposes of the opinions expressed below, we have examined:
(a) the Agreement;
(b) the Amendment and Waiver;
(c) the charter documents of each of the Corporations as
identified on Schedule I;
(d) the By-laws of each of the Corporations, as in effect on the
date hereof, provided to us by the Parent;
(e) the corporate minute books of each of the Corporations, as
provided to us by the Parent;
(f) certificates of legal existence and corporate good standing for the
Corporations as identified on Schedule II;
<PAGE>
(g) certified copies of resolutions of the board of directors of each of
the Corporations, approving the transactions contemplated by the
Amendment and Waiver and authorizing, among other things, the
execution, delivery and performance by each of the Corporations of
the Amendment and Waiver;
(h) incumbency and signature certificates as to the officers of
each of the Corporations;
(i) a certificate of Garry Watzke, Secretary of the Corporations, in the
form attached hereto as Exhibit A; and
(j) such other documents, instruments and certificates (including, but
not limited to, certificates of public officials and officers of the
Corporations) as we have considered necessary for purposes of this
opinion.
In addition, we assume, for purposes of this opinion, that the corporate
minute books (referred to in clause (e) above) contain an accurate record of all
meetings of the stockholders and directors of the Corporations. In examining the
documents described above, we have assumed the genuineness of all signatures
other than those of the Corporations, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies. As to various facts
material to the opinions set forth herein, we have relied upon factual
representations made by the Corporations in the Agreement and the Amendment and
Waiver, in the certificate referred to in clause (i) above and upon certificates
of public officials, which facts we have not independently verified.
Any reference to "our knowledge", "the best of our knowledge" or
"knowledge" or any variation thereof shall mean the conscious awareness of the
attorneys in this firm who have rendered substantive attention to this
transaction of the existence or absence of any facts which would contradict our
opinions set forth below. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Corporations.
For purposes of the opinions expressed herein, we have assumed that the
Administrative Agent and the Lenders have the power and authority to execute,
deliver and perform all agreements and documents executed by them; that the
Administrative Agent and the Lenders have duly and validly executed and
delivered such agreements and documents; and that such agreements and documents
are legally valid and binding on and enforceable against the Administrative
Agent and the Lenders.
We express no opinion herein with respect to the laws of any state or
jurisdiction other than the Commonwealth of Massachusetts, the General
Corporation Law statute of the State of Delaware and the federal laws of the
United States of America. With your permission, we have assumed, without
investigation, for purposes of the opinions expressed below that the laws of the
Commonwealth of Massachusetts are identical to the laws of the State of New
York.
The opinions expressed in paragraph 1 below, insofar as they relate to the
valid existence and corporate good standing of the Corporations in their
respective states of
- 2 -
<PAGE>
incorporation are based solely upon the certificates referred to in clause (f)
above and are rendered as of the dates of such certificates.
Our opinions below are qualified to the extent that the validity or
enforceability of the documents referred to or of any of the rights granted to
any party pursuant thereto may be subject to or affected by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting the rights of creditors generally, (ii) statutory or
decisional law concerning recourse by creditors to security in the absence of
notice or hearing, and (iii) duties and standards imposed on creditors and
parties to contracts, including, without limitation, requirements of good faith,
reasonableness and fair dealing. Furthermore, we express no opinion as to the
availability of any equitable or specific remedy upon any breach of such
documents or any of the agreements, documents or obligations referred to
therein, as the availability of such remedies may be subject to the discretion
of a court. We have assumed for the purposes of our opinion that each of the
Lenders and the Administrative Agent is subject to control, regulation or
examination by a state or federal regulatory agency.
Based upon and subject to the foregoing and to the general qualifications
stated following paragraph 3 below, we hereby advise you that, in our opinion:
1. Each of the Corporations is duly organized, validly existing and in good
standing under the laws of the State of Delaware and is in good standing and
authorized to do business in each jurisdiction in which the failure to be so
authorized could reasonably be expected to have a Material Adverse Effect.
2. No consent, authorization or approval of, filing with, notice to, or
exemption by, stockholders, any Governmental Body or any other Person (except
for those which have been obtained, made or given) (i) is required to authorize,
or is required in connection with, the execution, delivery and performance of
the Amendment and Waiver or the Amended Agreement or (ii) is required as a
condition to the validity or enforceability of the Amendment and Waiver or the
Amended Agreement.
3. The Amendment and Waiver and the Amended Agreement constitute the valid
and legally binding obligations of each of the Corporations, in each case to the
extent that it is a party thereto enforceable in accordance with its respective
terms.
The opinions set forth above are subject to the following qualifications:
(i) The enforcement against any of the Corporations of any rights
and remedies is or may be subject to the effect of certain general
principles of contract law that include (a) the unenforceability of
provisions in an agreement to the effect that provisions therein may only
be amended or waived in writing to the extent that an oral agreement
modifying such provisions has been entered into and (b) the general rule
that, where less than all of an agreement is enforceable, the balance is
enforceable only when the unenforceable portion is not an essential part
of the agreed exchange.
(ii) We express no opinion as to the enforceability of prospective
waivers of rights to notice or a hearing, or other rights granted by
constitution or statute, powers of attorney, provisions purporting to
relieve parties of the consequences of
- 3 -
<PAGE>
their own negligence or misconduct, provisions granting indemnity or
provisions purporting to establish evidentiary standards.
(iii) All opinions expressed above are subject to all of the
qualifications and assumptions contained in our opinion letter and our
supplemental opinion letter, each dated May 21, 1996 (the "PRIOR
OPINIONS").
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions, and we disclaim any obligation to advise you of any
change in any of these sources of law or subsequent legal or factual
developments which might affect any matters or opinions set forth herein.
We hereby confirm that each Lender under the Amended Agreement may rely on
the Prior Opinions as though such Prior Opinions were addressed to each of them.
1
This opinion is furnished to you solely for your benefit in connection with
the Amendment and Waiver and may not be relied upon by any other Person (other
than Special Counsel) or for any other purpose without our express, prior
written consent.
Very truly yours,
HALE AND DORR
- 4 -
<PAGE>
EXHIBIT A
OFFICER'S CERTIFICATE
<PAGE>
SCHEDULE I
CHARTER DOCUMENTS
I. ARCH COMMUNICATIONS GROUP, INC. - Certificate of Incorporation,
State of Delaware
II. ARCH COMMUNICATIONS - Certificate of Incorporation,
ENTERPRISES, INC. State of Delaware
<PAGE>
SCHEDULE II
LEGAL EXISTENCE AND GOOD STANDING CERTIFICATES
I. ARCH COMMUNICATIONS GROUP, INC.
1. Certificate of Good Standing signed by the Secretary of State of the
State of Delaware dated _____ __, ____.
2. Certificate of Good Standing signed by the Secretary of State of the
Commonwealth of Massachusetts dated _____ __, ____.
II. ARCH COMMUNICATIONS ENTERPRISES, INC.
1. Certificate of Good Standing from the Secretary of State of the State
of Delaware dated _____ __, ____, signed by the Secretary of State.
2. Certificate of Good Standing from the Secretary of State of the
Commonwealth of Massachusetts dated _____ __, ____, signed by the
Secretary of State.
3. Certificate of Good Standing from the Secretary of State of the State
of Texas dated _____ __, _____, signed by the Secretary of State.
<PAGE>
EXHIBIT 10.5
* CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY
AMENDMENT NO. 3 TO THE FIRST
AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
AMENDMENT NO. 3 (the "CREDIT AGREEMENT AMENDMENT"), dated as of March 9,
1998, to the First Amended and Restated Credit Agreement, dated as of March 19,
1997, by and among USA Mobile Communications, Inc. II (the "PARENT"), Premiere
Page of Kansas, Inc. ("PREMIERE PAGE"), Q Media Paging-Alabama, Inc. ("Q MEDIA
ALABAMA"), USA Mobile Communications, Inc. III ("USA III"), Q Media
Company-Paging, Inc. ("Q MEDIA KANSAS"), W.Q. Communications, Inc. ("W.Q.
COMMUNICATIONS", and together with Premiere Page, Q Media Alabama, USA III and Q
Media Kansas, the "BORROWERS", each a "BORROWER"), the Lenders party thereto,
and The Bank of New York, as Administrative Agent (the "ADMINISTRATIVE AGENT"),
as amended by Amendment No. 1, dated as of June 17, 1997, and Amendment No. 2,
dated as of January 7, 1998 (as amended, the "CREDIT AGREEMENT"); and
AMENDMENT NO. 5 (the "ARCH GUARANTY AMENDMENT" and, together with the
Credit Agreement Amendment, this "AMENDMENT"), dated as of March 9, 1998, to the
Arch Guaranty, Security and Subordination Agreement, dated as of September 8,
1995, made by Arch Communications Group, Inc. ("ARCH"), the Borrowers and the
Parent to the Administrative Agent, as amended by Amendment No. 1, dated as of
February 15, 1996, Amendment No. 2, dated as of June 25, 1996, Amendment No. 3,
dated as of March 19, 1997, and Amendment No. 4, dated as of January 7, 1998 (as
so amended and as from time to time amended supplemented or otherwise modified
from time to time the "GUARANTY").
RECITALS
A. Capitalized terms used herein which are not herein defined shall have
the respective meanings ascribed thereto in the Credit Agreement.
B. The Parent and the Borrowers have requested that the Administrative
Agent and the Lenders amend the Credit Agreement and the Guaranty to the extent
and in the manner set forth below and the Administrative Agent and Lenders
executing this Amendment are willing to do so subject to the terms and
conditions of this Amendment.
Accordingly, in consideration of the covenants, conditions and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. The following definition contained in Section 1.1 of the Credit
Agreement is amended and restated to read as follows:
"ARCH CREDIT AGREEMENT": the First Amended and
Restated Credit Agreement, dated as of May 21, 1996, by
and among Arch Enterprises, Arch, the Arch Lenders, the
Co-Agents party thereto, and the Arch Agent, as amended
<PAGE>
* CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY
by Amendment No. 1, dated as of June 25, 1996, Amend- ment
No. 2, dated as of March 25, 1997, Amendment No. 3, dated
as of June 17, 1997, Amendment No. 4, dated as of January
7, 1998, and Amendment No. 5 and Waiver No. 1, dated as of
March 9, 1998, and as the same may be further amended,
modified or otherwise supplemented from time to time.
2. Section 7.15 of the Credit Agreement is amended in its entirety to read
as follows:
7.15. LEVERAGE RATIO.
Maintain, or cause to be maintained, at all times
during the periods set forth below, a Leverage Ratio of
not greater than the ratios set forth below:
PERIODS RATIO
Restatement Effective
Date through
December 30, 1997 *
December 31, 1997 through
December 30, 1998 *
December 31, 1998 through
March 30, 1999 *
March 31, 1999 through
December 30, 1999 *
December 31, 1999 and
thereafter *.
Notwithstanding the foregoing, in the event that any
Borrower makes a Restricted Payment permitted by Section
8.5(a)(iv), the maximum permitted Leverage Ratio shall be
reduced for all periods after such payment to *.
3. Section 7.16(c) of the Credit Agreement is amended in its entirety to
read as follows:
(c) For purposes hereof "Triggering Event" shall mean
the determination of Minority Lenders to direct the
Administrative Agent to declare any or all of the
Collateral Documents effective and to require that the
Restricted Sub- sidiaries from time to time grant to the
Administrative Agent under the applicable Collateral
Document a first priority security interest in one or more
items of Collateral. Such determination may be made by
Minority Lenders in
- 2 -
<PAGE>
their sole and absolute discretion whether or not a
Default or Event of Default has occurred and is then
continuing.
4. All references in any Loan Document to "Triggering Event" shall be
deemed to refer to such term as amended hereby.
5. Section 12 of the Arch Guaranty is amended by deleting the phrase "the
Arch Credit Agreement (without giving effect to any amendment (other than
Amendment No. 1, Amendment No. 2, Amendment No. 3 and Amendment No. 4), waiver
or termination thereof)" wherever it appears in such section and by substituting
the phrase "the Arch Credit Agreement (without giving effect to any amendment
(other than Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4
and Amendment No. 5 and Waiver No. 1), waiver or termination thereof)" in its
place.
6. Paragraphs 1-5 of this Amendment shall not be effective until the prior
or simultaneous fulfillment of the following conditions (the "AMENDMENT
EFFECTIVE DATE"):
(a) The Administrative Agent shall have received this Amendment
executed by a duly authorized officer or officers of the Borrowers, the
Parent, the Subsidiary Guarantors, the Administrative Agent and the
Required Lenders.
(b) The Administrative Agent shall have received a certificate of the
Secretary or Assistant Secretary of the Parent and each Borrower (i)
attaching a true and complete copy of the resolutions of its Managing
Person authorizing this Amendment (in form and substance satisfactory to
the Administrative Agent), (ii) certifying that its certificate of
incorporation and by-laws have not been amended since March 19, 1997, or,
if so, setting forth the same and (iii) setting forth the incumbency of its
officer or officers who may sign this Amendment, including therein a
signature specimen of such officer or officers.
(c) The Administrative Agent shall have received a certificate of the
Secretary or Assistant Secretary of Arch (i) attaching a true and complete
copy of the resolutions of its Managing Person authorizing this Amendment
and Amendment No. 5 to the Arch First Amended and Restated Credit Agreement
(in form and substance satisfactory to the Administrative Agent), (ii)
certifying that its certificate of incorporation and by-laws have not been
amended since March 19, 1997, or, if so, setting forth the same and (iii)
setting forth the incumbency of its officer or officers who may sign this
Amendment, including therein a signature specimen of such officer or
officers.
(d) The Administrative Agent shall have received Amendment No. 4 to
the Arch First Amended and Restated Credit Agreement, duly executed by the
parties necessary thereto and in form and substance satisfactory to the
Administrative Agent and the conditions to the effectiveness thereof shall
have been satisfied.
(e) The Administrative Agent shall have received for the account of
each Lender executing this Amendment and Amendment No. 5 and Waiver No. 1
to the Arch Credit Agreement, an amendment fee equal to 0.10% of the amount
of such Lender's Commitment.
- 3 -
<PAGE>
(f) The Administrative Agent shall have received an opinion of Hale
and Dorr, counsel to the Parent, the Borrower, substantially in the form of
Attachment A.
(g) The Administrative Agent shall have received an opinion of Garry
B. Watzke, Esq., General Counsel to Arch, and the Restricted Subsidiaries,
substantially in the form of Attachment B.
(h) The reasonable fees and expenses of Special Counsel incurred to
the Amendment Effective Date shall have been paid.
(i) The Administrative Agent shall have received such other documents
as it shall reasonably request.
7. As of the date hereof and as of the Amendment Effective Date, each Loan
Party hereby (a) reaffirms and admits the validity and enforceability of each of
the Loan Documents (as amended by this Amendment) to which it is a party and all
of its obligations thereunder, (b) represents and warrants that there exists no
Default or Event of Default, and (c) represents and warrants that the
representations and warranties contained in the Loan Documents (as amended by
this Amendment) (other than the representations and warranties made as of a
specific date) are true and correct in all material respects, except to the
extent that such representations and warranties are no longer true or correct as
a result of events, acts, transactions or occurrences after the Restatement
Effective Date which are permitted under the Credit Agreement.
8. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one amendment. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
9. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
10. Except as amended hereby, the Credit Agreement and the Arch Guaranty
shall in all other respects remain in full force and effect.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
the First Amended and Restated Credit Agreement and Amendment No. 5 to the Arch
Guaranty, Security and Subordination Agreement to be duly executed and delivered
by their proper and duly authorized officers as of the day and year first above
written.
PREMIERE PAGE OF KANSAS, INC.,
Q MEDIA PAGING-ALABAMA, INC.,
USA MOBILE COMMUNICATIONS, INC. III,
Q MEDIA COMPANY-PAGING, INC.,
a Kansas corporation
W.Q. COMMUNICATIONS, INC.
AS TO EACH OF THE FOREGOING
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title: VICE PRESIDENT AND TREASURER
USA MOBILE COMMUNICATIONS, INC. II
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title: VICE PRESIDENT AND TREASURER
ARCH COMMUNICATIONS GROUP, INC.
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title: VICE PRESIDENT AND TREASURER
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
THE BANK OF NEW YORK, individually and as
Administrative Agent
By: /S/ GEOFFREY C. BROOKS
Name: GEOFFREY C. BROOK
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
FLEET NATIONAL BANK
By: /S/ CHRIS SWINDELL
Name: CHRIS SWINDELL
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
PNC BANK, NATIONAL ASSOCIATION
By: /S/ JEFFREY E. HAUSER
Name: JEFFREY E. HAUSER
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
TORONTO DOMINION (TEXAS), INC.
By: /S/ DEBBIE A. GREENE
Name: DEBBIE A. GREENE
Title: VICE PRESIDENT
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
BANKBOSTON, N.A.
By: /S/ SHEPARD D. RAINIE
Name: SHEPARD D. RAINIE
Title: DIRECTOR
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
ROYAL BANK OF CANADA
By: /S/ THOMAS BYRNE
Name: THOMAS BYRNE
Title:
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /S/ MICHAEL R. BUTLER
Name: MICHAEL R. BUTLER
Title: SENIOR VICE PRESIDENT
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /S/ JEFFREY W. MAILLET
Name: JEFFREY W. MAILLET
Title: SENIOR VICE PRESIDENT & DIRECTOR
<PAGE>
AMENDMENT NO. 3 TO THE USA MOBILE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
AND
AMENDMENT NO. 5 TO THE ARCH GUARANTY
By signing below, each of the Subsidiary Guarantors agrees and consents
to the foregoing Amendment
PCI HOLDING COMPANY, INC.
PROFESSIONAL COMMUNICATIONS, INC.
PROFESSIONAL ELECTRONICS, INC.
Q MEDIA COMPANY-PAGING, INC.,
a Delaware corporation
AS TO EACH OF THE FOREGOING:
By: /S/ GERALD J. CIMMINO
Name: GERALD J. CIMMINO
Title: VICE PRESIDENT AND TREASURER
<PAGE>
Attachment A
FORM OF OPINION OF COUNSEL TO ARCH, THE PARENT AND THE BORROWERS
March __, 1998
The Bank of New York,
as Administrative Agent, and the
Lenders under the Amended
Agreement referred to below
We have acted as special counsel to (i) USA Mobile Communications, Inc. II,
a Delaware corporation (the "PARENT"), (ii) Premiere Page of Kansas, Inc., a
Kansas corporation ("PREMIERE PAGE"), (iii) Q Media Paging-Alabama, Inc., a
Delaware corporation ("Q MEDIA ALABAMA"), (iv) USA Mobile Communications, Inc.
III, a Delaware corporation ("USA III"), (v) Q Media Company-Paging, Inc., a
Kansas corporation ("Q MEDIA KANSAS"), (vi) W.Q. Communications, Inc., a Kansas
corporation ("W.Q. COMMUNICATIONS", and together with Premiere Page, Q Media
Alabama, USA III and Q Media Kansas, the "BORROWERS", each a "BORROWER") and
(vii) Arch Communications Group, Inc., a Delaware corporation ("ARCH" and,
together with the Borrowers and the Parent, the "CORPORATIONS"), in connection
with Amendment No. 3 (the "CREDIT AGREEMENT AMENDMENT"), dated as of March 9,
1998, to the First Amended and Restated Credit Agreement, dated as of March 19,
1997, by and among the Parent, the Borrowers, the Lenders party thereto, and The
Bank of New York, as Administrative Agent (the "ADMINISTRATIVE AGENT"), as
amended by Amendment No. 1, dated as of June 17, 1997, and Amendment No. 2,
dated as of January 7, 1998 (as so amended, the "CREDIT AGREEMENT"), and
Amendment No. 5 (the "ARCH GUARANTY AMENDMENT" and, together with the Credit
Agreement Amendment, the "AMENDMENT"), dated as of March __, 1998, to the Arch
Guaranty, Security and Subordination Agreement, dated as of September 8, 1995,
made by Arch, the Borrowers and the Parent to the Administrative Agent, as
amended by Amendment No. 1, dated as of February 15, 1996, Amendment No. 2,
dated as of June 25, 1996, Amendment No. 3, dated as of March 19, 1997, and
Amendment No. 4, dated as of January 7, 1998 (as so amended, the "GUARANTY").
The Credit Agreement and the Guaranty, as amended by the Amendment, are referred
to collectively herein as the "AMENDED AGREEMENTS". Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to them
in the Amended Agreements.
For purposes of the opinions expressed below, we have examined:
(a) the Credit Agreement and the Guaranty;
(b) the Amendment;
(c) the charter documents of each of the Corporations as identified on
Schedule I;
(d) the By-laws of each of the Corporations, as in effect on the date
hereof, provided to us by the Parent;
<PAGE>
(e) the corporate minute books of each of the Corporations, as provided to
us by the Parent;
(f) certificates of legal existence and corporate good standing for the
Corporations as identified on Schedule II;
(g) certified copies of resolutions of the board of directors of each of
the Corporations, approving the transactions contemplated by the
Amendment and authorizing, among other things, the execution, delivery
and performance by each of the Corporations of the Amendment;
(h) incumbency and signature certificates as to the officers of each of
the Corporations;
(i) a certificate of Garry Watzke, Secretary of the Corporations, in the
form attached hereto as Exhibit A; and
(j) such other documents, instruments and certificates (including, but not
limited to, certificates of public officials and officers of the
Corporations) as we have considered necessary for purposes of this
opinion.
In addition, we assume, for purposes of this opinion, that the corporate
minute books (referred to in clause (e) above) contain an accurate record of all
meetings of the stockholders and directors of the Corporations. In examining the
documents described above, we have assumed the genuineness of all signatures
other than those of the Corporations, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies. As to various facts
material to the opinions set forth herein, we have relied upon factual
representations made by the Corporations in the Amended Agreements and the
Amendment, in the certificate referred to in clause (i) above and upon
certificates of public officials, which facts we have not independently
verified.
Any reference to "our knowledge", "the best of our knowledge" or
"knowledge" or any variation thereof shall mean the conscious awareness of the
attorneys in this firm who have rendered substantive attention to this
transaction of the existence or absence of any facts which would contradict our
opinions set forth below. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Corporations.
For purposes of the opinions expressed herein, we have assumed that the
Administrative Agent and the Lenders have the power and authority to execute,
deliver and perform all agreements and documents executed by them; that the
Administrative Agent and the Lenders have duly and validly executed and
delivered such agreements and documents; and that such agreements and documents
are legally valid and binding on and enforceable against the Administrative
Agent and the Lenders.
We express no opinion herein with respect to the laws of any state or
jurisdiction other than the Commonwealth of Massachusetts, the General
Corporation Law statute of the State of Delaware and the federal laws of the
United States of America. With your permission, we have
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<PAGE>
assumed, without investigation, for purposes of the opinions expressed below
that the laws of the Commonwealth of Massachusetts are identical to the laws of
the State of New York.
The opinions expressed in paragraph 1 below, insofar as they relate to the
valid existence and corporate good standing of the Corporations in their
respective states of incorporation are based solely upon the certificates
referred to in clause (f) above and are rendered as of the dates of such
certificates.
Our opinions below are qualified to the extent that the validity or
enforceability of the documents referred to or of any of the rights granted to
any party pursuant thereto may be subject to or affected by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting the rights of creditors generally, (ii) statutory or
decisional law concerning recourse by creditors to security in the absence of
notice or hearing, and (iii) duties and standards imposed on creditors and
parties to contracts, including, without limitation, requirements of good faith,
reasonableness and fair dealing. Furthermore, we express no opinion as to the
availability of any equitable or specific remedy upon any breach of such
documents or any of the agreements, documents or obligations referred to
therein, as the availability of such remedies may be subject to the discretion
of a court. We have assumed for the purposes of our opinion that each of the
Lenders and the Administrative Agent is subject to control, regulation or
examination by a state or federal regulatory agency.
Based upon and subject to the foregoing and to the general qualifications
stated following paragraph 3 below, we hereby advise you that, in our opinion:
1. Each of Arch, the Parent, Q Media Alabama, USA III, and Q Media Delaware
is duly organized, validly existing and in good standing under the laws of the
State of Delaware and is in good standing and authorized to do business in each
jurisdiction in which the failure to be so authorized could reasonably be
expected to have a Material Adverse Effect.
2. Each of Premiere Page, Q Media Kansas and W.Q. Communications is duly
organized, validly existing and in good standing under the laws of the State of
Kansas and is in good standing and authorized to do business in each
jurisdiction in which the failure to be so authorized could reasonably be
expected to have a Material Adverse Effect.
3. No consent, authorization or approval of, filing with, notice to, or
exemption by, stockholders, any Governmental Body or any other Person (except
for those which have been obtained, made or given) (i) is required to authorize,
or is required in connection with, the execution, delivery and performance of
the Amendment or the Amended Agreements or (ii) is required as a condition to
the validity or enforceability of the Amendment or the Amended Agreements.
4. The Amendment and the Amended Agreements constitute the valid and
legally binding obligations of each of the Corporations, in each case to the
extent that it is a party thereto, enforceable in accordance with its respective
terms.
The opinions set forth above are subject to the following qualifications:
(i) The enforcement against any of the Corporations of any rights and
remedies is or may be subject to the effect of certain general principles
of contract law that include (a) the unenforceability of provisions in an
agreement to the effect that provisions therein may only be amended or
waived in writing to the extent that an oral agreement modifying
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<PAGE>
such provisions has been entered into and (b) the general rule that, where
less than all of an agreement is enforceable, the balance is enforceable
only when the unenforceable portion is not an essential part of the agreed
exchange.
(ii) We express no opinion as to the enforceability of prospective
waivers of rights to notice or a hearing, or other rights granted by
constitution or statute, powers of attorney, provisions purporting to
relieve parties of the consequences of their own negligence or misconduct,
provisions granting indemnity or provisions purporting to establish
evidentiary standards.
(iii) All opinions expressed above are subject to all of the
qualifications and assumptions contained in our opinion letter and our
supplemental opinion letter, each dated March 19, 1997 (the "PRIOR
OPINIONS").
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions, and we disclaim any obligation to advise you of any
change in any of these sources of law or subsequent legal or factual
developments which might affect any matters or opinions set forth herein.
We hereby confirm that each Lender under the Amended Agreements may rely on
the Prior Opinions as though such Prior Opinions were addressed to each of them.
This opinion is furnished to you solely for your benefit in connection with
the Amendment and may not be relied upon by any other Person (other than Special
Counsel) or for any other purpose without our express, prior written consent.
Very truly yours,
HALE AND DORR
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<PAGE>
EXHIBIT A
OFFICER'S CERTIFICATE
<PAGE>
SCHEDULE I
CHARTER DOCUMENTS
I. Arch Communications Group, Inc. Certificate of Incorporation,
State of Delaware
II. USA Mobile Communications,
Inc. II Certificate of Incorporation,
State of Delaware
III. Premiere Page of Kansas, Inc. Certificate of Incorporation,
State of Kansas
IV. Q Media Paging - Alabama, Inc. Certificate of Incorporation,
State of Delaware
V. USA Mobile Communications,
Inc. II Certificate of Incorporation,
State of Delaware
VI. Q Media Company - Paging,
Inc. (Kansas) Certificate of Incorporation,
State of Kansas
VII. W.Q. Communications,
Inc. Certificate of Incorporation,
State of Kansas
<PAGE>
SCHEDULE II
LEGAL EXISTENCE AND GOOD STANDING CERTIFICATES
I. ARCH COMMUNICATIONS GROUP, INC.
1. Certificate of Good Standing signed by the Secretary of State of the
State of Delaware dated ----- --, ----.
2. Certificate of Good Standing signed by the Secretary of State of the
Commonwealth of Massachusetts dated _____ __, ____.
II. USA Mobile Communications, Inc. II
1. Certificate of Good Standing signed by the Secretary of State of the
Commonwealth of Pennsylvania dated March __, 1997.
2. Certificate of Existence/Authority signed by the Secretary of State of
the State of Mississippi dated March __, 1997.
3. Certificate of Existence - Foreign Corporation signed by the Secretary
of State of the State of Georgia dated March __, 1997.
4. Certificate of Corporate Good Standing - Foreign Corporation signed by
the Secretary of State of the State of Missouri dated March __,1997.
5. Certificate of Good Standing signed by the Secretary of State of the
State of Delaware dated March __, 1997.
6. Certificate of Good Standing signed by the Secretary of State of the
State of Ohio dated March __, 1997.
7. Certificate of Authorization signed by the Secretary of State of the
State of Indiana dated March __, 1997.
8. Certificate of Authorization - Foreign Corporation signed by the
Secretary of State of the State of Kentucky dated March __, 1997.
9. Certificate of Authorization signed by the Secretary of State of the
State of Tennessee dated March __, 1997.
III. USA Mobile Communications, Inc. III
1. Certificate of Good Standing signed by the Secretary of State of the
State of Delaware dated March __, 1997.
<PAGE>
IV. Premiere Page of Kansas, Inc.
1. Certificate of Authority - Foreign Corporation signed by the Secretary
of State of the State of Nebraska for the entity "Premiere Page, Inc."
dated March __, 1997.
2. Certificate of Good Standing signed by the Secretary of State of the
State of Kansas dated March __, 1997.
3. Certificate of Existence signed by the Secretary of State of the State
of Georgia dated March __, 1997.
4. Certificate of Good Standing - Foreign Corporation signed by the
Secretary of State of the State of Missouri dated March __, 1997.
V. Q Media Paging - Company, Inc., a Kansas corporation
1. Certificate of Good Standing signed by the Secretary of State of the
State of Kansas dated March __, 1997.
2. Certificate of Good Standing - Foreign Corporation signed by the
Secretary of State of the State of Illinois dated March __, 1997.
3. Certificate of Authorization signed by the Secretary of State of the
State of Indiana dated March __, 1997.
4. Certificate of Authorization signed by the Secretary of State of the
State of Iowa dated March __, 1997.
5. Certificate of Authorization - Foreign Corporation signed by the
Secretary of State of the State of Kentucky dated March __, 1997.
6. Certificate of Corporate Good Standing - Foreign Corporation signed by
the Secretary of State of the State of Missouri dated March __, 1997.
7. Certificate of Good Standing signed by the Secretary of State of the
State of Delaware dated March __, 1997.
VI. Q Media Paging - Alabama, Inc.
1. Certificate of Good Standing - Foreign Corporation signed by the
Secretary of State of the State of Alabama dated March __, 1997.
2. Certificate of Good Standing signed by the Secretary of State of the
State of Tennessee dated March __, 1997.
3. Certificate of Existence - Foreign Corporation signed by the Secretary
of State of the State of Georgia dated March __, 1997.
<PAGE>
4. Certificate of Good Standing signed by the Secretary of State of the
State of Delaware dated March __, 1997.
VII. W.Q. Communications, Inc.
1. Certificate of Good Standing signed by the Secretary of State of the
State of Kansas dated March __, 1997.
2. Certificate of Corporate Good Standing - Foreign Corporation signed by
the Secretary of State of the State of Missouri dated March __,1997.
3. Certificate of Existence - Foreign Corporation signed by the Secretary
of State of the State of Georgia dated March __, 1997.
<PAGE>
Attachment B
FORM OF OPINION OF GENERAL COUNSEL OF ARCH
AND THE RESTRICTED SUBSIDIARIES
March __, 1998
The Bank of New York,
as Administrative Agent, and the
Lenders under the Amended
Agreement referred to below
I have acted as special counsel to (i) USA Mobile Communications, Inc. II,
a Delaware corporation (the "PARENT"), (ii) Premiere Page of Kansas, Inc., a
Kansas corporation ("PREMIERE PAGE"), (iii) Q Media Paging-Alabama, Inc., a
Delaware corporation ("Q MEDIA ALABAMA"), (iv) USA Mobile Communications, Inc.
III, a Delaware corporation ("USA III"), (v) Q Media Company-Paging, Inc., a
Kansas corporation ("Q MEDIA KANSAS"), (vi) W.Q. Communications, Inc., a Kansas
corporation ("W.Q. COMMUNICATIONS", and together with Premiere Page, Q Media
Alabama, USA III and Q Media Kansas, the "BORROWERS", each a "BORROWER") and
(vii) Arch Communications Group, Inc., a Delaware corporation ("ARCH" and,
together with the Borrowers and the Parent, the "CORPORATIONS"), in connection
with Amendment No. 3 (the "CREDIT AGREEMENT AMENDMENT"), dated as of March 9,
1998, to the First Amended and Restated Credit Agreement, dated as of March 19,
1997, by and among the Parent, the Borrowers, the Lenders party thereto, and The
Bank of New York, as Administrative Agent (the "ADMINISTRATIVE AGENT"), as
amended by Amendment No. 1, dated as of June 17, 1997, and Amendment No. 2,
dated as of January 7, 1998 (as so amended, the "CREDIT AGREEMENT"), and
Amendment No. 5 (the "ARCH GUARANTY AMENDMENT" and, together with the Credit
Agreement Amendment, the "AMENDMENT"), dated as of March __, 1998, to the Arch
Guaranty, Security and Subordination Agreement, dated as of September 8, 1995,
made by Arch, the Borrowers and the Parent to the Administrative Agent, as
amended by Amendment No. 1, dated as of February 15, 1996, Amendment No. 2,
dated as of June 25, 1996, Amendment No. 3, dated as of March 19, 1997, and
Amendment No. 4, dated as of January 7, 1998 (as so amended, the "GUARANTY").
The Credit Agreement and the Guaranty, as amended by the Amendment, are referred
to collectively herein as the "AMENDED AGREEMENTS". Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to them
in the Amended Agreements.
In connection with this opinion, I have examined and am familiar with
originals or copies, certified or otherwise identified to my satisfaction as
being true copies, of all such records of the Corporations, such certificates of
the officers of the Corporations, all such agreements and other documents of the
Corporations, including, without limitation, (i) the Certificate of
Incorporation and By-laws of each of the Corporations, (ii) certificates of
public officials, and (iii) the Amendment, and have made such other inquiries
and investigations of law, as I have deemed necessary or appropriate for the
purposes of rendering this opinion.
<PAGE>
In rendering this opinion, I have assumed the genuineness of all signatures
(other than those of the Corporations), the authenticity of all documents
submitted to me as originals, the conformity to original documents of all copies
submitted to me as certified or photostatic copies and the accuracy of public
records.
I am a member of the Bar of the Commonwealth of Massachusetts. I do not
purport to be an expert in, or to express any opinion concerning, any matters
governed by the laws of any jurisdiction other than the laws of the Commonwealth
of Massachusetts and the corporate laws of the States of New York, Pennsylvania,
Kansas and Delaware and the federal laws of the United States of America. I
express no opinion with respect to the regulation of any of the Corporations
under the Communications Act and the rules and regulations promulgated
thereunder.
On the basis of the foregoing, and subject to the limitations,
qualifications and exceptions set forth herein, I am of the opinion that each of
the Corporations has full corporate power and authority to enter into, execute
and deliver the Amendment and to carry out the terms of the Amendment, all of
which have been duly authorized by all proper and necessary corporate action and
are in full compliance with its charter documents and by-laws.
This opinion is solely for your benefit and that of your successors and
assigns and may not be relied on by any other Person, other than Special
Counsel, without my prior written consent, and I assume no obligation to advise
of any change in matters of fact or of law which might change the opinions
expressed herein.
Very truly yours,
Garry B. Watzke, Esq.
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<PAGE>
EXHIBIT 10.12
ARCH COMMUNICATIONS GROUP, INC.
DEFERRED COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
ARTICLE I
PURPOSE; EFFECTIVE DATE
1.1 PURPOSE. The purpose of the Arch Communications Group,Inc. Deferred
Compensation Plan for Nonemployee Directors is to provide current tax planning
opportunities as well as supplemental funds for retirement or death.
1.2 EFFECTIVE DATE. The Plan is effective as of December 29, 1997 (the
"Effective Date").
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise:
2.1 ACCOUNT. "Account" means the mechanism used by the Company to measure
and determine the amounts to be paid to a Participant under the Plan.
2.2 BENEFICIARY. "Beneficiary" means the person, persons or entity
designated by the Participant under Article V to receive Plan benefits payable,
if any, after a Participant's death.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 COMMITTEE. "Committee" means the Executive Compensation and Stock
Option Committee of the Board or any future committees performing the functions
of such committee.
2.5 COMPANY. "Company" means Arch Communications Group, Inc., a
Delaware corporation.
2.6 COMPENSATION. "Compensation" means the annual and meeting fees
payable by the Company to a Nonemployee Director.
2.7 DEFERRAL COMMITMENT. "Deferral Commitment" means a commitment
made by a Participant to defer Compensation pursuant to Article III.
2.8 DEFERRAL PERIOD. "Deferral Period" means each calendar year.
<PAGE>
2.9 DETERMINATION DATE. "Determination Date" means the last day of each
calendar quarter occurring after the Effective Date.
2.10 NONEMPLOYEE DIRECTOR. "Nonemployee Director" means a Director of the
Company who is not employed by the Company or a subsidiary of the Company.
2.11 PARTICIPANT. "Participant" means any Nonemployee Director who has
elected deferral of Compensation under this Plan.
2.12 PARTICIPATION AGREEMENT. "Participation Agreement" means the agreement
submitted by a Participant to the Plan Administrator prior to the beginning of a
Deferral Period with respect to a Deferral Commitment or a designation of form
of benefits, or both, made for such Deferral Period.
2.13 PAYMENT COMMENCEMENT DATE. "Payment Commencement Date" has
the meaning specified in Section 3.6.
2.14 PLAN. "Plan" means this Deferred Compensation Plan for Nonemployee
Directors, as amended from time to time.
2.15 PLAN ADMINISTRATOR. "Plan Administrator" means the employee
designated by the Committee to administer the Plan.
2.16 STOCK. "Stock" means the common stock of the Company, $.01 par
value, of the Company.
ARTICLE III
PARTICIPATION; DEFERRAL COMMITMENTS
3.1 ELIGIBILITY AND PARTICIPATION.
(a) PARTICIPATION. Nonemployee Directors may elect to participate in
the Plan with respect to any Deferral Period by submitting a Participation
Agreement to the Plan Administrator by the last day of the preceding Deferral
Period.
(b) MID-YEAR ELECTION. An individual who becomes a Nonemployee
Director during the first, second or third calendar quarter of a Deferral Period
may elect to participate in the Plan effective on the first day of the calendar
quarter next following the date on which such new eligibility occurred by
submitting a Participation Agreement for the balance of the Deferral Period no
later than the last day of the calendar quarter during which the Participant
first became eligible.
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<PAGE>
3.2 DEFERRAL COMMITMENT. A Deferral Commitment shall be the Compensation
deferred by the Participant pursuant to the Participation Agreement but
otherwise payable by the Company to the Participant during the Deferral Period.
3.3 PERIOD OF COMMITMENT. Except as provided in Sections 3.4 and 3.5, once
a Participant has made a Deferral Commitment, that Deferral Commitment shall
remain in effect for that Deferral Period; provided, however, that a Deferral
Commitment for a Deferral Period may be amended at any time prior to the
beginning of such Deferral Period. Such Deferral Commitment shall also remain in
effect for subsequent Deferral Periods unless revoked or amended by delivery of
a new Participation Agreement to the Plan Administrator before the end of the
Deferral Period preceding the new Deferral Period.
3.4 COMMITMENT LIMITED BY TERMINATION. If a Participant ceases to be a
Nonemployee Director prior to the end of the Deferral Period, the Deferral
Period for that Participant shall end.
3.5 NO MODIFICATION OF DEFERRAL COMMITMENT. Deferral Commitments for a
Deferral Period shall become irrevocable at the end of the preceding Deferral
Period.
3.6 LENGTH OF DEFERRAL. Each Deferral Commitment shall specify the date on
which payment of the Participant's Account shall begin (the "Payment
Commencement Date"). The Payment Commencement Date may be a specific calendar
date or a date on which a certain event occurs, such as the date the Participant
ceases to be a Nonemployee Director.
3.7 STOCK OR CASH ELECTION. Each Deferral Commitment shall specify the
percentage of the Compensation deferred which is to be added to the Cash
Subaccount (as described in Section 4.1, below) and the percentage which is to
be added to the Stock Subaccount (as described in Section 4.1, below). If no
such specification is made, the deferred Compensation shall be credited to the
Cash Subaccount.
ARTICLE IV
DEFERRED COMPENSATION ACCOUNT
4.1 ACCOUNT. The amounts deferred by a Participant under the Plan and
earnings thereon shall be credited to the Participant's Account. The Account
shall be a bookkeeping device utilized for the sole purpose of determining the
benefits payable under the Plan and shall not constitute a separate fund of
assets. The Account shall have the following subaccounts: The Cash Subaccount
shall consist of the Participant's cash deferrals and shall be accounted for in
monetary units and the Stock Subaccount which shall consist of the Participant's
stock deferrals and shall be accounted for in stock units. If different Deferral
Commitments specify different
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<PAGE>
Payment Commencement Dates or forms of benefit, a separate subaccount shall be
established for each combination of Payment Commencement Date and form of
benefit.
4.2 TIMING OF CREDITS; WITHHOLDING. A Participant's deferred Compensation
shall be deferred prorata from each payment of Compensation and shall be
credited to his or her Account as of the date on which such Compensation would
have been paid. Credits to the Cash Subaccount shall be the amount deferred in
cash. Credits to the Stock Subaccount shall be made in stock units. The number
of stock units to be credited shall be determined by dividing the amount of
Compensation to be deferred into the Stock Subaccount by the fair market value
of the Stock of the Company as determined by the Board as of the date such
Compensation would otherwise have been paid. Each stock unit shall have a value
equal to the fair market value of one share of Stock. Any withholding of taxes
or other amounts with respect to deferred Compensation that is required by
local, state, or federal law shall be withheld from the Participant's
corresponding non-deferred Compensation or other funds provided by the
Participant to the maximum extent possible, and any remaining amount shall
reduce the amount credited to the Participant's Account.
4.3 DETERMINATION OF ACCOUNTS. Each Participant's Account as of each
Determination Date shall consist of the balance of the Account as of the
immediately preceding Determination Date, adjusted as follows:
(a) New Deferrals. The Account shall be increased by any deferred
Compensation credited since the immediately preceding Determination Date.
(b) DISTRIBUTIONS. The Account shall be reduced by any benefits distributed
to the Participant since the immediately preceding Determination Date.
Distributions shall be made from the Cash Subaccount and the Stock Subaccount on
a prorata basis except to the extent that the Participant has designated
otherwise.
(c) EARNINGS. The Cash Subaccount shall be increased by crediting interest
at a rate equal to the Prime Rate for the period since the prior Determination
Date. Interest shall be compounded daily based on a 360 day year. For the
purposes of this Plan the "Prime Rate" to be applied on a Determination Date
shall be the prime rate as in effect on the prior Determination Date as
published in the Wall Street Journal. The Stock Subaccount shall not be credited
with any interest or other earnings.
(d) ADJUSTMENT TO STOCK SUBACCOUNT. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Stock other than a
normal cash dividend, the number of stock units credited to the Stock Subaccount
of a Participant shall be
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<PAGE>
appropriately adjusted by the Company to the extent the Board shall determine,
in good faith, that such an adjustment is necessary and appropriate.
4.4 VESTING OF ACCOUNTS. Except as provided in Section 5.5, below, each
Participant shall be 100% vested in the amounts credited to such Participant's
Account and earnings thereon.
4.5 STATEMENT OF ACCOUNTS. The Company shall give to each Participant, on
an annual or more frequent basis, a statement showing the balance in the
Participant's Account.
ARTICLE V
PAYMENT OF BENEFITS
5.1 PAYMENT OF BENEFITS. Upon the Payment Commencement Date for an Account
(or subaccount) the Company shall pay the balance in the Account (or subaccount)
to the Participant in the form elected by the Participant pursuant to Section
5.3. The Company shall pay to the Participant benefits equal to the balance in
the Participant's Account. All payments shall be in the form of cash.
Distributions from the Stock Subaccount shall be made by converting the stock
units being distributed to cash, valuing each stock unit at the fair market
value of a share of the Stock on the date of distribution.
5.2 DEATH BENEFIT. Upon the death of a Participant, the Company shall pay
to the Participant's Beneficiary an amount equal to the balance at the time of
death in the Participant's Account in the form elected by the Participant
pursuant to Section 5.3.
5.3 FORM OF BENEFITS. Plan benefits shall be paid in the form of a lump sum
or installments over a period of 10 or fewer years, as specified by the
Participant in the Participation Agreement. If no form of payment designation
has been made in the Participation Agreement, benefits shall be paid in the form
of a lump sum. The form of payment designation shall be made by the Participant
at the time of completing the Participation Agreement. A Participant may amend a
form of payment designation at any time, but such amendment shall not become
effective until the Deferral Period which begins after the date of amendment.
The form of payment designation shall also remain in effect for subsequent
Deferral Periods until changed.
Upon the death of a Participant, benefits shall be paid pursuant to the
form of benefit selected by the Participant as soon as practicable after
delivery of a death certificate to the Plan Administrator. If the Participant
dies after a Payment Commencement Date, benefits with respect to the
Participant's remaining Account
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<PAGE>
balance, if any, shall continue to be paid in the same manner as in effect prior
to death.
5.4 INSTALLMENTS. If benefits are paid in the form of installments, the
amount of the installments shall be redetermined as of January of each year
based upon the remaining Account balance, the remaining number of installments,
and earnings on the remaining Account balance.
5.5 ACCELERATED DISTRIBUTION. Notwithstanding any other provision of the
Plan, a Participant shall be entitled to receive, upon written request to the
Plan Administrator, a lump sum distribution equal to any part or all of his or
her Account balance as of the Determination Date immediately preceding the date
on which the Plan Administrator receives his written request (the "Requested
Amount"). The balance in such Participant's Account shall be reduced by the
Requested Amount at the date of such distribution and shall be further reduced
by an amount equal to the Prime Rate multiplied by the Requested Amount. The
amount payable under this section shall be paid within thirty (30) days
following receipt of the written request by the Plan Administrator from the
Participant. A Participant who receives an accelerated distribution shall be
ineligible to make further deferrals until the Deferral Period which begins at
least 12 months after such accelerated distribution is paid to the Participant.
5.6 PAYMENT TO GUARDIAN. If a distribution is payable to a minor or a
person declared incompetent or to a person incapable of handling the disposition
of property, the Committee may direct payment to the guardian, legal
representative or person having the care and custody of such minor, person or
incompetent.
ARTICLE VI
BENEFICIARIES
6.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any
time, to designate one or more persons or an entity as Beneficiary (both primary
as well as secondary or contingent) to whom benefits under this Plan shall be
paid in the event of Participant's death prior to complete distribution of the
Participant's Account. Each Beneficiary designation shall be in a written form
prescribed by the Plan Administrator, will be effective only when filed with the
Plan Administrator during the Participant's lifetime and shall apply to the
entire balance in the Participant's account. The filing of a new designation
shall cancel all designations previously filed. A Participant may make or change
a beneficiary designation at any time without obtaining the consent of any
person.
6.2 NO BENEFICIARY DESIGNATION. If any Participant fails to designate a
Beneficiary in the manner provided above, or if the Beneficiary designated by a
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<PAGE>
deceased Participant dies before the Participant or before complete distribution
of the Participant's benefits, the Participant's Beneficiary shall be the person
or persons in the first of the following classes in which there is a survivor:
(a) The Participant's surviving spouse;
(b) The Participant's children in equal shares, except that if any of
the children predeceases the Participant but leaves issue then surviving,
such issue shall take by right of representation the share the parent would
have taken if living; and
(c) The Participant's estate.
ARTICLE VII
ADMINISTRATION
7.1 PLAN ADMINISTRATOR; COMMITTEE; DUTIES. This Plan shall be administered
by the Plan Administrator appointed by the Committee. The Plan Administrator
shall have the complete discretion and authority to make, amend, interpret and
enforce all appropriate rules and regulations for the administration of the Plan
and decide or resolve any and all questions, including interpretations of the
Plan, as may arise in such administration. The Plan Administrator shall report
to the Committee regarding Plan activity at such times as requested by the
Committee. The Plan Administrator may be a Participant under this Plan.
7.2 AGENTS. The Plan Administrator and Committee may, from time to time,
employ agents and delegate to them such administrative duties as they see fit,
and may from time to time consult with counsel who may be counsel to the
Company.
7.3 BINDING EFFECT OF DECISIONS. The decision or action of the Plan
Administrator in respect to any question arising out of or in connection with
the administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder may be reviewed or altered by the Committee. A
majority vote of the Committee members shall control any final decision. The
decisions of the Committee shall be final and conclusive and binding upon all
persons having any interest in the Plan.
7.4 INDEMNITY OF PLAN ADMINISTRATOR; COMMITTEE. The Company shall indemnify
and hold harmless the Plan Administrator and members of the Committee against
any and all claims, loss, damage, expense or liability arising from any action
or failure to act with respect to this Plan, except in the case of gross
negligence or willful misconduct.
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ARTICLE VIII
AMENDMENT AND TERMINATION OF PLAN
8.1 AMENDMENT. The Board may at any time amend the Plan by written
instrument, notice of which is given to all Participants and to Beneficiaries
receiving installment payments, subject to the following; provided, however,
that no amendment shall reduce the amount accrued in any Account to the date
such notice of the amendment is given.
8.2 COMPANY'S RIGHT TO TERMINATE. The Board may at any time partially or
completely terminate the Plan if, in its judgment, the tax, accounting or other
effects of the continuance of the Plan, or potential payments thereunder, would
not be in the best interests of the Company.
(a) PARTIAL TERMINATION. The Board may partially terminate the Plan by
instructing the Plan Administrator not to accept any additional Deferral
Commitments beyond the current Deferral Period. In the event of such a
partial termination, the Plan shall continue to operate and be effective
with regard to Deferral Commitments entered into prior to the effective
date of such partial termination.
(b) COMPLETE TERMINATION. The Board may completely terminate the Plan
by instructing the Plan Administrator not to accept any additional Deferral
Commitments, and by terminating all current ongoing Deferral Commitments.
In the event of complete termination, the Plan shall cease to operate and
the Company shall pay out each Account in a lump sum within thirty (30)
days of the date of termination of the Plan.
ARTICLE IX
MISCELLANEOUS
9.1 UNSECURED GENERAL CREDITOR. The Company's obligation under the Plan
shall be an unfunded and unsecured promise to pay money in the future.
Participants and their Beneficiaries shall have no secured or preferential right
to any assets of the Company or any other party for payment of benefits under
this Plan greater than the rights of an unsecured general creditor of the
Company. Any and all of the Company's assets which the Company may set aside or
earmark for the payment of benefits hereunder shall be, and remain, the general,
unpledged, unrestricted assets of the Company and no Participant or Beneficiary
shall have any interest in any such assets.
9.2 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to sell, assign, transfer, pledge, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt the amounts, if
any, payable
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hereunder, or any part thereof, which are, and all rights to which are,
expressly declared to be unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency.
9.3 PROTECTIVE PROVISIONS. A Participant will cooperate with the Company by
furnishing any and all information requested by the Company in order to
facilitate the payment of benefits hereunder and taking such other action as may
be requested by the Company.
9.4 GOVERNING LAW. The provisions of this Plan shall be construed and
interpreted according to the laws of the Commonwealth of Massachusetts, except
as preempted by federal law.
9.5 VALIDITY. In case any provision of this Plan shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if such
illegal and invalid provision had never been inserted herein.
9.6 NOTICE. Any notice required or permitted under the Plan shall be
sufficient if in writing and hand delivered or sent by registered or certified
mail. Such notice shall be deemed as given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification. Mailed notice to the Committee shall be
directed to the Company's address. Mailed notice to a Participant or Beneficiary
shall be directed to the Participant or Beneficiary's last known address in the
Company's records, as applicable.
9.7 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Company and its successors and assigns. The term successors as
used herein shall include any corporate or other business entity which shall,
whether by merger, consolidation, purchase or otherwise acquire all or
substantially all of the business and assets of the Company, and successors of
any such corporation or other business entity.
Adopted on December 29, 1997.
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Exhibit 10.13
ARCH COMMUNICATIONS GROUP, INC.
EXECUTIVE RETENTION AGREEMENT
THIS RETENTION AGREEMENT by and between Arch Communications Group, Inc., a
Delaware corporation (the "Company"), and _________________ (the "Executive") is
made as of February 27, 1998 (the "Effective Date").
WHEREAS, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control of the
Company exists and that such possibility, and the uncertainty and questions
which it may raise among key personnel, may result in the departure or
distraction of key personnel to the detriment of the Company and its
stockholders, and
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
employment and dedication of the Company's key personnel without distraction
from the possibility of a change in control of the Company and related events
and circumstances.
NOW, THEREFORE, as an inducement for and in consideration of the Executive
remaining in its employ, the Company agrees that the Executive shall receive the
severance benefits set forth in this Agreement in the event the Executive's
employment with the Company is terminated under the circumstances described
below subsequent to a Change in Control (as defined in Section 1.1).
1. KEY DEFINITIONS.
As used herein, the following terms shall have the following respective
meanings:
1.1 "CHANGE IN CONTROL" means:
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than 50% of either (i) the then-outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change in Control: (i) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any acquisition by any
<PAGE>
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 1.1; or
(b) individuals who, as of the date hereof, constitute the
members of the Board (the "Incumbent Directors") ceasing for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director of the Company subsequent to the date hereof
whose election, or nomination for election, by the Company's stockholders was
approved by a vote of at least a majority of the Incumbent Directors then in
office shall be deemed to be an Incumbent Director (except that this proviso
shall not apply to any individual whose initial election as a director occurs as
a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board); or
(c) the consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), unless, immediately
following such Business Combination, each of the following three conditions is
satisfied: (i) all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50%of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns the Company or substantially all of the
Company's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, respectively, (ii) no
Person (excluding the Acquiring Corporation or any employee benefit plan (or
related trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 50% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding voting securities of such
corporation (except to the extent that such ownership existed prior to the
Business Combination) and (iii) a majority of the members of the board of
directors of the Acquiring Corporation were Incumbent Directors at the time of
the execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
1.2 "Change in Control Date" means the first date during the Term (as
defined in Section 2) on which a Change in Control occurs. Anything in this
Agreement to the contrary notwithstanding, if (a) a Change in Control occurs,
(b) the Executive's employment with the Company is terminated prior to the date
on which the Change in Control occurs, and (c) it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose in connection with or in anticipation of a
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Change in Control, then for all purposes of this Agreement the "Change in
Control Date" shall mean the date immediately prior to the date of such
termination of employment.
1.3 "Cause" means:
(a) the Executive's willful and continued failure to
substantially perform his or her reasonable assigned duties as an officer of the
Company (other than any such failure resulting from incapacity due to physical
or mental illness or any failure after the Executive gives notice of termination
for Good Reason), which failure is not cured within 30 days after a written
demand for substantial performance is received by the Executive from the Board
which specifically identifies the manner in which the Board believes the
Executive has not substantially performed the Executive's duties; or
(b) the Executive's willful engagement in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this Section 1.3, no act or failure to act by the Executive
shall be considered "willful" unless it is done, or omitted to be done, in bad
faith and without reasonable belief that the Executive's action or omission was
in the best interests of the Company.
1.4 "GOOD REASON" means the occurrence, without the Executive's
written consent, of any of the events or circumstances set forth in clauses (a)
through (g)[h] below. Notwithstanding the occurrence of any such event or
circumstance, such occurrence shall not be deemed to constitute Good Reason if,
prior to the Date of Termination specified in the Notice of Termination (each as
defined in Section 3.2(a)) given by the Executive in respect thereof, such event
or circumstance has been fully corrected and the Executive has been reasonably
compensated for any losses or damages resulting therefrom (provided that such
right of correction by the Company shall only apply to the first Notice of
Termination for Good Reason given by the Executive):
(a) any material reduction in the Executive's titles, reporting
requirements, authority or responsibilities from those in effect immediately
prior to the earliest to occur of (i) the Change in Control Date, (ii) the date
of the execution by the Company of the initial written agreement or instrument
providing for the Change in Control or (iii) the date of the adoption by the
Board of Directors of a resolution providing for the Change in Control (with the
earliest to occur of such dates referred to herein as the "Measurement Date");
(b) a reduction in the Executive's annual base salary as in
effect on the Measurement Date or as the same may be increased from time to
time;
(c) the failure by the Company to (i) continue in effect any
material compensation or benefit plan or program (including without limitation
any life insurance, medical, health and accident or disability plan and any
vacation program or policy) (a "Benefit Plan") in which the Executive
participates or which is applicable to the Executive immediately prior to the
Measurement Date, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan or
program, (ii) continue the Executive's participation therein (or in such
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substitute or alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of the Executive's
participation relative to other participants, than the basis existing
immediately prior to the Measurement Date or (iii) award cash bonuses to the
Executive in amounts and in a manner substantially consistent with past practice
in light of the Company's financial performance;
(d) a change by the Company in the location at which the
Executive performs the Executive's principal duties for the Company to a new
location that is both (i) outside a radius of 35 miles from the Executive's
principal residence immediately prior to the Measurement Date and (ii) more than
20 miles from the location at which the Executive performs his or her principal
duties for the Company immediately prior to the Measurement Date; or a
requirement by the Company that the Executive travel on Company business to a
substantially greater extent than required immediately prior to the Measurement
Date;
(e) the failure of the Company to obtain the agreement, in a form
reasonably satisfactory to the Executive, from any successor to the Company to
assume and agree to perform this Agreement, as required by Section 6.1;
(f) a purported termination of the Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the requirements
of Section 3.2(a), which purported termination shall not be effective for
purposes of this Agreement; or
(g) any failure of the Company to pay or provide to the Executive
any portion of the Executive's compensation or benefits due under any Benefit
Plan within seven days of the date such compensation or benefits are due, or any
material breach by the Company of any employment agreement with the Executive
[add following for Ed Baker only:
or (h) the Executive does not become the Chief Executive of the
entity that controls the Company].
The Executive's right to terminate his or her employment for Good Reason
shall not be affected by his or her incapacity due to physical or mental
illness.
1.5 "DISABILITY" means the Executive's absence from the full-time
performance of the Executive's duties with the Company for 180 consecutive
calendar days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of the
parties hereunder, shall take effect upon the Effective Date and shall expire
upon the first to occur of (a) the expiration of the Term (as defined below) if
a Change in Control has not occurred during the Term, (b) the date 12 months
after the Change in Control Date, if the Executive is still employed by the
Company as of such later date, or (c) the fulfillment by the Company of all of
its obligations under Sections 4 and 5.2 if the Executive's employment with the
Company terminates within 12 months following the Change in Control Date. "Term"
shall mean the period commencing as of the Effective Date and continuing in
effect through December 31, 2002; provided, however, that commencing on January
1, 2003 and each January 1 thereafter, the Term shall be automatically extended
for one additional year unless, not later than 90 days prior to the scheduled
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expiration of the Term (or any extension thereof), the Company shall have given
the Executive written notice that the Term will not be extended.
3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL.
3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this
Agreement does not constitute a contract of employment or impose on the Company
any obligation to retain the Executive as an employee and that this Agreement
does not prevent the Executive from terminating employment at any time. If the
Executive's employment with the Company terminates for any reason and
subsequently a Change in Control shall occur, the Executive shall not be
entitled to any benefits hereunder except as otherwise provided pursuant to
Section 1.2.
3.2 TERMINATION OF EMPLOYMENT.
(a) If the Change in Control Date occurs during the Term, any
termination of the Executive's employment by the Company or by the Executive
within 12 months following the Change in Control Date (other than due to the
death of the Executive) shall be communicated by a written notice to the other
party hereto (the "Notice of Termination"), given in accordance with Section 7.
Any Notice of Termination shall: (i) indicate the specific termination provision
(if any) of this Agreement relied upon by the party giving such notice, (ii) to
the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the Date of
Termination (as defined below). The effective date of an employment termination
(the "Date of Termination") shall be the close of business on the date specified
in the Notice of Termination (which date may not be less than 15 days or more
than 120 days after the date of delivery of such Notice of Termination), in the
case of a termination other than one due to the Executive's death, or the date
of the Executive's death, as the case may be.
(b) The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting any such fact or circumstance in enforcing the
Executive's or the Company's right hereunder.
(c) Any Notice of Termination for Cause given by the Company must
be given within 90 days of the occurrence of the event(s) or circumstance(s)
which constitute(s) Cause. Prior to any Notice of Termination for Cause being
given (and prior to any termination for Cause being effective), the Executive
shall be entitled to a hearing before the Board at which he may, at his
election, be represented by counsel and at which he shall have a reasonable
opportunity to be heard. Such hearing shall be held on not less than 15 days
prior written notice to the Executive stating the Board's intention to terminate
the Executive for Cause and stating in detail the particular event(s) or
circumstance(s) which the Board believes constitutes Cause for termination. Any
such Notice of Termination for Cause must be approved by an affirmative vote of
the Board of Directors.
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(d) Any Notice of Termination for Good Reason given by the
Executive must be given within 90 days of the occurrence of the event(s) or
circumstance(s) which constitute(s) Good Reason.
4. BENEFITS TO EXECUTIVE.
4.1 STOCK ACCELERATION. If the Change in Control Date occurs during
the Term, then, effective upon the Change in Control Date, each outstanding
option to purchase shares of Common Stock of the Company held by the Executive
shall become ( to the extent it is not already) immediately exercisable in full.
4.2 COMPENSATION. If the Change in Control Date occurs during the Term
and the Executive's employment with the Company terminates within 12 months
following the Change in Control Date, the Executive shall be entitled to the
following benefits:
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the
Executive's employment with the Company is terminated by the Company (other than
for Cause, Disability or Death) or by the Executive for Good Reason within 12
months following the Change in Control Date, then the Executive shall be
entitled to the following benefits:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(1) the sum of (A) the Executive's base salary through
the Date of Termination (to the extent not previously paid), (B) the product of
(x) the annual bonus paid or payable (including any bonus or portion thereof
which has been earned but deferred) for the most recently completed fiscal year
and (y) a fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of which is
365, and (C) the amount of any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not previously paid (the sum of the
amounts described in clauses (A), (B) and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(2) the amount equal to (A) three multiplied by (B) the
sum of (x) the Executive's annual base salary in effect on the Change in Control
Date and (y) the average bonus paid for the three calendar years immediately
preceding the calendar year during which the Change in Control Date occurs.
(ii) for 12 months after the Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue to provide benefits to the
Executive and the Executive's family at least equal to those which would have
been provided to them if the Executive's employment had not been terminated, in
accordance with the applicable Benefit Plans in effect on the Measurement Date
or, if more favorable to the Executive and his family, in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies; provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive substantially
equivalent benefits under another employer-provided plan, on terms at least as
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favorable to the Executive and his family, then the Company shall no longer be
required to provide the benefits described in this clause (ii);
(iii) to the extent not previously paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive following the Executive's termination of employment under any plan,
program, policy, practice, contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(iv) for purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits to which
the Executive is entitled, the Executive shall be considered to have remained
employed by the Company until 12 months after the Date of Termination.
(b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR DEATH OR
DISABILITY. If the Executive voluntarily terminates his employment with the
Company within 12 months following the Change in Control Date, excluding a
termination for Good Reason, or if the Executive's employment with the Company
is terminated by reason of the Executive's death or Disability within 12 months
following the Change in Control Date, then the Company shall (i) pay the
Executive (or his estate, if applicable), in a lump sum in cash within 30 days
after the Date of Termination, the Accrued Obligations and (ii) timely pay or
provide to the Executive the Other Benefits.
(c) TERMINATION FOR CAUSE. If the Company terminates the
Executive's employment with the Company for Cause within 12 months following the
Change in Control Date, then the Company shall (i) pay the Executive, in a lump
sum in cash within 30 days after the Date of Termination, the sum of (A) the
Executive's annual base salary through the Date of Termination and (B) the
amount of any compensation previously deferred by the Executive, in each case to
the extent not previously paid, and (ii) timely pay or provide to the Executive
the Other Benefits.
4.3 TAXES.
(a) Notwithstanding any other provision of this Agreement, in the
event that the Company undergoes a "Change in Ownership or Control" (as defined
below), the Company shall not be obligated to provide to the Executive such
portion of any "Contingent Compensation Payments" (as defined below) that the
Executive would otherwise be entitled to receive as would constitute "excess
parachute payments" (as defined in Section 280G(b)(1) of the Internal Revenue
Code of 1986, as amended (the "Code")) for the Executive. For purposes of this
Section 4.3, the Contingent Compensation Payments so eliminated shall be
referred to as the "Eliminated Payments" and the aggregate amount (determined in
accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any
successor provision) of the Contingent Compensation Payments so eliminated shall
be referred to as the "Eliminated Amount."
(b) Notwithstanding the provisions of Section 4.3(a), no such
reduction in payments or benefits shall be made if (i) the Eliminated Amount
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(computed without regard to this sentence) exceeds (ii) the aggregate present
value (determined in accordance with Proposed Treasury Regulation Section
1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of the amount of any
additional taxes that would be incurred by the Executive if the Eliminated
Payments (determined without regard to this sentence) were paid to him
(including, state and federal income taxes on the Eliminated Payments, the
excise tax imposed by Section 4999 of the Code payable with respect to all of
the Contingent Compensation Payments, and any withholding taxes). The override
of such reduction in payments or benefits pursuant to this Section 4.3(b) shall
be referred to as a "Section 4.3(b) Override." For purpose of the preceding
sentence, if any federal or state income taxes would be attributable to the
receipt of any Eliminated Payment, the amount of such taxes shall be computed by
multiplying the amount of the Eliminated Payment by the maximum combined federal
and state income tax rate provided by law.
(c) For purposes of this Section 4.3 the following terms shall
have the following respective meanings:
(i) "Change in Ownership or Control" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Section 280G(b)(2) of the Code.
(ii) "Contingent Compensation Payment" shall mean any
payment (or benefit) in the nature of compensation that is made or supplied to a
"disqualified individual" (as defined in Section 280G(c) of the Code) and that
is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a
Change in Ownership or Control of the Company.
(d) Any payments or other benefits otherwise due to the Executive
following a Change in Ownership or Control that could reasonably be
characterized (as determined by the Company) as Contingent Compensation Payments
(the "Potential Payments") shall not be made until the dates provided for in
this Section 4.3(d). Within 30 days after the date of such Change in Ownership
or Control, the Company shall determine and notify the Executive (with
reasonable detail regarding the basis for its determinations) (i) which
Potential Payments constitute Contingent Compensation Payments, (ii) the
Eliminated Amount and (iii) whether the Section 4.3(b) Override is applicable.
Within 30 days after delivery of such notice to the Executive, the Executive
shall deliver a response to the Company (the "Executive Response") stating
either (A) that he agrees with the Company's determination pursuant to the
preceding sentence, in which case he shall indicate, if applicable, which
Contingent Compensation Payments, or portions thereof (the aggregate amount of
which, determined in accordance with Proposed Treasury Regulation Section
1.280G-1, QA-30 or any successor provision, shall be equal to the Eliminated
Amount), shall be treated as Eliminated Payments or (B) that he disagrees with
such determination, in which case he shall indicate which Potential Payments
should be characterized as Contingent Compensation Payments, the Eliminated
Amount, whether the Section 4.3(b) Override is applicable, and, which (if any)
Contingent Compensation Payments, or portions thereof (the aggregate amount of
which, determined in accordance with Proposed Treasury Regulation Section
1.280G-1, QA-30 or any successor provision, shall be equal to the Eliminated
Amount, if any), shall be treated as Eliminated Payments. In the event that the
Executive fails to deliver an Executive Response on or before the required date,
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the Company's initial determination shall be final and the Contingent
Compensation Payments that shall be treated as Eliminated Payments shall be
determined by the Company in its absolute discretion. If the Executive states in
the Executive Response that he agrees with the Company's determination, the
Company shall make the Potential Payments to the Executive within three business
days following delivery to the Company of the Executive Response (except for any
Potential Payments which are not due to be made until after such date, which
Potential Payments shall be made on the date on which they are due). If the
Executive states in the Executive Response that he disagrees with the Company's
determination, then, for a period of 60 days following delivery of the Executive
Response, the Executive and the Company shall use good faith efforts to resolve
such dispute. If such dispute is not resolved within such 60-day period, such
dispute shall be settled exclusively by arbitration in Boston, Massachusetts, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The Company shall, within three business days following delivery
to the Company of the Executive Response, make to the Executive those Potential
Payments as to which there is no dispute between the Company and the Executive
regarding whether they should be made (except for any such Potential Payments
which are not due to be made until after such date, which Potential Payments
shall be made on the date on which they are due). The balance of the Potential
Payments shall be made within three business days following the resolution of
such dispute. The amount of any payments to be made to the Executive following
the resolution of such dispute shall be increased by amount of the accrued
interest thereon computed at the prime rate announced from time to time by the
Wall Street Journal, compounded monthly from the date that such payments
originally were due.
(e) The provisions of this Section 4.3 are intended to apply to
any and all payments or benefits available to the Executive under this Agreement
or any other agreement or plan of the Company under which the Executive receives
Contingent Compensation Payments.
4.4 MITIGATION. The Executive shall not be required to mitigate the
amount of any payment or benefits provided for in this Section 4 by seeking
other employment or otherwise. Further, except as provided in Section
4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4
shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company or otherwise.
5. DISPUTES.
5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim. Any further dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Boston, Massachusetts, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction.
- 9 -
<PAGE>
5.2 EXPENSES. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal, accounting and other fees and expenses which
the Executive may reasonably incur as a result of any claim or contest
(regardless of the outcome thereof) by the Company, the Executive or others
regarding the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive regarding the amount of any payment or benefits
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code. Notwithstanding the preceding sentence, the Executive shall be required to
reimburse the Company for fees and expenses incurred by him (and paid by the
Company) related to a claim or contest initiated by the Executive to the extent
that the arbitrator deems appropriate based on the merits of the Executive's
claims.
6. SUCCESSORS.
6.1 SUCCESSOR TO COMPANY. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company expressly to
assume and agree to perform this Agreement to the same extent that the Company
would be required to perform it if no such succession had taken place. Failure
of the Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if the Executive elects to terminate employment, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement, by operation of law or otherwise.
6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be payable to
the Executive or his family hereunder if the Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
7. NOTICE. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company, at
1800 West Park Drive, Suite 250, Westborough, MA 01581 Attention: Chief
Executive Officer, and to the Executive at _____________ (or to such other
address as either the Company or the Executive may have furnished to the other
in writing in accordance herewith). Any such notice, instruction or
communication shall be deemed to have been delivered five business days after it
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service. Either party may give any notice, instruction or
other communication hereunder using any other means, but no such notice,
- 10 -
<PAGE>
instruction or other communication shall be deemed to have been duly delivered
unless and until it actually is received by the party for whom it is intended.
8. MISCELLANEOUS.
8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the
Executive's employment with the Company shall not be deemed to have terminated
solely as a result of the Executive continuing to be employed by a wholly-owned
subsidiary of the Company.
8.2 SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any
breach of this Agreement by the Company is likely to cause the Executive
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Executive
shall have the right to specific performance and injunctive relief.
8.4 GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflicts of law principles.
8.5 WAIVERS. No waiver by the Executive at any time of any breach of,
or compliance with, any provision of this Agreement to be performed by the
Company shall be deemed a waiver of that or any other provision at any
subsequent time.
8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.
8.7 TAX WITHHOLDING. Any payments provided for hereunder shall be paid
net of any applicable tax withholding required under federal, state or local
law.
8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
- 11 -
<PAGE>
8.9 AMENDMENTS. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
ARCH COMMUNICATIONS GROUP, INC.
By:________________________________
Title:_______________________________
-----------------------------------
[NAME OF EXECUTIVE]
- 12 -
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS AS
- ------------------------------------- --------------------------------- ---------------------------
3057011 Canada, Inc. Ontario, Canada
Answer Iowa, Inc. Iowa Arch Paging
Arch Canada, Inc. Ontario, Canada
Arch Capitol District, Inc. New York Page New York
Arch Communications Enterprises, Delaware Arch Nationwide Paging
Inc.
AD-VU
Arch Communications Services, Inc. New York Arch Paging
Arch Connecticut Valley, Inc. Massachusetts Arch Paging
Arch Michigan, Inc. Delaware Arch Paging
Arch Southeast Communications, Inc. Delaware Arch Paging
Becker Beeper, Inc. Illinois Arch Paging
The Beeper Company of America, Inc. Colorado Arch Paging
PCI Holding Company Pennsylvania Arch Paging
Per-Com Wireless Enterprises, Inc. Ontario, Canada
Premiere Page of Kansas, Inc. Kansas Arch Paging
Professional Communications, Inc. Pennsylvania Arch Paging
(PA)
Professional Electronics, Inc. Pennsylvania Arch Paging
Q Media Company - Paging, Inc. Delaware Arch Paging
Q Media Company - Paging, Inc. Kansas Arch Paging
Q Media Paging - Alabama, Inc. Delaware Arch Paging
USA Mobile Communications, Inc. II Delaware Arch Paging
USA Mobile Communications, Inc. III Delaware Arch Paging
W.Q. Communications, Inc. Kansas Arch Paging
The Westlink Company Delaware Arch Paging
The Westlink Paging Company of New New Mexico Arch Paging
Mexico, Inc.
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-97072, 33-97074, 33-87940, 333-07333 and
333-26759.
Arthur Andersen, LLP
Boston, Massachusetts
March 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915390
<NAME> ARCH COMMUNICATIONS GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,328
<SECURITIES> 0
<RECEIVABLES> 35,891
<ALLOWANCES> 5,744
<INVENTORY> 12,633
<CURRENT-ASSETS> 51,025
<PP&E> 388,035
<DEPRECIATION> 146,542
<TOTAL-ASSETS> 1,020,720
<CURRENT-LIABILITIES> 85,079
<BONDS> 968,896
0
0
<COMMON> 351,419
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,020,720
<SALES> 44,897
<TOTAL-REVENUES> 396,841
<CGS> 29,158
<TOTAL-COSTS> 131,310
<OTHER-EXPENSES> 338,388
<LOSS-PROVISION> 7,181
<INTEREST-EXPENSE> 98,063
<INCOME-PRETAX> (203,046)
<INCOME-TAX> (21,172)
<INCOME-CONTINUING> (181,874)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,874)
<EPS-PRIMARY> (8.77)
<EPS-DILUTED> (8.77)
</TABLE>
