<PAGE>
As filed with the Securities and Exchange Commission on July 24, 1998
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ARCH COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 4812 31-1236804
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
(508) 870-6700
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
C. EDWARD BAKER, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ARCH COMMUNICATIONS, INC.
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
(508) 870-6700
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
COPY TO:
DAVID A. WESTENBERG, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 526-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE(1) OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 3/4% Senior Notes Due
2007................... $130,000,000 100% $130,000,000 $38,350
</TABLE>
- -------------------------------------------------------------------------------
(1)Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to Section 8(a), may determine.
----------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 24, 1998
PROSPECTUS
OFFER TO EXCHANGE
12 3/4% SENIOR NOTES DUE 2007 (THE "EXCHANGE NOTES")
FOR ALL OUTSTANDING 12 3/4% SENIOR NOTES DUE 2007 (THE "PRIVATE NOTES")
[LOGO] OF
ARCH COMMUNICATIONS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ,
1998 UNLESS EXTENDED.
----------
Arch Communications, Inc., a Delaware corporation ("Arch"), hereby offers
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 12 3/4% Senior Notes
due 2007 (the "Exchange Notes"), which exchange has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (the "Registration
Statement"), for each $1,000 principal amount of its outstanding 12 3/4% Senior
Notes due 2007 (the "Private Notes"), of which $130,000,000 in aggregate
principal amount are outstanding as of the date hereof. The form and terms of
the Exchange Notes are the same as the form and terms of the Private Notes
except that (i) the exchange will have been registered under the Securities Act
and, therefore, the Exchange Notes will not bear legends restricting the
transfer thereof, (ii) holders of the Exchange Notes will not be entitled to
certain rights of holders of the Private Notes under the Exchange and
Registration Rights Agreement (as defined herein) and (iii) certain provisions
relating to an increase in the stated interest rate on the Private Notes
provided for under certain circumstances will be eliminated. The Exchange Notes
will evidence the same indebtedness as the Private Notes (which they replace)
and will be entitled to the benefits of an indenture dated as of June 29, 1998
governing the Private Notes and the Exchange Notes (the "Indenture"). The
Private Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Notes". See "The Exchange Offer" and "Description of
Notes".
Arch, a wholly-owned subsidiary of Arch Communications Group, Inc.
("Parent"), is an intermediate holding company with no material assets other
than the stock of its subsidiaries. The Private Notes are, and the Exchange
Notes will be, obligations of Arch; none of Arch's subsidiaries will have any
obligation to pay any amounts due with respect to the Notes or to make any
funds available therefor. The Privates Notes are, and the Exchange Notes will
be, structurally subordinated to all current or future liabilities of Arch's
subsidiaries, including trade payables and indebtedness. At June 30, 1998, the
Notes were structurally subordinated to approximately $343.2 million of
liabilities of Arch's subsidiaries. In addition, Parent will not have any
obligation to pay any amounts due with respect to the Notes or to make any
funds available therefor. At June 30, 1998, Parent had approximately $364.0
million of liabilities (excluding liabilities of its subsidiaries and Parent's
guarantees thereof). See "Risk Factors, Holding Company Structure and
Structural Subordination of the Notes" and "Description of Notes--General".
Arch will not be required to make any mandatory redemption or sinking fund
payment with respect to the Notes prior to maturity. The Notes will be
redeemable at the option of Arch, in whole or in part, at any time after July
1, 2003 at the redemption prices set forth herein. In addition, at the option
of Arch, up to 35% of the Notes may be redeemed prior to July 1, 2001 at the
redemption price set forth herein with the net proceeds of an Equity Offering
(as defined herein) by Arch or Parent, provided that at least $84.5 million
aggregate principal amount of the Notes remains outstanding following each such
redemption. Upon the occurrence of a Change of Control (as defined herein) at
any time, Arch will be required to make an offer to repurchase each holder's
Notes (each a "Holder") at a price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages (as
defined herein), if any, to the date of purchase. The Notes will be senior
unsecured obligations of Arch and will rank pari passu in right of payment with
other existing and future senior indebtedness of Arch. See "Description of
Notes".
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at
the rate of 12 3/4% per annum and the interest thereon will be payable semi-
annually in arrears on January 1 and July 1 of each year, commencing January 1,
1999. The Exchange Notes will bear interest from and including the date of
issuance of the Private Notes (June 29, 1998). Holders whose Private Notes are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Private Notes.
----------
SEE "RISK FACTORS", BEGINNING ON PAGE 14, FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
ARCH WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED PRIVATE NOTES NOT
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS
THE EXCHANGE OFFER IS EXTENDED BY ARCH IN ITS SOLE DISCRETION (THE "EXPIRATION
DATE"). TENDERS OF PRIVATE NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE EXCHANGE OFFER IS NOT
CONDITIONED UPON ANY MINIMUM PRINCIPAL AMOUNT OF PRIVATE NOTES BEING TENDERED
FOR EXCHANGE. PRIVATE NOTES MAY BE TENDERED ONLY IN INTEGRAL MULTIPLES OF
$1,000. IN THE EVENT ARCH TERMINATES THE EXCHANGE OFFER AND DOES NOT ACCEPT FOR
EXCHANGE ANY PRIVATE NOTES, ARCH WILL PROMPTLY RETURN ALL PREVIOUSLY TENDERED
PRIVATE NOTES TO THE HOLDERS THEREOF. THE EXCHANGE OFFER IS SUBJECT TO
CUSTOMARY CONDITIONS. SEE "THE EXCHANGE OFFER--CONDITIONS".
----------
The date of this Prospectus is , 1998
<PAGE>
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, Arch believes that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer who
purchases such Exchange Notes directly from Arch to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of Arch within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that the holder is
acquiring the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes. Holders of Private Notes
wishing to accept the Exchange Offer must represent to Arch, as required by
the Exchange and Registration Rights Agreement (as defined herein), that such
conditions have been met. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. Arch believes that none
of the registered holders of the Private Notes is an affiliate (as such term
is defined in Rule 405 under the Securities Act) of Arch.
Prior to the Exchange Offer, there has been no public market for the Notes.
The Exchange Notes will not be listed on any securities exchange, but the
Private Notes are eligible for trading in the National Association of
Securities Dealers, Inc.'s Private Offerings, Resales and Trading through
Automatic Linkages (PORTAL) market. There can be no assurance that an active
market for the Notes will develop. To the extent that a market for the Notes
does develop, the market value of the Notes will depend on market conditions
(such as yields on alternative investments), general economic conditions,
Arch's financial condition and certain other factors. Such conditions might
cause the Notes, to the extent that they are traded, to trade at a significant
discount from face value. See "Risk Factors--Absence of Public Market for
Notes".
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus,
meeting the requirements of the Securities Act, in connection with any resale
of such Exchange Notes. Any broker-dealer that resells Exchange Notes that
were received by it for its own account pursuant to the Exchange Offer may be
deemed to be an "underwriter" within the meaning of the Securities Act. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. Arch has
indicated its intention to make this Prospectus (as it may be amended or
supplemented) available to any broker-dealer for use in connection with any
such resale for a period of one year after the Expiration Date. See "The
Exchange Offer--Resale of the Exchange Notes" and "Plan of Distribution".
Arch will not receive any proceeds from, and has agreed to bear the expenses
of, the Exchange Offer. No underwriter is being used in connection with this
Exchange Offer. See "The Exchange Offer".
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL ARCH ACCEPT SURRENDERS FOR
EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ARCH. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
ii
<PAGE>
THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF ARCH SINCE THE DATE HEREOF OR THAT ANY INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO ITS DATE.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION
THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
Arch expects that the Exchange Notes will be represented by a single,
permanent global note, which will be deposited with the Trustee (as defined
herein), as custodian for The Depository Trust Company ("DTC"), and registered
in DTC's name or in the name of Cede & Co., its nominee, in each case for
credit to an account of a direct or indirect participant in DTC, including
Morgan Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System ("Euroclear") and Citibank, N.A., as depositary for Cedel
Bank, Societe Anonyme ("Cedel Bank"). Subject to certain exceptions,
beneficial interests in the global note representing the Notes will be shown
on, and transfers thereof to qualified institutional buyers and non-U.S.
Persons (as defined herein) only will be effected through, records maintained
by DTC and its participants. See "Description of Notes".
----------------
NOTICE TO UNITED KINGDOM RESIDENTS
THESE SECURITIES MAY NOT BE OFFERED OR SOLD IN OR INTO THE UNITED KINGDOM
EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING,
HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE
PURPOSES OF THEIR BUSINESSES (OR IN OTHER CIRCUMSTANCES THAT DO NOT CONSTITUTE
AN OFFER TO THE PUBLIC IN THE UNITED KINGDOM FOR THE PURPOSE OF THE PUBLIC
OFFERS OF SECURITIES REGULATIONS 1995), AND THIS DOCUMENT MAY ONLY BE ISSUED
OR PASSED ON IN OR INTO THE UNITED KINGDOM TO ANY PERSON TO WHOM THE DOCUMENT
MAY LAWFULLY BE ISSUED OR PASSED ON BY REASON OF, OR OF ANY REGULATION MADE
UNDER, SECTION 58 OF THE FINANCIAL SERVICES ACT 1986.
NOTICE TO CANADIAN INVESTORS
(PRIVATE NOTE OFFERING RESTRICTED TO BRITISH COLUMBIA, MANITOBA, ONTARIO AND
QUEBEC)
PRIVATE NOTE OFFERING
This Prospectus constitutes an offering of the securities described herein
only in those Canadian jurisdictions and to those persons where and to whom
they may be lawfully offered for sale, and therein only by persons permitted
to sell such securities. This Prospectus is not, and under no circumstances is
to be construed as, an advertisement or a public offering of the securities
referred to herein. No securities commission or similar authority in Canada
has reviewed or in any way passed upon this document or the merits of the
securities described herein and any representation to the contrary is an
offense. This Prospectus constitutes an offering in Canada of the securities
described herein only in the provinces of British Columbia, Manitoba, Ontario
and Quebec.
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis and is exempt from the requirement that Arch prepare and file
a prospectus with the relevant Canadian securities
iii
<PAGE>
regulatory authorities. Accordingly, any resale of the Notes and, if
applicable, the Exchange Notes (as defined herein) must be made in accordance
with applicable securities laws, which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
exemptions from registration and prospectus requirements. Purchasers are
advised to seek legal advice prior to any resale of the Notes and, if
applicable, the Exchange Notes.
OBLIGATIONS OF PURCHASERS
Each Canadian purchaser who acquires Exchange Notes will be deemed to have
represented to Arch, the Initial Purchasers and any dealer who sells Notes to
such purchaser that: (i) such purchaser has reviewed the terms referred to
above under "Resale Restrictions"; (ii) where required by law, such purchaser
is purchasing as principal and not as agent; and (iii) such purchaser or any
ultimate purchaser for which such purchaser is acting as agent is not an
individual and is entitled under applicable Canadian securities laws to
purchase such Notes without the benefit of a prospectus qualified under such
securities laws, and (a) in the case of a purchaser located in a province
other than Ontario, without the dealer having to be registered, (b) in the
case of a purchaser located in Manitoba, such purchaser is purchasing for
investment only and not with a view to resale or distribution, (c) in the case
of a purchaser located in Ontario, such purchaser is a person to whom a dealer
registered as an international dealer in Ontario may sell Notes, and (d) in
the case of a purchaser located in Quebec, such purchaser is a "sophisticated
purchaser" within the meaning of the Securities Act (Quebec).
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax advisers
with respect to the tax consequences of an investment in the Exchange Notes,
in their particular circumstances and with respect to the eligibility of the
Exchange Notes for investment by such purchasers under relevant Canadian
legislation.
ENFORCEMENT OF LEGAL RIGHTS
Arch is organized under the laws of the State of Delaware. All of Arch's
directors and officers as well as the experts named herein may be located
outside of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon Arch or such
persons. All or a substantial portion of the assets of Arch and said persons
may be located outside of Canada and, as a result, it may not be possible to
satisfy a judgment against Arch or such persons in Canada or to enforce a
judgment obtained in Canadian courts against Arch or such persons outside of
Canada.
NO CONTRACTUAL RIGHT OF ACTION FOR RESCISSION OR DAMAGES IN ONTARIO
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
THE FOREGOING SUMMARY IS SUBJECT TO THE EXPRESS PROVISIONS OF THE SECURITIES
ACT (ONTARIO) AND THE RULES AND REGULATIONS THEREUNDER AND REFERENCE IS MADE
TO THE COMPLETE TEXT OF SUCH PROVISIONS CONTAINED THEREIN. SUCH PROVISIONS MAY
CONTAIN LIMITATIONS AND STATUTORY DEFENSES ON WHICH ARCH MAY RELY. THE
ENFORCEABILITY OF THESE RIGHTS MAY BE LIMITED AS DESCRIBED HEREIN UNDER "--
ENFORCEMENT OF LEGAL RIGHTS".
THE RIGHTS DISCUSSED ABOVE ARE IN ADDITION TO AND WITHOUT DEROGATION FROM
ANY OTHER RIGHT OR REMEDY WHICH INVESTORS MAY HAVE AT LAW. IN LIGHT OF U.S.
JURISPRUDENCE, INCLUDING A JUDGMENT FROM THE SUPREME COURT OF THE UNITED
STATES, PROSPECTIVE PURCHASERS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISORS
AS TO WHICH, OR WHETHER ANY, OF SUCH RIGHTS MAY BE AVAILABLE TO THEM.
iv
<PAGE>
LANGUAGE OF DOCUMENTS
You hereby acknowledge that you have expressly requested that all documents
evidencing or relating in any way to the sale of the securities described
herein (including for greater certainty any purchase confirmation or any
notice) be drawn up in the English language only. Vous reconnaissez par les
presentes que vous avez expressement exige que tous les documents faisant foi
ou se rapportant de quelque maniere que ce soit a la vente des valeurs
mobilieres decrites aux presentes (incluant, pour plus de certitude, toute
confirmation d'achat ou tout avis) soient rediges en anglais seulement.
AVAILABLE INFORMATION
Arch is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith,
files reports and other information with the Commission. Such reports and
other information may be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the public reference facilities
maintained by the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials can also be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site that contains reports and other information regarding registrants that
file electronically with the Commission and that is located at
http://www.sec.gov.
Arch has filed with the Commission a Registration Statement on Form S-4 (the
"Registration Statement", which term shall include all amendments, exhibits,
annexes and schedules thereto) under the Securities Act with respect to the
Exchange Notes offered hereby. As permitted by the rules and regulations of
the Commission, this Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. For further information
with respect to Arch and the Exchange Notes offered hereby, reference is made
to the Registration Statement, including the exhibits thereto and the
financial statements, notes and schedules filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
Arch has agreed that, whether or not it is required to do so by the rules
and regulations of the Commission, for so long as any of the Notes remain
outstanding and so long as the Indenture so requires, it will (i) furnish to
the holders of the Notes (A) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on
Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and, with respect to the annual
information only, a report thereon by Arch's certified independent
accountants, and (B) all financial information that would be required to be
included in a Form 8-K filed with the Commission, and (ii) file a copy of all
such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and to make such
information available to investors or potential investors in Arch's debt
securities who request it in writing.
FORWARD-LOOKING INFORMATION
This Prospectus contains certain forward-looking statements and information
relating to Arch or Parent that are based on the beliefs of Arch's management
as well as assumptions made by and information currently available to Arch's
management. When used herein, words such as "anticipate", "believe",
"estimate", "expect", "intend" and similar expressions, as they relate to
Arch, Parent or Arch's management, identify forward-looking statements. Such
statements reflect the current views of Arch with respect to future events and
are subject to certain risks, uncertainties and assumptions, including but not
limited to those factors set forth below under the caption "Risk Factors".
Should one or more of these risks or uncertainties materialize, or should
v
<PAGE>
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. Arch
undertakes no obligation to update or revise any forward-looking statements.
All subsequent written or oral forward-looking statements attributable to Arch
or persons acting on behalf of Arch are expressly qualified in their entirety
by the discussion under "Risk Factors".
vi
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, contained elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, (i) the terms "Arch" or
the "Company" refer to Arch Communications, Inc. and, for periods prior to the
Merger (as defined herein), its predecessors on a combined basis, together with
their wholly-owned direct and indirect subsidiaries, and (ii) the term "Parent"
refers to Arch Communications Group, Inc. and does not include its
subsidiaries.
THE COMPANY
Arch is a leading provider of wireless messaging services, primarily paging
services, and is the second largest paging company in the United States (based
on earnings before interest, taxes, depreciation and amortization ("EBITDA")).
Arch had 4.0 million pagers in service at March 31, 1998. Arch operates in 41
states and more than 180 of the 200 largest markets in the United States. Arch
offers local, regional and nationwide paging services employing digital
networks covering approximately 85% of the United States population. Arch
offers four types of paging services through its networks: digital display,
alphanumeric display, tone-only and tone-plus-voice. Arch also offers enhanced
and complementary services, including voice mail, personalized greeting,
message storage and retrieval, pager loss protection and pager maintenance.
Arch has achieved significant growth in pagers in service and operating cash
flow through a combination of internal growth and acquisitions. From September
1, 1992 through March 31, 1998, Arch's total number of subscribers grew at a
compound rate on an annualized basis of 78.1%. For the same period on an
annualized basis, Arch's compound rate of internal subscriber growth (excluding
pagers added through acquisitions) was 61.6%. From commencement of operations
in September 1986, Arch has completed 33 acquisitions representing an aggregate
of 1.7 million pagers in service at the time of purchase. For the twelve months
ended March 31, 1998, Arch's total revenues were $403.3 million, representing a
compound growth rate on an annualized basis of 54.8% since its fiscal year
ended August 31, 1992. For the same period, Arch's EBITDA was $133.2 million,
representing a compound growth rate on an annualized basis of 59.5% since its
fiscal year ended August 31, 1992. See note (3) to "Summary Financial and
Operating Data".
Arch's strategic objective is to strengthen its position as one of the
leading nationwide paging companies in the United States. Arch believes that
larger, multi-market paging companies enjoy a number of competitive advantages,
including: (i) operating efficiencies resulting from more intensive utilization
of existing paging systems; (ii) economies of scale in purchasing and
administration; (iii) broader geographic coverage of paging systems; (iv)
greater access to capital markets and lower costs of capital; (v) the ability
to obtain additional radio spectrum; (vi) the ability to offer high-quality
services at competitive prices; and (vii) enhanced ability to attract and
retain management personnel. Arch believes that the current size and scope of
its operations afford it many of these advantages and that it has the scope and
presence to effectively compete on a national level. In addition, Arch believes
that the paging industry will undergo further consolidation, and Arch expects
to participate in such consolidation, either as an acquiror or an acquiree. See
"--Recent Developments--Discussions for Possible MobileMedia Acquisition" and
"Risk Factors--Possible Acquisition Transactions".
Arch's operating objectives are to increase its EBITDA, deploy its capital
efficiently, reduce its financial leverage and expand its customer
relationships. To achieve its operating objectives, Arch: (i) has selected a
low-cost operating strategy as its principal competitive tactic; (ii) is
seeking to reduce its financial leverage by reducing capital requirements and
increasing cash flows; (iii) has focused its capital and marketing resources on
one-way paging and enhanced services while taking steps to position itself to
participate in new and emerging services and applications in narrowband
wireless personal communications; and (iv) is pursuing new revenue
opportunities associated with its 4.0 million pagers in service.
1
<PAGE>
RECENT DEVELOPMENTS
THE MERGER
On June 29, 1998, Parent effected a number of restructuring transactions
involving certain of its direct and indirect wholly-owned subsidiaries. Arch
Communications Enterprises, Inc. ("ACE") was merged (the "Merger") into a
subsidiary of USA Mobile Communications, Inc. II ("USAM") named Arch Paging,
Inc. ("API"). In connection with the Merger, USAM changed its name to Arch
Communications, Inc. and issued 100 shares of its common stock to Parent.
Immediately prior to and in connection with the Merger: (i) USAM contributed
its operating assets and liabilities to an existing subsidiary of USAM; (ii)
The Westlink Company, which held ACE's 49.9% equity interest in Benbow PCS
Ventures, Inc. ("Benbow"), distributed its Benbow assets and liabilities to a
new subsidiary of ACE, The Westlink Company II; (iii) ACE contributed its
operating assets and liabilities to an existing subsidiary of ACE; (iv) all of
USAM's subsidiaries were merged into API; and (v) The Westlink Company II was
merged into a new API subsidiary, Benbow Investments, Inc. ("Benbow
Investments"). See "--Corporate Structure".
AMENDED CREDIT FACILITY
Contemporaneously with the Merger, ACE's existing credit facility was amended
and restated to establish senior secured revolving credit and term loan
facilities with API as borrower in the aggregate amount of $400.0 million
(collectively, the "Amended Credit Facility") consisting of (i) a $175.0
million reducing revolving credit facility, (ii) a $100.0 million 364-day
revolving credit facility under which the principal amount outstanding on the
364th day following the closing will convert to a term loan and (iii) a $125.0
million term loan which was available in a single drawing on the closing date.
See "Description of Certain Indebtedness--Amended Credit Facility".
ISSUANCE AND SALE OF PRIVATE NOTES
Contemporaneously with the Merger, Arch issued and sold $130.0 million
principal amount of Private Notes to Bear, Stearns & Co., Inc., Barclays
Capital Inc., RBC Dominion Securities Corporation, BNY Capital Markets, Inc.
and TD Securities (USA) Inc. (the "Initial Purchasers") for net proceeds of
$122.6 million (after deducting the discount to the Initial Purchasers and
estimated offering expenses payable by Arch) in a private placement (the
"Private Note Offering") made pursuant to Rule 144A under the Securities Act.
The Private Notes were sold at an initial price to investors of 98.049% of
their principal amount. The proceeds of the Private Note Offering were applied
as described in "Use of Proceeds".
EQUITY INVESTMENT
On June 29, 1998, two partnerships managed by Sandler Capital Management
Company, Inc., an investment management firm ("Sandler"), together with certain
other private investors, made an equity investment in Parent of $25.0 million
in the form of Series C Convertible Preferred Stock of Parent ("Series C
Preferred Stock"). Simultaneously, Parent contributed to Arch as an equity
investment (the "Equity Investment") $24.0 million of the net proceeds from the
sale of Series C Preferred Stock, Arch contributed such amount to API as an
equity investment and API used such amount to repay indebtedness under ACE's
existing credit facility as part of the establishment of the Amended Credit
Facility. So long as at least 50% of the Series C Preferred Stock remains
outstanding, the holders of the Series C Preferred Stock have the right, voting
as a separate class, to designate one member of the Boards of Directors of
Parent and Arch. Immediately prior to the Series C Preferred Stock financing,
partnerships managed by Sandler owned 4.3% of Parent's outstanding Common
Stock. After giving effect to the issuance of the Series C Preferred Stock, the
holders of the Series C Preferred Stock beneficially owned (including the
Common Stock owned by partnerships managed by Sandler) 21.3% of Parent's Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Equity Investment".
2
<PAGE>
DISCUSSIONS FOR POSSIBLE MOBILEMEDIA ACQUISITION
On June 22, 1998, Parent and Arch each filed a Current Report on Form 8-K
with the SEC reporting that Parent is engaged in discussions concerning the
possible acquisition of MobileMedia Corporation ("MobileMedia"). There are a
number of significant issues which must be resolved prior to execution of an
acquisition agreement, and Parent is aware that other parties are in
discussions with respect to a possible business combination with MobileMedia.
MobileMedia, which is publicly-held, is one of the largest paging companies
in the United States with 3.3 million pagers in service at April 30, 1998.
MobileMedia offers local, regional and nationwide paging services in all 50
states and the District of Columbia, including local coverage in each of the
100 most populated metropolitan markets in the United States. MobileMedia
markets its services primarily under the MobileComm(R) brand name and conducts
business principally through its wholly-owned subsidiary, MobileMedia
Communications, Inc. ("MMC"), and MMC's subsidiaries.
On January 30, 1997, MobileMedia, MMC and all of MMC's subsidiaries
(collectively, the "Debtors") filed a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. The Debtors are operating as
debtors-in-possession under the jurisdiction of the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). On January 27,
1998, the Debtors filed a Joint Plan of Reorganization with the Bankruptcy
Court and on February 2, 1998 the Debtors filed a Disclosure Statement relating
to the Joint Plan of Reorganization. The Debtors, the Official Committee of
Unsecured Creditors and the Steering Committee for the Debtors' secured
creditors agreed to adjourn a hearing concerning the adequacy of the Disclosure
Statement that had been scheduled for April 14, 1998 and have announced that
they are considering certain possible business combinations and stand-alone
scenarios involving the Debtors. The Debtors file monthly financial and
operating reports with the Bankruptcy Court and the SEC (on Form 8-K).
Parent's current discussions contemplate that Parent would acquire
MobileMedia for a combination of (i) notes and/or cash, (ii) the assumption of
certain liabilities and (iii) the issuance to MobileMedia's creditors and/or
other parties of a significant equity interest in Parent which is expected to
constitute a majority of Parent's equity. However, Parent does not intend to
issue equity securities in a manner that would constitute a "change of control"
under any of its financing arrangements. Parent's discussions also contemplate
that Parent's present management and Board of Directors would continue to
control Parent if it acquired MobileMedia. Parent believes that an acquisition
of MobileMedia by Parent would result in a reduction in Parent's overall
financial leverage as well as certain anticipated operating synergies and cost
savings.
Parent has not entered into a letter of intent or definitive agreement for
the acquisition of MobileMedia and discussions could be terminated at any time.
If Parent does enter into an agreement for the acquisition of MobileMedia, the
closing would be subject to approval by Parent's stockholders, Bankruptcy Court
approval, FCC approval, antitrust regulatory approval, the availability of
sufficient financing and other customary conditions. THERE CAN BE NO ASSURANCE
THAT PARENT WILL ACQUIRE MOBILEMEDIA OR THAT, IF PARENT ACQUIRES MOBILEMEDIA,
PARENT WOULD REALIZE ITS ANTICIPATED IMPROVEMENTS IN FINANCIAL LEVERAGE,
OPERATING SYNERGIES OR COST SAVINGS. An acquisition of MobileMedia by Parent
may involve significant operational and financial risks. See "Risk Factors--
Possible Acquisition Transactions".
TOWER SITE SALE
In April 1998, Parent announced an agreement to sell certain of Arch's tower
site assets (the "Tower Site Sale") for approximately $38 million in cash
(subject to adjustment), of which $1.3 million will be paid to a subsidiary of
Benbow in payment for certain assets owned by such subsidiary and included in
the Tower Site Sale. In the Tower Site Sale, Arch is selling communications
towers, real estate, site management contracts
3
<PAGE>
and/or leasehold interests involving 134 sites in 22 states and leasing back
space on the towers on which it currently operates communications equipment to
service its own paging network. Arch will use its net proceeds from the Tower
Site Sale (estimated to be $36 million) to repay indebtedness under the Amended
Credit Facility. The closing of the Tower Site Sale is subject to receipt of
customary regulatory approvals and other conditions. The agreement for the
Tower Site Sale calls for an initial closing to be followed 60 days later by a
final closing. Arch held the initial closing of the Tower Site Sale on June 26,
1998 with gross proceeds to Arch of approximately $12 million and currently
expects to hold the final closing for the balance of the transaction in the
third quarter of 1998, although no assurance can be given that the final
closing will be held as expected. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Shift
in Operating Focus".
DIVISIONAL REORGANIZATION
In June 1998, Parent's Board of Directors approved a reorganization of
Parent's operations (the "Divisional Reorganization"). As part of the
Divisional Reorganization, which will be implemented over a period of 18 to 24
months, Parent plans to consolidate its seven operating divisions into four
operating divisions and consolidate certain regional administrative support
functions, resulting in various operating efficiencies. Arch estimates that the
Divisional Reorganization, once fully implemented, will result in annual cost
savings of approximately $15 million (approximately $11.5 million for salary
and employee benefits and $3.5 million for lease obligations). Arch expects to
reinvest a portion of these cost savings to expand its sales activities. In
connection with the Divisional Reorganization, Parent (i) anticipates a net
reduction of approximately 10% of its workforce, (ii) plans to close certain
office locations and redeploy other real estate assets and (iii) expects to
record a restructuring charge of approximately $15 million to $25 million for
the second quarter of 1998. The restructuring charge is expected to consist of
approximately (i) $8 million for employee severance and benefits, (ii) $4
million to $9 million for lease obligations and terminations, (iii) $1.5
million to $5 million for the writedown of fixed assets and (iv) $1.5 million
to $3 million for other items. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Divisional Reorganization" and
"Business".
PAGE CALL ACQUISITION
Prior to June 29, 1998, Benbow held exclusive rights to a 50 KHz
outbound/12.5 KHz inbound narrowband personal communications services ("N-PCS")
license in each of the Central and Western regions of the United States, and
Page Call, Inc. ("Page Call") owned exclusive rights to a 50 KHz outbound/12.5
KHz inbound N-PCS license in each of the Northeast, South and Midwest regions
of the United States, utilizing the same radio frequency as Benbow's existing
N-PCS licenses. On June 29, 1998, Benbow acquired Page Call's outstanding stock
by issuing preferred stock and a promissory note in the aggregate face amount
of $17.2 million with a 12% annual return, and Parent guaranteed such purchase
price in cash or through the issuance of Parent's Common Stock, at Parent's
election. As a result of the Page Call acquisition, Benbow holds (directly or
through Page Call) licenses covering all five regions of the United States.
Benbow needs to construct its N-PCS system (or make other arrangements) before
it can offer N-PCS services. See "Business--Investments in Narrowband PCS
Licenses".
--------------------
Arch was incorporated in Delaware in 1988 as USA Mobile Communications, Inc.
II and changed its name to Arch Communications, Inc. in June 1998. Arch's
principal offices are located at 1800 West Park Drive, Suite 250, Westborough,
Massachusetts 01581, and its telephone number is (508) 870-6700.
4
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER.......... Arch is offering to exchange $1,000 principal
amount of Exchange Notes for each $1,000
principal amount of Private Notes that are
properly tendered and accepted. Arch will issue
Exchange Notes on or promptly after the
Expiration Date. There is $130,000,000 aggregate
principal amount of Private Notes outstanding.
See "The Exchange Offer--Purpose of the Exchange
Offer".
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, Arch believes that the Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Private Notes may be offered for
resale, resold and otherwise transferred by a
holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from
Arch to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or
(ii) a person that is an affiliate of Arch within
the meaning of Rule 405 under the Securities
Act), without compliance with the registration
and prospectus delivery provisions of the
Securities Act; provided that the holder is
acquiring Exchange Notes in the ordinary course
of its business and is not participating, and had
no arrangement or understanding with any person
to participate, in a distribution of the Exchange
Notes. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Private
Notes, where such Private Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange
Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own
account pursuant to the Exchange Offer may be
deemed to be an "underwriter" within the meaning
of the Securities Act. The Letter of Transmittal
states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. See "The Exchange
Offer--Resale of the Exchange Notes".
EXCHANGE AND REGISTRATION
RIGHTS AGREEMENT............ The Private Notes were sold by Arch on June 29,
1998 to the Initial Purchasers pursuant to a
Purchase Agreement, dated June 24, 1998, by and
among Arch and the Initial Purchasers (the
"Purchase Agreement"). Pursuant to the Purchase
Agreement, Arch and the Initial Purchasers
entered into an Exchange and Registration Rights
Agreement, dated as of June 24, 1998 (the
"Exchange and Registration Rights Agreement"),
which grants the holders of the Private Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
rights, which will terminate upon the
consummation of the Exchange Offer. See "The
Exchange Offer--Termination of Certain Rights".
5
<PAGE>
EXPIRATION DATE............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless the
Exchange Offer is extended by Arch in its sole
discretion, in which case the term "Expiration
Date" shall mean the latest date and time to
which the Exchange Offer is extended. See "The
Exchange Offer--Expiration Date; Extensions;
Amendments".
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE The Exchange Notes will bear interest from and
PRIVATE NOTES............... including the date of issuance of the Private
Notes (June 29, 1998). Holders whose Private
Notes are accepted for exchange will be deemed to
have waived the right to receive any interest
accrued on the Private Notes. See "The Exchange
Offer--Interest on the Exchange Notes".
CONDITIONS TO THE EXCHANGE Arch reserves the right in its sole and absolute
OFFER....................... discretion, subject to applicable law, at any
time and from time to time, (i) to delay the
acceptance of the Private Notes for exchange,
(ii) to terminate the Exchange Offer if certain
specified conditions have not been satisfied,
(iii) to extend the Expiration Date of the
Exchange Offer and retain all Private Notes
tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Private Notes
to withdraw their tendered Private Notes, or (iv)
to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. See
"The Exchange Offer--Terms of the Exchange
Offer". In addition, the Exchange Offer is
subject to certain customary conditions that may
be waived by Arch. The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount of Private Notes being tendered for
exchange. See "The Exchange Offer--Conditions".
PROCEDURES FOR TENDERING
PRIVATE NOTES............... Each holder of Private Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes
and any other required documentation to U.S. Bank
Trust National Association, as exchange agent
(the "Exchange Agent"), at the address set forth
herein. By executing the Letter of Transmittal,
the holder will represent to and agree with Arch
that, among other things, (i) the Exchange Notes
to be acquired by such holder of Private Notes in
connection with the Exchange Offer are being
acquired by such holder in the ordinary course of
its business, (ii) if such holder is not a
broker-dealer, such holder is not currently
participating in, does not intend to participate
in, and has no arrangement or understanding with
any person to participate in a distribution of
the Exchange Notes, (iii) if such holder is a
broker-dealer registered under the Exchange Act
or is participating in the Exchange Offer for the
purpose of distributing the Exchange Notes, such
holder will comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with a
6
<PAGE>
secondary resale transaction of the Exchange
Notes acquired by such person and cannot rely on
the position of the staff of the Commission set
forth in no-action letters (see "The Exchange
Offer--Resale of the Exchange Notes"), (iv) such
holder understands that a secondary resale
transaction described in clause (iii) above and
any resales of Exchange Notes obtained by such
holder in exchange for Private Notes acquired by
such holder directly from Arch should be covered
by an effective registration statement containing
the selling securityholder information required
by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (v) such
holder is not an "affiliate", as defined in Rule
405 under the Securities Act, of Arch. Any
broker-dealer that resells Exchange Notes that
were received by it for its own account pursuant
to the Exchange Offer may be deemed to be an
"underwriter" within the meaning of the
Securities Act. If the holder is a broker-dealer
that will receive Exchange Notes for its own
account in exchange for Private Notes that were
acquired as a result of market-making activities
or other trading activities, such holder will be
required to acknowledge in the Letter of
Transmittal that such holder will deliver a
prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and
by delivering a prospectus, such holder will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. See
"The Exchange Offer--Procedures for Tendering".
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Private Notes in
the Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. Holders who intend to tender Private
Notes through DTC's ATOP procedures need not
submit a Letter of Transmittal. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering such owner's Private Notes, either
make appropriate arrangements to register
ownership of the Private Notes in such owner's
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable time
and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer--
Procedures for Tendering".
GUARANTEED DELIVERY Holders of Private Notes who wish to tender their
PROCEDURES.................. Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures
set forth under "The Exchange Offer--Guaranteed
Delivery Procedures".
7
<PAGE>
ACCEPTANCE OF THE PRIVATE
NOTES AND DELIVERY OF THE Subject to the satisfaction or waiver of the
EXCHANGE NOTES ............. conditions to the Exchange Offer, Arch will
accept for exchange any and all Private Notes
that are properly tendered in the Exchange Offer
prior to the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer".
WITHDRAWAL RIGHTS........... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders".
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS ............. The exchange of Private Notes for Exchange Notes
should be non-taxable for federal income tax
purposes. As a result, no material federal income
tax consequences should result to holders
exchanging Private Notes for Exchange Notes. See
"Certain Federal Income Tax Considerations".
EXCHANGE AGENT.............. U.S. Bank Trust National Association, the Trustee
under the Indenture, is serving as the Exchange
Agent in connection with the Exchange Offer. The
mailing address of the Exchange Agent is 180 E.
5th Street, St. Paul, Minnesota 55101. For
assistance and requests for additional copies of
this Prospectus, the Letter of Transmittal or the
Notice of Guaranteed Delivery, the telephone
number for the Exchange Agent is (612) 244-0721,
and the facsimile number for the Exchange Agent
is (612) 244-1537.
THE EXCHANGE NOTES
The Exchange Offer applies to the entire aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof, (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Exchange and Registration Rights Agreement, and (iii) certain
provisions relating to an increase in the stated interest rate on the Private
Notes provided for under certain circumstances will be eliminated. The Exchange
Notes will evidence the same debt as the Private Notes (which they replace) and
will be issued under, and be entitled to the benefits of, the Indenture. For
further information and for definitions of certain capitalized terms used
below, see "Description of the Notes".
SECURITIES OFFERED.......... $130.0 million aggregate principal amount of 12
3/4% Senior Notes due 2007.
MATURITY.................... July 1, 2007.
INTEREST.................... The Notes will bear interest at a rate of 12 3/4%
per annum, payable semi-annually in arrears on
January 1 and July 1 of each year, commencing
January 1, 1999.
8
<PAGE>
RANKING..................... The Notes will be senior unsecured obligations of
Arch and will rank pari passu in right of payment
with other existing and future senior
indebtedness of Arch. Arch is an intermediate
holding company with no material assets other
than the stock of its subsidiaries. The Notes
will be structurally subordinated to all current
or future liabilities of Arch's subsidiaries,
including trade payables and indebtedness. At
June 30, 1998, the Notes were structurally
subordinated to approximately $343.2 million of
liabilities of Arch's subsidiaries. In addition,
Parent will not have any obligation to pay any
amounts due with respect to the Notes or to make
any funds available therefor. At June 30, 1998,
Parent had approximately $364.0 million of
liabilities (excluding liabilities of its
subsidiaries and Parent's guarantees thereof).
See "Risk Factors--Holding Company Structure and
Structural Subordination of the Notes".
OPTIONAL REDEMPTION......... Except as set forth below, the Notes will not be
redeemable at the option of Arch prior to July 1,
2003. Thereafter, the Notes will be subject to
redemption at the option of Arch, in whole or in
part, at the redemption prices set forth herein
plus accrued and unpaid interest and Liquidated
Damages, if any, to the applicable redemption
date. Notwithstanding the foregoing, at any time
prior to July 1, 2001, Arch may redeem up to 35%
of the Notes at a redemption price of 112 3/4% of
the principal amount thereof, plus accrued and
unpaid interest Liquidated Damages, if any, to
the redemption date, with the net cash proceeds
of an Equity Offering by Arch or Parent; provided
that at least $84.5 million aggregate principal
amount of the Notes originally issued under the
Indenture remain outstanding immediately after
the occurrence of each such redemption; and
provided further, that such redemption shall
occur within 75 days following the date of the
consummation of each such Equity Offering. See
"Description of Notes--Optional Redemption".
CHANGE OF CONTROL........... Upon the occurrence of a Change of Control at any
time, Arch will be obligated to make an offer to
repurchase each Holder's Notes at a price equal
to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
purchase. There can be no assurance that Arch
will have the financial resources to repurchase
the Notes upon a Change of Control. See
"Description of Notes--Repurchase at the Option
of Holders--Change of Control".
CERTAIN COVENANTS........... The Indenture will contain certain covenants
that, among other things, limit the ability of
Arch to incur additional indebtedness, issue
preferred stock, pay dividends or make other
distributions, repurchase Capital Stock (as
defined herein), repay subordinated indebtedness
or make other Restricted Payments (as defined
herein), create certain liens, enter into certain
transactions with affiliates, sell assets, issue
or sell Capital Stock of Arch's Restricted
Subsidiaries (as defined herein) or enter into
certain mergers and consolidations. See
"Description of Notes--Certain Covenants".
9
<PAGE>
RISK FACTORS
See "Risk Factors" beginning on page 14 for a discussion of factors that
should be considered in connection with an investment in the Exchange Notes
offered hereby.
10
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
Prior to consummation of the Merger, ACE and USAM were wholly-owned
subsidiaries of Parent. The Merger is being accounted for under the pooling of
interests method. The following summary financial and operating data reflects
the consolidated results and operating data of ACE and USAM as if Arch had been
formed on January 1, 1994, the earliest date presented herein.
The following summary financial and operating data as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997 has been derived from Arch's audited Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus. The following summary
financial information and operating data as of and for the year ended December
31, 1994 has been derived from unaudited financial statements that have been
prepared on the same basis as the audited financial statements and, in the
opinion of Arch's management, contain all adjustments, consisting only of
normal recurring accruals, necessary for the fair presentation of the results
of operations for such period. The following summary financial and operating
data as of March 31, 1998 and for the three-month periods ending March 31, 1997
and 1998 have been derived from Arch's unaudited Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
following consolidated financial information should be read in conjunction with
"Selected Consolidated Financial and Operating Data", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Arch's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1994 (1) 1995 (1) 1996 1997 1997 1998
-------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service, rental and
maintenance revenues.. $ 61,529 $ 138,466 $ 291,399 $ 351,944 $ 84,417 $ 91,397
Product sales.......... 14,374 24,132 39,971 44,897 11,122 10,642
-------- --------- --------- --------- --------- ---------
Total revenues......... 75,903 162,598 331,370 396,841 95,539 102,039
Cost of products sold.. (12,787) (20,789) (27,469) (29,158) (7,126) (7,366)
-------- --------- --------- --------- --------- ---------
63,116 141,809 303,901 367,683 88,413 94,673
Depreciation and
amortization.......... 18,321 60,037 191,101 231,376 57,776 53,471
Operating income
(loss)................ (352) (12,851) (85,300) (101,044) (26,389) (19,175)
Interest and non-
operating expenses,
net................... (4,973) (20,397) (49,060) (62,884) (15,360) (16,270)
Equity in loss of
affiliate (2)......... -- -- (1,968) (3,872) (888) (1,055)
Net income (loss)...... (6,462) (30,332) (87,025) (146,628) (37,337) (36,500)
OTHER OPERATING DATA:
Cash flows provided by
(used in) operating,
investing and
financing activities..
EBITDA (3)............. $ 17,969 $ 47,186 $ 105,801 $ 130,332 $ 31,387 $ 34,296
EBITDA margin (4)...... 28% 33% 35% 35% 36% 36%
Capital expenditures,
excluding
acquisitions.......... $ 33,450 $ 60,468 $ 155,575 $ 102,767 $ 30,321 $ 21,319
Pagers in service at
end of period......... 538,000 2,006,000 3,295,000 3,890,000 3,515,000 4,016,000
Ratio of EBITDA to
interest expense...... 2.1x
Ratio of total debt to
annualized EBITDA
(5)................... 4.8x
PRO FORMA OPERATING DATA
(6):
Ratio of EBITDA to
interest expense...... 2.0x
Ratio of total debt to
annualized EBITDA
(7)................... 4.7x
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------
ACTUAL PRO FORMA (8)
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.................................. $ 56,281 $ 56,281
Total assets.................................... 983,536 995,336
Current maturities of long-term debt............ 19,316 4
Long-term debt, less current maturities......... 640,438 647,550
Stockholder's equity............................ 265,840 289,840
</TABLE>
- --------------------
(1) Arch Communications Group, Inc. ("Old Parent") was incorporated in January
1986 in Delaware and conducted its operations through wholly-owned direct
and indirect subsidiaries. On September 7, 1995, Old Parent completed its
acquisition of USA Mobile Communications Holdings, Inc. ("USA Mobile")
through the merger (the "USA Mobile Merger") of Old Parent with and into
USA Mobile, which simultaneously changed its name to Arch Communications
Group, Inc. and continued in existence as a Delaware corporation. In
accordance with generally accepted accounting principles, Old Parent was
treated as the acquirer in the USA Mobile Merger for accounting and
financial reporting purposes, and Parent reports the historical financial
statements of Old Parent as the historical financial statements of Parent.
ACE did not conduct operations prior to the USA Mobile Merger. Effective
January 1, 1995, Parent changed its fiscal year end from August 31 to
December 31.
(2) Represents Arch's share of Benbow's losses since Arch's acquisition of
Westlink Holdings, Inc. in May 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resourses --Acquisitions".
(3) 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 covenants under
their respective financing 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.
EBITDA, as determined by Arch, may not necessarily be comparable to
similarly titled data of other paging companies. EBITDA does not reflect
equity in loss of affiliate, income tax benefit, interest and non-operating
expenses, net and extraordinary items.
(4) Calculated by dividing EBITDA by total revenues less cost of products sold.
(5) Calculated by dividing total debt by annualized EBITDA for the three months
ended March 31, 1998.
(6) Gives effect to the following events as if such events had occurred on
January 1, 1998: (i) the Private Note Offering and application of the
estimated net proceeds therefrom as described under "Use of Proceeds"; (ii)
borrowings pursuant to the Amended Credit Facility; and (iii) the Equity
Investment and the application of the proceeds therefrom. The pro forma
information is presented for illustrative purposes only and is not
necessarily indicative of the results of operations that would have
occurred if all such events had occurred on such date or of the financial
position of Arch.
(7) Calculated by dividing pro forma total debt by annualized EBITDA for the
three months ended March 31, 1998.
(8) Gives effect to the following events as if such events had occurred on
March 31, 1998: (i) the Private Note Offering and application of the
estimated net proceeds therefrom as described under "Use of Proceeds"; (ii)
borrowings pursuant to the Amended Credit Facility; and (iii) the Equity
Investment and the application of the proceeds therefrom. The pro forma
information is presented for illustrative purposes only and is not
necessarily indicative of the results of operations that would have
occurred if all such events had occurred on such date or of the financial
position of Arch.
12
<PAGE>
CORPORATE STRUCTURE
The following chart summarizes (i) the organizational structure of Parent,
Arch and Arch's operating subsidiaries and (ii) their respective debt
obligations and guarantees thereof. See "--Recent Developments",
"Capitalization", "Description of Certain Indebtedness", "Description of Notes"
and Arch's Consolidated Financial Statements and Notes thereto.
ARCH COMMUNICATIONS GROUP, INC.
10 7/8% Senior Discount Notes due 2008
6 3/4% Convertible Subordinated Debentures due 2003
Guarantee of Amended Credit Facility(1)
ARCH COMMUNICATIONS, INC.
12 3/4% Senior Notes due 2007 (Private Notes and Exchange Notes)
9 1/2% Senior Notes due 2004(2)
14% Senior Notes due 2004(2)
Guarantee of Amended Credit Facility
ARCH PAGING, INC.
Amended Credit Facility(3)
FORMER ACE OPERATING SUBSIDIARIES(4)
Guarantee of Amended Credit Facility(5)
- --------------------
(1) This obligation is secured by Parent's pledge of the capital stock and
notes of ACI.
(2) The Notes rank pari passu in right of payment with this obligation.
(3) The Notes are structurally subordinated in right of payment to this
obligation. This obligation is secured by a pledge of the capital stock of
the former ACE operating subsidiaries.
(4) Consists of the former ACE operating subsidiaries and Benbow Investments.
(5) Certain of ACE's former operating subsidiaries have provided guarantees
which are secured by a security interest in those assets of such
subsidiaries which were pledged under ACE's former credit facility.
13
<PAGE>
RISK FACTORS
Before making an investment in the Exchange Notes, prospective investors
should carefully consider the following matters, as well as the other
information contained in this Prospectus.
INDEBTEDNESS AND HIGH DEGREE OF LEVERAGE
Arch is highly leveraged. At June 30, 1998, after giving effect to the
Private Note Offering and application of the net proceeds therefrom as
described under "Use of Proceeds", the Merger, borrowings pursuant to the
Amended Credit Facility and the Equity Investment and application of the
proceeds therefrom, Arch had outstanding $639.5 million of total debt,
including (i) $125.0 million principal amount of 9 1/2% Senior Notes due 2004
(the "9 1/2% Notes"), (ii) $100.0 million principal amount of 14% Senior Notes
due 2004 (the "14% Notes" and, collectively with the 9 1/2% Notes, the "USAM
Notes"), (iii) $127.5 million principal amount of Private Notes and (iv)
$287.0 million of borrowings under the Amended Credit Facility. Arch's high
degree of leverage may have important consequences for Arch, including: (i)
the ability of Arch 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 available on favorable
terms; (ii) a substantial portion of the cash flow of Arch and its
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 Amended Credit Facility, the Indenture and the
indentures under which the USAM Notes are outstanding contain financial and
restrictive covenants, the failure to comply with which may result in an event
of default which, if not cured or waived, could have a material adverse effect
on Arch; (iv) Arch may be more highly leveraged than its competitors which may
place it at a competitive disadvantage; (v) Arch's high degree of leverage
will make it more vulnerable to a downturn in its business or the economy
generally; and (vi) Arch's high degree of leverage may impair its ability to
participate in future consolidation of the paging industry. In April 1997,
Parent reordered its operating priorities to improve capital efficiency and
strengthen its balance sheet by placing a higher priority on leverage
reduction than subscriber unit growth. As part of its reordered operating
priorities, Parent has implemented various initiatives to reduce capital costs
while sustaining acceptable levels of unit and revenue growth. As a result,
Arch's rate of internal growth in pagers in service has slowed and is expected
to remain below the rates of internal growth previously achieved by Arch, but
Arch has not yet reduced its financial leverage significantly. There can be no
assurance that Arch will be able to reduce its financial leverage
significantly or that Arch will achieve an appropriate balance between growth
which it considers acceptable and future reductions in financial leverage. If
Arch is not able to achieve continued growth in EBITDA, it may be precluded
from incurring additional indebtedness due to cash flow coverage requirements
under existing debt instruments, including Parent's 10 7/8% Senior Discount
Notes due 2008 (the "Parent Discount Notes"). See "Use of Proceeds",
"Capitalization", "Selected Combined Financial and Operating Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Description of Certain Indebtedness" and Arch's Consolidated
Financial Statements and Notes thereto.
HOLDING COMPANY STRUCTURE AND STRUCTURAL SUBORDINATION OF THE NOTES
Arch is an intermediate holding company with no material assets other than
the capital stock of its subsidiaries. Arch's subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to
pay any amounts due with respect to the Notes or to make any funds available
therefor, whether by dividends, loans or other payments. The Notes are
structurally subordinated to all current or future liabilities of Arch's
subsidiaries, including trade payables and indebtedness. Any right of Arch to
receive assets of any subsidiary upon such subsidiary's liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in those assets) is structurally subordinated to the claims of
that subsidiary's creditors, except to the extent that Arch is itself
recognized as a creditor of such subsidiary, in which case the claims of Arch
would still be subject to any security interests in the assets of such
subsidiary and any liabilities of such subsidiary senior to that held by Arch
and may otherwise be challenged in a liquidation or reorganization proceeding.
At June 30, 1998, after giving effect to the Offering and application of the
net proceeds therefrom as
14
<PAGE>
described herein under "Use of Proceeds", borrowings pursuant to the Amended
Credit Facility and the Equity Investment, the Notes were structurally
subordinated to approximately $343.2 million of liabilities of Arch's
subsidiaries. Although the Notes rank pari passu in right of payment with the
USAM Notes, if the lenders under the Amended Credit Facility are granted a
security interest in certain additional assets not currently pledged
thereunder, the USAM Notes would be entitled, and the Notes would not be
entitled, to be secured equally and ratably with the lenders under the Amended
Credit Facility to the extent of such additional assets. In that event, the
Notes would be structurally subordinated to the USAM Notes to the extent of
the additional collateral securing the USAM Notes so long as the USAM Notes
are outstanding. See "Description of Notes--Certain Covenants--Liens". In
addition, Parent does not have any obligation to pay any amounts due with
respect to the Notes or to make any funds available therefor. At June 30,
1998, Parent had approximately $364.0 million of liabilities (excluding
liabilities of its subsidiaries and Parent's guarantees thereof). Parent
expects to service the interest payments, which commence September 15, 2001
and total $50.8 million annually, on its $467.4 million principal amount at
maturity of the Parent Discount Notes out of cash made available to it by Arch
and Arch's subsidiaries, but there can be no assurance that Arch and Arch's
subsidiaries will be able to generate sufficient cash flow to service such
interest payments. In addition, limitations contained in the indentures under
which the USAM Notes are outstanding would not currently permit Arch and its
subsidiaries to make sufficient payments to Parent to enable Parent to pay
interest on the Parent Discount Notes. Arch may need to modify the Amended
Credit Facility, amend the indentures under which the USAM Notes are
outstanding or redeem the USAM Notes in order to make payments to enable
Parent to pay interest on the Parent Discount Notes. No assurance can be given
that, if necessary, Arch would be able to modify the Amended Credit Facility,
amend such indentures or redeem the USAM Notes. A default by Parent in its
payment obligations under the Parent Discount Notes could have a material
adverse effect on the business, financial condition, results of operations or
prospects of Parent or Arch, or Arch's ability to make payments with respect
to the Notes when due. See "Capitalization", "Selected Consolidated Financial
and Operating Data", "Description of Certain Indebtedness" and "Description of
Notes".
DEBT SERVICE; LIMITATIONS ON ACCESS TO CASH FLOW OF OPERATING SUBSIDIARIES
Arch expects to service the interest payments on the Notes, which commence
January 1, 1999 and total $16.6 million annually, out of cash made available
to it by its subsidiaries. The ability of Arch to make payments of principal
and interest on the Notes will be dependent upon Arch's subsidiaries achieving
and sustaining levels of performance in the future that would permit such
subsidiaries to pay dividends, distributions or fees to Arch which are
sufficient to permit such payments on the Notes. Many factors, some of which
will be beyond Arch's control, such as prevailing economic conditions, will
affect the performance of Arch's subsidiaries. There can be no assurance that
Arch's subsidiaries will be able to generate sufficient cash flow to cover
required interest and principal payments on their current and future
indebtedness or the Notes. If Arch 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 Arch, that Arch will be able to refinance its existing
indebtedness or that sufficient funds could be raised through asset sales. See
"Use of Proceeds", "Selected Consolidated Financial and Operating Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Description of Certain Indebtedness" and Arch's Consolidated
Financial Statements and Notes thereto.
AMENDED CREDIT FACILITY AND INDENTURE RESTRICTIONS
The Amended Credit Facility and the Indenture impose certain operating and
financial restrictions on Arch. The Amended Credit Facility requires Arch to
maintain specified financial ratios, among other obligations, including a
maximum leverage ratio and a minimum fixed charge coverage ratio, each as
defined in the Amended Credit Facility. In addition, the Amended Credit
Facility limits or restricts, among other things, Arch's ability to: (i)
declare dividends or redeem or repurchase capital stock; (ii) prepay, redeem
or purchase debt; (iii) incur liens
15
<PAGE>
and engage in sale/leaseback transactions; (iv) make loans and investments;
(v) incur indebtedness and contingent obligations; (vi) amend or otherwise
alter debt and other material agreements; (vii) engage in mergers,
consolidations, acquisitions and asset sales; (viii) engage in transactions
with affiliates; and (ix) alter its lines of business or accounting methods.
In addition, the Indenture limits, among other things: (i) the incurrence of
additional indebtedness by Arch and its Restricted Subsidiaries (as defined
therein); (ii) the payment of dividends and other restricted payments by Arch
and its Restricted Subsidiaries; (iii) asset sales; (iv) transactions with
affiliates; (v) the incurrence of liens; and (vi) mergers and consolidations.
Arch's ability to comply with such covenants may be affected by events beyond
its control, including prevailing economic and financial conditions. A breach
of any of these covenants could result in a default under the Amended Credit
Facility and/or Indenture. Upon the occurrence of an event of default under
the Amended Credit Facility or the Indenture, the lenders under the Amended
Credit Facility could elect to declare all amounts outstanding under the
Amended Credit Facility, together with accrued and unpaid interest, to be
immediately due and payable. If Arch were unable to repay any such amounts,
the lenders could proceed against the collateral securing such indebtedness.
If the lenders under the Amended Credit Facility accelerate the payment of
such indebtedness, there can be no assurance that the assets of Arch would be
sufficient to repay in full such indebtedness and the other indebtedness of
Arch, including the Notes. In addition, because the Indenture limits the
ability of Arch to engage in certain transactions except under certain
circumstances, Arch may be prohibited from entering into transactions that
could be beneficial to Arch. See "Description of Certain Indebtedness" and
"Description of Notes".
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
The Amended Credit Facility will limit the ability of Arch to purchase any
of the Notes, and will also provide that certain change of control events with
respect to Arch will constitute a default thereunder. Any future credit
agreements or other agreements relating to indebtedness to which Arch becomes
a party may contain similar restrictions and provisions. In the event a Change
of Control occurs at a time when Arch is prohibited from purchasing the Notes,
Arch could seek the consent of its lenders to repurchase the Notes or could
attempt to refinance the borrowings that contain such prohibition. If Arch
does not obtain such consent or repay such borrowings, Arch will remain
prohibited from purchasing the Notes by the terms of the relevant
indebtedness. In such case, Arch's failure to repurchase the tendered Notes
would constitute an event of default under the Indenture which would, in turn,
constitute a default under the Amended Credit Facility and could constitute a
default under other indebtedness. Furthermore, no assurance can be given that
Arch will have sufficient funds available to satisfy its repurchase obligation
with respect to the Notes following a Change of Control. See "Description of
Certain Indebtedness" and "Description of Notes".
FUTURE CAPITAL NEEDS
Arch's business strategy requires the availability of substantial funds to
finance the continued development and further growth and expansion of its
operations, including possible acquisitions. The amount of capital required by
Arch will depend upon a number of factors, including subscriber growth, the
type of paging devices and services demanded by customers, service revenues,
technological developments, marketing and sales expenses, competitive
conditions, the nature and timing of Arch's N-PCS strategy, acquisition
strategy and acquisition opportunities. No assurance can be given that
additional equity or debt financing will be available to Arch on acceptable
terms, if at all. The unavailability of sufficient financing when needed would
have a material adverse effect on the business, financial condition, results
of operations or prospects of Arch or its ability to make payments with
respect to the Notes when due. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources", "Business", "Description of Certain Indebtedness" and "Description
of Notes".
HISTORY OF LOSSES
Arch has not reported any net income since its inception. Arch had net
losses of $30.3 million, $87.0 million, $146.6 million and $36.5 million in
the years ended December 31, 1995, 1996 and 1997 and the three
16
<PAGE>
months ended March 31, 1998, respectively. These net losses 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 material
adverse effect on the business, financial condition, results of operations or
prospects of Arch or its ability to make payments with respect to the Notes
when due. Arch expects to continue to report net losses for the foreseeable
future. See "Selected Consolidated Financial and Operating Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Arch's Consolidated Financial Statements and Notes thereto.
POSSIBLE ACQUISITION TRANSACTIONS
Arch believes that the paging industry will undergo further consolidation,
and Arch expects to participate in such consolidation, either as an acquiror
or an acquiree. Arch has evaluated and expects to continue to evaluate
possible acquisition transactions on an ongoing basis and, at the present time
is, and at any given time may be, engaged in discussions with respect to
possible acquisitions or other business combinations. The process of
integrating acquired paging businesses may involve unforeseen difficulties and
may require a disproportionate amount of the time and attention of Arch's
management and the financial and other resources of Arch. No assurance can be
given that suitable acquisition transactions can be identified, financed and
completed on acceptable terms, that Arch's future acquisitions will be
successful, or that Arch will participate in any future consolidation of the
paging industry. See "Business".
On June 22, 1998, Parent and Arch each filed a Current Report on Form 8-K
with the SEC reporting that Parent is engaged in discussions concerning the
possible acquisition of MobileMedia. There are a number of significant issues
which must be resolved prior to execution of an acquisition agreement, and
Parent is aware that other parties are in discussions with respect to a
possible business combination with MobileMedia. Parent has not entered into a
letter of intent or definitive agreement for the acquisition of MobileMedia
and discussions could be terminated at any time. If Parent does enter into an
agreement for the acquisition of MobileMedia, the closing would be subject to
approval by Parent's stockholders, Bankruptcy Court approval, FCC approval,
antitrust regulatory approval, the availability of sufficient financing and
other customary conditions. THERE CAN BE NO ASSURANCE THAT PARENT WILL ACQUIRE
MOBILEMEDIA OR THAT, IF PARENT ACQUIRES MOBILEMEDIA, PARENT WOULD REALIZE ITS
ANTICIPATED IMPROVEMENTS IN FINANCIAL LEVERAGE, OPERATING SYNERGIES OR COST
SAVINGS. An acquisition of MobileMedia by Parent may involve significant
operational and financial risks, including but not limited to the risks
associated with integrating MobileMedia's operations with the current
operations of Parent and its subsidiaries, and these risks may be exacerbated
by the fact that MobileMedia is currently operating under the jurisdiction of
the Bankruptcy Court. See "Prospectus Summary--Discussions for Possible
MobileMedia Acquisition".
DEPENDENCE ON KEY PERSONNEL
The success of Arch will be dependent, to a significant extent, upon the
continued services of a relatively small group of executive personnel. Arch
does not have employment agreements with, or maintain insurance on the lives
of, any of its current executive officers, although certain executive officers
have entered into non-competition agreements and all executive officers have
entered into executive retention agreements with Arch. The loss or
unavailability of one or more of its executive officers or the inability to
attract or retain key employees in the future could have a material adverse
effect on the business, financial condition, results of operations or
prospects of Arch or its ability to make payments with respect to the Notes
when due. See "Management--Directors and Executive Officers".
17
<PAGE>
COMPETITION AND TECHNOLOGICAL CHANGE
Arch faces competition from other paging service providers in all markets in
which it operates as well as from certain competitors who hold nationwide
licenses. Arch believes that competition for paging subscribers is based on
quality of service, geographic coverage and price and that Arch has generally
competed effectively based on these factors. Monthly fees for basic paging
services have, in general, declined since Arch commenced operations, due in
part to competitive conditions, and Arch may face significant price-based
competition in the future which could adversely affect Arch. Some of Arch's
competitors possess greater financial, technical and other resources than
Arch. 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 Arch's markets, there could be a
material adverse effect on the business, financial condition, results of
operations or prospects of Arch or its ability to make payments with respect
to the Notes when due. A variety of wireless two-way communication
technologies primarily focused on voice services currently are in use or under
development by competitors. Arch does not presently provide such two-way
services, other than as a reseller. Although such technologies generally are
higher priced than paging services, technological improvements could result in
increased capacity and efficiency for such wireless two-way communication and,
accordingly, could result in increased competition for Arch. Two-way paging
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 Arch or could require Arch to
reduce the price of its paging services or incur additional capital
expenditures to meet competitive requirements. Recent and proposed regulatory
changes by the Federal Communications Commission (the "FCC") are aimed at
encouraging such technological advances and new services. Entities offering
service on wireless two-way communications technology, including cellular and
broadband personal communications services ("PCS"), and specialized mobile
radio services, also compete with the paging services that Arch provides.
Technological change also may affect the value of the pagers owned by Arch and
leased to its subscribers. If Arch's subscribers requested more
technologically advanced pagers, including but not limited to two-way pagers,
Arch could incur additional inventory costs and capital expenditures if it
were required to replace pagers leased to its subscribers within a short
period of time. If Arch is required to incur such additional investment or
capital expenditures, it could have a material adverse effect on the business,
financial condition, results of operations or prospects of Arch or its ability
to make payments with respect to the Notes when due. There can be no assurance
that Arch will be able to compete successfully with its current and future
competitors in the paging business or with competitors offering alternative
communication technologies. See "Business--Competition".
SUBSCRIBER TURNOVER
The results of operations of wireless messaging service providers, such as
Arch, 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, disconnections directly
and adversely affect operating cash flow. An increase in the subscriber
cancellation rate could have a material adverse effect on the business,
financial condition, results of operations or prospects of Arch or its ability
to make payments with respect to the Notes when due. See "Business".
DEPENDENCE ON SUPPLIERS
Arch does not manufacture any of the pagers used in its paging operations.
Arch 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, Arch purchases terminals and transmitters primarily from Glenayre
Technologies, Inc. ("Glenayre") and Motorola
18
<PAGE>
and thus is dependent on such manufacturers for sufficient terminals and
transmitters to meet its expansion and replacement requirements. To date, Arch
has not experienced significant delays in obtaining pagers, terminals or
transmitters, but there can be no assurance that Arch will not experience such
delays in the future. Arch's purchase agreement with Motorola expires on June
19, 1999, with a provision for automatic renewal for one-year terms. Although
Arch believes that sufficient alternative sources of pagers, terminals and
transmitters exist, there can be no assurance that Arch would not be adversely
affected if it were unable to obtain these items from current supply sources
or on terms comparable to existing terms. See "Business--Sources of
Equipment".
GOVERNMENT REGULATION, FOREIGN OWNERSHIP AND POSSIBLE REDEMPTION
The paging operations of Arch 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 Arch's business. Changes in regulation of Arch's
paging business or the allocation of radio spectrum for services that compete
with Arch's business could adversely affect Arch's results of operations. In
addition, some aspects of the 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. See
"Business--Regulation". The Communications Act of 1934, as amended, limits
foreign ownership of entities that hold certain licenses from the FCC. Because
Parent and its subsidiaries hold FCC licenses, in general, no more than 25% of
Parent's stock can be owned or voted by non-resident aliens or their
representatives, a foreign government or its representative or a foreign
corporation. An FCC licensee may, however, make prior application to the FCC
for a determination that it is not in the public interest to deny an
individual licensee's foreign ownership in excess of the 25% foreign ownership
benchmark. Most recently, the FCC substantially liberalized its authorization
process for foreign entities investing in paging companies that are domiciled
in countries which are signatories to the World Trade Organization agreement.
Parent's Restated Certificate of Incorporation permits the redemption of
shares of Parent's capital stock from foreign stockholders where necessary to
protect FCC licenses held by Parent or its subsidiaries, but such redemption
would be subject to the availability of capital to Parent and any restrictions
contained in applicable debt instruments and under Delaware law (which
currently would not permit any such redemptions). The failure to redeem such
shares promptly could jeopardize the FCC licenses held by Parent or its
subsidiaries. From time to time, legislation and regulations which could
potentially adversely affect Arch are proposed or enacted by federal or state
legislators and regulators. For example, the FCC and certain states require
paging companies to contribute a portion of specified revenues to support
broad telecommunications policies, such as the universal availability of
telephone service. Additional states and localities may in the future seek to
impose similar requirements and the FCC recently adopted an order requiring
paging companies to compensate pay telephone providers for 800 and similar
telephone calls. Arch has generally passed these costs on to its subscribers,
which makes Arch's services more expensive and which could affect the
attraction or retention of subscribers. There can be no assurance that Arch
will be able to continue to pass on these costs. Although these requirements
have not to date had a material impact on Arch, these or similar requirements
could in the future have a material adverse effect on the business, financial
condition, results of operations or prospects of Arch or its ability to make
payments with respect to the Notes when due. See "--Indebtedness and High
Degree of Leverage", "--Competition and Technological Change" and "Business--
Regulation".
IMPACT OF THE YEAR 2000 ISSUE
Arch is currently upgrading its information systems in a manner which will
also resolve the potential impact of the year 2000 problem on the processing
of date-sensitive information by Arch's computerized systems and transmission
equipment. The year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year. Any
of Arch's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
In 1997 Arch designated members of its Information Services and Engineering
Departments to assess the impact of the year 2000 problem on its information
systems and the information systems of its customers,
19
<PAGE>
vendors and other parties that service or otherwise interact with Arch. Data
processing for Arch's major operating systems is conducted in-house using
programs developed primarily by third-party vendors. Assessment of inventory
and year 2000 readiness for all systems and applications has been
substantially completed and most third-party vendors who provide applications
to Arch have been contacted. Arch intends to bring its major operating systems
and outsourced applications into compliance with year 2000 requirements
through the installation of updated or replacement programs developed by third
parties or by new and enhanced software programs developed internally. Arch
currently believes that it will be able to modify or replace any affected
systems by September 30, 1999 in order to minimize any detrimental effects on
Arch's operations. In a number of cases, year 2000 compliant systems are
currently installed or are already in the process of implementation in the
normal course of upgrade and functionality improvement.
Arch expects that it will incur costs to replace existing hardware and
software, which will be capitalized and amortized in accordance with Arch's
existing accounting policies, while maintenance or modification costs will be
expensed as incurred. Based on Arch's preliminary estimate of the costs to be
incurred, Arch does not expect that resolution of the year 2000 problem will
have a material adverse effect on its results of operations and financial
condition. Costs of the year 2000 project are based on current estimates and
actual results may vary significantly from such estimates once detailed plans
are developed.
The ability of third parties with whom Arch transacts business to adequately
address their year 2000 issues is necessarily outside Arch's control. If Arch,
its customers or vendors are unable to resolve year 2000 issues in a timely
manner, there could be a material adverse effect on Arch or its ability to
make payments with respect to the Notes when due.
ABSENCE OF PUBLIC MARKET FOR NOTES
The Private Notes have not been registered under the Securities Act or any
state securities law and, unless so registered, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and any applicable state
securities laws. Although the Exchange Notes may be resold or otherwise
transferred by the holders (who are not affiliates of Arch) without compliance
with the registration requirements under the Securities Act, they will be new
securities for which there is currently no established trading market. Arch
does not intend to apply for listing of the Exchange Notes on a national
securities exchange or for quotation of the Exchange Notes on an automated
dealer quotation system. Although the Initial Purchasers in the offering of
the Private Notes have informed Arch that they currently intend to make a
market in the Exchange Notes, they are not obligated to do so, and any such
market-making, if initiated, may be discontinued at any time without notice.
The liquidity of market for the Exchange Notes will depend upon the number of
holders of the Exchange Notes, the interest of securities dealers in making a
market in the Exchange Notes and other factors. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. If an active trading market for the Exchange Notes does not develop,
the market price and liquidity of the Exchange Notes may be adversely
affected. If the Exchange Notes are traded, they may trade at a discount from
their face value, depending upon prevailing interest rates, the market for
similar securities, the performance of Arch and certain other factors.
Notwithstanding the registration of the Exchange Notes in the Exchange Offer,
holders who are "affiliates" (as defined under Rule 405 of the Securities Act)
of Arch may publicly offer for sale or resell the Exchange Notes only in
compliance with the provisions of Rule 144 under the Securities Act.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor Arch is under any duty
to give notification of defects or irregularities with respect to tenders of
Private Notes for exchange. Private Notes that are not tendered or are
tendered but not accepted will, following consummation of
20
<PAGE>
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof. In addition, any holder of Private Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or any
other trading activities, must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such Exchange Notes. Any broker-dealer that resells Exchange Notes that
were received by it for its own account pursuant to the Exchange Offer may be
deemed to be an "underwriter" within the meaning of the Securities Act. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. To the extent that
Private Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Private Notes could be
adversely affected due to the limited amount, or "float", of the Private Notes
that are expected to remain outstanding following the Exchange Offer.
Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See
"The Exchange Offer" and "Plan of Distribution".
21
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by Arch on June 29, 1998 (the "Closing Date") to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently sold the Private Notes to (i) "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A and (ii) to certain persons in offshore
transactions in reliance on Regulation S under the Securities Act. As a
condition to the sale of the Private Notes, Arch and the Initial Purchasers
entered into the Exchange and Registration Rights Agreement on June 24, 1998.
Pursuant to the Exchange and Registration Rights Agreement, Arch agreed that,
unless the Exchange Offer is not permitted by applicable law or Commission
policy, it would (i) file with the Commission a Registration Statement under
the Securities Act with respect to the Exchange Notes within 30 days after the
Closing Date, and (ii) use its best efforts to cause such Registration
Statement to become effective under the Securities Act within 120 days after
the Closing Date. A copy of the Exchange and Registration Rights Agreement has
been filed as an exhibit to the Registration Statement. The Registration
Statement is intended to satisfy certain of Arch's obligations under the
Exchange and Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, Arch believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from Arch to resell pursuant to Rule
144A or any other available exemption under the Securities Act) or (ii) any
such holder that is an "affiliate" of Arch within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in
the ordinary course of business and who is not participating does not intend
to participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes
to the public without further registration under the Securities Act and
without delivering to the purchasers of the Exchange Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if
any holder acquires Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in the distribution of the Exchange Notes or is
a broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Private Notes where
such Private Notes were acquired by such broker-dealer as a result of market-
making or other trading activities. Pursuant to the Exchange and Registration
Rights Agreement, Arch has agreed to make this Prospectus, as it may be
amended or supplemented from time to time, available to broker-dealers for use
in connection with any resale for a period of one year after the Expiration
Date. See "Plan of Distribution".
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Arch will accept any and all Private Notes
validly tendered and not withdrawn prior to the Expiration Date. Arch will
issue $1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of outstanding Private Notes surrendered pursuant to the
Exchange Offer. Private Notes may be tendered only in integral multiples of
$1,000.
22
<PAGE>
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will
not be entitled to any of the rights of holders of the Private Notes under the
Exchange and Registration Rights Agreement. The Exchange Notes will evidence
the same indebtedness as the Private Notes (which they replace) and will be
issued under, and be entitled to the benefits of, the Indenture, which also
authorized the issuance of the Private Notes, such that both series of Notes
will be treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $130,000,000 in aggregate principal
amount of the Private Notes are outstanding. Only a registered holder of the
Private Notes (or such holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered holders of the Private Notes entitled to participate in the
Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. Arch intends to
conduct the Exchange Offer in accordance with the provisions of the Exchange
and Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
Arch shall be deemed to have accepted validly tendered Private Notes when,
as and if Arch has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Private
Notes for the purposes of receiving the Exchange Notes from Arch.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. Arch will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "--Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless Arch, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, Arch will (i) notify the Exchange
Agent of any extension by oral or written notice, and (ii) mail to the
registered holders an announcement thereof which shall include disclosure of
the approximate number of Private Notes deposited to date, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
Arch reserves the right, in its reasonable discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by Arch to constitute a
material change, Arch will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
Arch will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure
to the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
23
<PAGE>
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 12 3/4% per annum.
Interest on the Exchange Notes will be payable semi-annually on each January 1
and July 1, commencing January 1, 1999. Holders of Exchange Notes will receive
interest on January 1, 1999 from the date of initial issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Private Notes from
the date of initial delivery to the date of exchange thereof for Exchange
Notes. Holders of Private Notes that are accepted for exchange will be deemed
to have waived the right to receive any interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "Exchange
Agent" for receipt prior to the Expiration Date. In addition, either (i)
certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depositary
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the
holder must comply with the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and Arch in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO ARCH. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. Holders who intend to tender Private Notes through DTC's ATOP
procedures need not submit a Letter of Transmittal. If such beneficial owner
wishes to tender on such owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal and delivering such owner's
Private Notes, either make appropriate arrangements to register ownership of
the Private Notes in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
24
<PAGE>
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by Arch,
evidence satisfactory to Arch of their authority to so act must be submitted
with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes. All
questions as to the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of tendered Private Notes will be determined by Arch
in its sole discretion, which determination will be final and binding. Arch
reserves the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes Arch's acceptance of which would, in the opinion
of counsel for Arch, be unlawful. Arch also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Private
Notes. Arch's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as
Arch shall determine. Although Arch intends to notify holders of defects or
irregularities with respect to tenders of Private Notes, neither Arch, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Private Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived.
While Arch has no present plan to acquire any Private Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, Arch reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions", to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase
Private Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to Arch that,
among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of the respective business of such holder, (ii)
such holder has no arrangement or understanding with any person to participate
in the distribution of the Exchange Notes, (iii) such holder acknowledges and
agrees that any person who is a broker-dealer registered under the Exchange
Act or is participating in the Exchange Offer for the purposes of distributing
the Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly
from Arch should be covered by an effective registration statement containing
the selling securityholder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission and (v) such holder is not an
"affiliate", as defined in Rule 405 under the Securities Act, of Arch. If the
holder is a broker-dealer that will receive Exchange Notes for such holder's
own account in exchange for Private Notes that were acquired as a result of
market-making activities or other trading activities, such holder will be
required to acknowledge in the Letter of Transmittal that such holder will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, such holder will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
25
<PAGE>
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by Arch (by
facsimile transmission, mail or hand delivery) setting forth the name
and address of the holder, the certificate number(s) of such Private
Notes and the principal amount of Private Notes tendered, stating that
the tender is being made thereby and guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or a facsimile thereof), together with the
certificate(s) representing the Private Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof), as
well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 P.M. on the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having
26
<PAGE>
deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify
the Private Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Private Notes) and (iii) be signed by the holder
in the same manner as the original signature on the Letter of Transmittal by
which such Private Notes were tendered (including any required signature
guarantees). All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by Arch in its sole
discretion, whose determination shall be final and binding on all parties. Any
Private Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Private Notes so withdrawn are validly retendered.
Properly withdrawn Private Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Arch shall not be
required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates
applicable law, rules or regulations or an applicable interpretation of the
staff of the Commission.
If Arch reasonably determines that such condition (that the Exchange Offer
not violate applicable law, rules, regulations or interpretation of the Staff)
is not satisfied, Arch may (i) refuse to accept any Private Notes and return
all tendered Private Notes to the tendering holders or (ii) extend the
Exchange Offer and retain all Private Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Private Notes (see "--Withdrawal of Tenders").
LIQUIDATED DAMAGES
The Exchange and Registration Rights Agreement requires Arch to file with
the Commission a registration statement (the "Exchange Offer Registration
Statement") on the appropriate form under the Securities Act with respect to
the Exchange Notes. If (i) Arch is not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy or
(ii) any holder of Private Notes that constitute Transfer Restricted
Securities (as defined herein) notifies Arch prior to the 20th day following
consummation of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (b) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (c) that it is a broker-dealer and owns Notes acquired directly
from Arch or an affiliate of Arch, Arch will file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales
of the Notes by the holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. Arch will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until (i) the date on which a Private Note has been exchanged by a person
other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for
an Exchange Note, the date on which such Exchange Note is sold to a purchaser
who receives from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the Exchange Offer Registration Statement,
(iii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Act.
The Exchange and Registration Rights Agreement provides that (i) Arch must
file an Exchange Offer Registration Statement with the Commission on or prior
to 30 days after the Closing Date, (ii) Arch will use its
27
<PAGE>
best efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 120 days after the Closing Date,
(iii) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, Arch will commence the Exchange Offer and use its best
efforts to issue, on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all Notes tendered prior thereto in
the Exchange Offer and (iv) if obligated to file the Shelf Registration
Statement, Arch shall file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and use
its best efforts to cause the Shelf Registration to be declared effective by
the Commission on or prior to 90 days after such obligation arises. If
(a) Arch fails to file any of the Registration Statements required by the
Exchange and Registration Rights Agreement on or before the date specified for
such filing, (b) any of such Registration Statements is not declared effective
by the Commission on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date"), (c) Arch fails to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Exchange
and Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then Arch will pay liquidated
damages ("Liquidated Damages") to each holder of Notes, with respect to the
first 90-day period, or any portion thereof, immediately following the
occurrence of such a Registration Default, in an amount equal to 25 basis
points per annum of the principal amount of Notes held by such holder. The
amount of the Liquidated Damages will increase by an additional 25 basis
points per annum of the principal amount of Notes with respect to each
subsequent 90-day period, or any portion thereof, until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages of 100
basis points per annum of the principal amount of Notes. All accrued and
unpaid Liquidated Damages will be paid by Arch on each Interest Payment Date
to the Global Note holder by wire transfer of immediately available funds or
by federal funds check and to holders of Certificated Securities by wire
transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will
cease.
The summary herein of certain provisions of the Exchange and Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Exchange
and Registration Rights Agreement, a copy of which is available upon request
to Arch.
TERMINATION OF CERTAIN RIGHTS
All rights under the Exchange and Registration Rights Agreement (including
registration rights) of holders of the Private Notes eligible to participate
in the Exchange Offer will terminate upon consummation of the Exchange Offer
except with respect to Arch's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A, (iii) use its best efforts to keep the Registration
Statement effective and to amend and supplement the prospectus in order to
permit the prospectus to be lawfully delivered by all persons subject to the
prospectus delivery requirements of the Securities Act for such period of time
as such persons must comply with such requirement in order to resell the
Exchange Notes and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period of not less than
180 days after the Expiration Date.
28
<PAGE>
EXCHANGE AGENT
U.S. Bank Trust National Association has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Registered or Certified By Facsimile:
Mail or Overnight Delivery: (612) 244-1537
U.S. Bank Trust National
Association
180 E. 5th Street Confirm by Telephone:
St. Paul, Minnesota 55101 (612) 244-0721
Delivery of the Letter of Transmittal to an address other than as set forth
above or transmission of instructions via facsimile other than as set forth
above does not constitute a valid delivery of such Letter of Transmittal.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Arch. The principal
solicitation is being made by mail; however, additional solicitation may be
made by telegraph, telephone or in person by officers and regular employees of
Arch and its affiliates.
Arch has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer. Arch, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by Arch and are estimated in the aggregate to be approximately
$125,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
Arch will pay all transfer taxes, if any, applicable to the exchange of
Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities
Act, (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, (iv) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if Arch so requests), (v)
to Arch or (vi) pursuant to an effective registration statement and, in each
case, in accordance with any applicable securities laws of any state of the
United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, Arch will recognize no gain or loss as a result of
the Exchange Offer. The expenses of the Exchange Offer will be amortized over
the term of the Exchange Notes.
29
<PAGE>
USE OF PROCEEDS
Arch will not receive any proceeds from the Exchange Offer. In consideration
for issuing the Exchange Notes as contemplated in this Prospectus, Arch will
receive in exchange Private Notes in like principal amount, the terms of which
are identical in all material respects to the Exchange Notes except that (i)
the offering of the Exchange Notes has been registered under the Securities
Act, (ii) the Exchange Notes are not subject to transfer restrictions and
(iii) certain provisions relating to an increase in the stated interest rate
on the Private Notes provided for under certain circumstances will be
eliminated. The Private Notes surrendered in exchange for Exchange Notes will
be retired and cancelled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in a change in the indebtedness of Arch. See
"The Exchange Offer".
The net proceeds of the Private Note Offering (after deducting the discount
to the Initial Purchasers and estimated Private Note Offering expenses payable
by Arch) were $122.6 million. Arch has used such net proceeds, together with
borrowings under the Amended Credit Facility and the proceeds from the Equity
Investment, to repay a portion of the indebtedness under ACE's previous credit
facility (the "ACE Credit Facility") and all outstanding indebtedness under
USAM's previous credit facility (the "USAM Credit Facility"). Amounts not
repaid under the ACE Credit Facility became outstanding under the Amended
Credit Facility.
The ACE Credit Facility provided for borrowings of up to $450.0 million
consisting of (i) a $212.2 million reducing revolving credit facility (the
"ACE Revolver"), (ii) a $138.8 million term loan and (iii) a $99.0 million
term loan. The ACE Credit Facility bore interest at either (i) the alternative
base rate of The Bank of New York (the "Bank") or (ii) the Bank's reserve-
adjusted London Interbank Offered Rate ("LIBOR") rate, in each case plus a
margin based on the ratio of total debt to annualized EBITDA. For the year
ended December 31, 1997, the average borrowing rate was 8.76%. The ACE
Revolver and the $138.8 million term loan were scheduled to mature on December
31, 2002 and the $99.0 million term loan was scheduled to mature on December
31, 2003. The ACE Credit Facility was amended and restated to create the
Amended Credit Facility upon consummation of the Private Note Offering. As of
March 31, 1998, $370.3 million of indebtedness had been outstanding under the
ACE Credit Facility.
The USAM Credit Facility provided for borrowings of up to $110.0 million and
bore interest at either (i) the Bank's alternative base rate or (ii) the
Bank's reserve-adjusted LIBOR rate, in each case plus a margin based on the
ratio of total debt to annualized EBITDA. For the year ended December 31,
1997, the average borrowing rate was 8.55%. The USAM Credit Facility was
scheduled to mature on June 30, 2000 but was terminated upon the establishment
of the Amended Credit Facility. As of March 31, 1998, $64.5 million of
indebtedness had been outstanding under the USAM Credit Facility.
For additional information regarding the ACE Credit Facility and the USAM
Credit Facility, see Note 3 of Notes to Arch's Consolidated Financial
Statements. For a description of the Amended Credit Facility, see "Description
of Certain Indebtedness--Amended Credit Facility".
30
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Arch at March 31, 1998
(i) on an actual basis and (ii) as adjusted to reflect (a) the Private Note
Offering and application of the estimated net proceeds therefrom, (b) the
Merger, (c) borrowings pursuant to the Amended Credit Facility and (d) the
Equity Investment and application of the proceeds therefrom. See "Prospectus
Summary--Recent Developments", "Use of Proceeds" and "Description of Notes".
This table should be read in conjunction with the other financial information
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt................. $ 19,316 $ 4
=========== ===========
Long-term debt, less current maturities:
ACE Credit Facility................................ $ 350,938 $ --
USAM Credit Facility............................... 64,500 --
Amended Credit Facility(1)(2)...................... -- 295,086
12 3/4% Senior Notes due 2007...................... -- 127,464
9 1/2% Senior Notes due 2004(3) ................... 125,000 125,000
14% Senior Notes due 2004(3) ...................... 100,000 100,000
----------- -----------
Total long-term debt............................. 640,438 647,550
Stockholder's equity:................................
Common stock--$.01 par value,
authorized 1,000 shares, issued and
outstanding: 749 shares........................... -- --
Additional paid-in capital......................... 617,861 641,861
Accumulated deficit................................ (352,021) (352,021)
----------- -----------
265,840 289,840
----------- -----------
Total capitalization............................. $ 906,278 $ 937,390
=========== ===========
</TABLE>
- --------
(1) The Notes are structurally subordinated in right of payment to this
obligation. This obligation is secured by certain assets and pledges of
certain capital stock and benefits from certain guarantees. See
"Prospectus Summary--Corporate Structure".
(2) Does not reflect Arch's use of the net proceeds from the Tower Site Sale.
Arch will use such net proceeds (estimated to be $36 million) to
temporarily repay indebtedness under the Amended Credit Facility until
such amounts are used to purchase assets for use in Arch's business.
(3) The Notes rank pari passu in right of payment with this obligation.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
Prior to the Merger, ACE and USAM were wholly-owned subsidiaries of Parent.
The Merger is being accounted for under the pooling of interests method. The
following summary financial and operating data reflects the consolidated
results and operating data of ACE and USAM as if Arch had been formed on
September 1, 1992, the earliest date presented herein. See "Prospectus
Summary--Recent Developments--The Merger".
The following summary financial and operating data as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997 has been derived from Arch's audited Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus. The following summary
financial information and operating data as of and for the four months ended
December 31, 1993 and 1994 and the year ended December 31, 1994 and each of
the years in the two-year period ended August 31, 1994 has been derived from
Parent's consolidated financial statements which are not included in this
Prospectus. The following summary financial and operating data as of March 31,
1998 and for the three-month periods ended March 31, 1997 and 1998 have been
derived from Arch's unaudited Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. For certain other predecessor
information, see footnote (8) to the following table. The following
consolidated financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Arch's Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOUR MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, (1) DECEMBER 31, (1) YEAR ENDED DECEMBER 31, MARCH 31,
----------------- ------------------ ---------------------------------------- ------------------
1993 1994 1993 1994 1994 (1) 1995 (1) 1996 1997 1997 1998
------- -------- -------- -------- -------- -------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Service, rental
and maintenance
revenues......... $39,610 $ 55,139 $ 16,457 $ 22,847 $61,529 $138,466 $ 291,399 $ 351,944 $ 84,417 $ 91,397
Product sales..... 5,698 12,108 2,912 5,178 14,374 24,132 39,971 44,897 11,122 10,642
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Total revenues.... 45,308 67,247 19,369 28,025 75,903 162,598 331,370 396,841 95,539 102,039
Cost of products
sold............. (4,031) (10,124) (2,027) (4,690) (12,787) (20,789) (27,469) (29,158) (7,126) (7,366)
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
41,277 57,123 17,342 23,335 63,116 141,809 303,901 367,683 88,413 94,673
Operating
expenses:
Service, rental
and maintenance.. 9,532 13,123 3,959 5,231 14,395 29,673 64,957 79,836 18,682 20,189
Selling........... 7,307 10,243 3,058 4,338 11,523 24,502 46,962 51,474 13,201 11,870
General and
administrative... 13,123 17,717 5,510 7,022 19,229 40,448 86,181 106,041 25,143 28,318
Depreciation and
amortization..... 13,764 16,997 5,549 6,873 18,321 60,037 191,101 231,376 57,776 53,471
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Operating income
(loss)........... (2,449) (957) (734) (129) (352) (12,851) (85,300) (101,044) (26,389) (19,175)
Interest and non-
operating
expenses, net.... (2,861) (4,112) (1,132) (1,993) (4,973) (20,397) (49,060) (62,884) (15,360) (16,270)
Equity in loss of
affiliate (2).... -- -- -- -- -- -- (1,968) (3,872) (888) (1,055)
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Income (loss)
before income tax
benefit and
extraordinary
item............. (5,310) (5,069) (1,866) (2,122) (5,325) (33,248) (136,328) (167,800) (42,637) (36,500)
Income tax
benefit.......... -- -- -- -- -- 4,600 51,207 21,172 5,300 --
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Income (loss)
before
extraordinary
item............. (5,310) (5,069) (1,866) (2,122) (5,325) (28,648) (85,121) (146,628) (37,337) (36,500)
Extraordinary item
(3).............. (415) -- -- (1,137) (1,137) (1,684) (1,904) -- -- --
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Net income
(loss)........... $(5,725) $ (5,069) $ (1,866) $ (3,259) $(6,462) $(30,332) $ (87,025) $(146,628) $(37,337) $(36,500)
======= ======== ======== ======== ======= ======== ========= ========= ======== ========
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
FOUR MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, (1) DECEMBER 31, (1) YEAR ENDED DECEMBER 31, MARCH 31,
---------------- ------------------ ----------------------------------------- --------------------
1993 1994 1993 1994 1994 (1) 1995 (1) 1996 1997 1997 1998
------- ------- -------- -------- -------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING
DATA:
EBITDA (4)........ $11,315 $16,040 $4,815 $6,744 $17,969 $47,186 $105,801 $130,332 $31,387 $34,296
EBITDA margin
(5).............. 27% 28% 28% 29% 28% 33% 35% 35% 36% 36%
Capital
expenditures,
excluding
acquisitions..... $20,853 $25,657 $7,486 $15,279 $33,450 $60,468 $155,575 $102,767 $30,321 $21,319
Cash flows
provided by
operating
activities....... 8,721 14,781 5,306 4,680 14,155 16,874 40,476 64,606 20,727 9,892
Cash flows used in
investing
activities....... (30,998) (28,982) (7,486) (34,364) (55,860) (192,549) (480,995) (102,767) (30,321) (21,319)
Cash flows
provided by
financing
activities....... 11,268 14,636 11,290 26,108 29,454 176,966 438,163 38,777 9,747 12,539
Pagers in service
at end of
period........... 254,000 410,000 288,000 538,000 538,000 2,006,000 3,295,000 3,890,000 3,515,000 4,016,000
Ratio of earnings
to fixed
charges (6)(7)... -- -- -- -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
AUGUST 31, (1) AS OF DECEMBER 31,
--------------- ----------------------------------- AS OF
1993 1994 1994 1995 1996 1997 MARCH 31, 1998
------- ------- ------- ------- --------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets......... $4,690 $6,751 $8,483 $33,655 $41,385 $49,584 $56,281
Total assets........... 62,209 76,255 117,858 784,019 1,134,328 1,010,046 983,536
Long-term debt, less
current maturities.... 49,748 67,328 93,420 429,559 605,513 623,000 640,438
Stockholder's equity... 1,563 (3,304) 9,368 276,543 451,847 302,042 265,840
</TABLE>
- ---------------------
(1) Old Parent was incorporated in January 1986 in Delaware and conducted its
operations through wholly-owned direct and indirect subsidiaries. On
September 7, 1995, Old Parent completed the USA Mobile Merger. In
accordance with generally accepted accounting principles, Old Parent was
treated as the acquirer in the USA Mobile Merger for accounting and
financial reporting purposes, and Parent reports the historical financial
statements of Old Parent as the historical financial statements of Parent.
Effective January 1, 1995, Parent changed its fiscal year end from August
31 to December 31.
(2) Represents Arch's share of Benbow's losses since Arch's acquisition of
Westlink Holdings, Inc. in May 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources --Acquisitions".
(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) 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 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, as determined by Arch, may not necessarily be comparable to
similarly titled data of other paging companies. EBITDA does not reflect
equity in loss of affiliate, income tax benefit, interest and non-
operating expenses, net and extraordinary items.
(5) Calculated by dividing EBITDA by total revenues less cost of products
sold.
(6) For the purpose of this calculation, "earnings" consist of net income
(loss) before income taxes, [restructuring charges, extraordinary items,]
and fixed charges. "Fixed charges" consist of interest expense and
amortization of debt discount and related expenses believed by management
to be representative of the interest factor thereon.
(7) Earnings were insufficient to cover fixed charges for the years ended
August 31, 1993 and 1994, the four months ended December 31, 1993 and
1994, the years ended December 31, 1994, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 by $5.7 million, $5.1 million, $1.9
million, $3.3 million, $6.5 million, $34.9 million, $138.2 million, $167.8
million, $42.6 million and $36.5 million, respectively.
(8) As described in footnote (1), summary Statement of Operations Data in the
foregoing table reports the historical financial information of Old Parent
as the historical financial information of Arch. Set forth below is
summary Statement of Operations Data for USAM prior to the USA Mobile
Merger. In connection with the USA Mobile Merger, Parent applied purchase
accounting adjustments to the historical USAM data which primarily
resulted in higher values being assigned to intangible assets and related
increases in amortization expense. As a result, the following information
is not comparable to the financial statements of USAM subsequent to the
USA Mobile Merger:
33
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------ JANUARY 1, 1995 TO
1993 1994 SEPTEMBER 7, 1995
----------- ----------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service, rental and
maintenance revenues........ $ 42,249 $ 52,688 $ 72,185
Product sales................ 5,770 8,482 9,996
----------- ----------- --------
Total revenues............... 48,019 61,170 82,181
Cost of products sold........ (3,289) (5,663) (6,726)
----------- ----------- --------
44,730 55,507 75,455
Operating expenses:
Service, rental and
maintenance................. 7,306 9,895 13,875
Selling...................... 7,596 7,996 11,916
General and administrative... 11,323 13,710 19,267
Depreciation and
amortization................ 12,805 17,491 29,239
----------- ----------- --------
Operating income (loss)...... 5,700 6,415 1,158
Interest and non-operating
expenses, net............... (8,565) (16,260) (26,366)
----------- ----------- --------
Income (loss) before income
tax benefit and
extraordinary item.......... (2,865) (9,845) (25,208)
Income tax benefit........... -- -- 2,675
----------- ----------- --------
Net income (loss)............ $ (2,865) $ (9,845) $(22,533)
=========== =========== ========
OTHER OPERATING DATA:
EBITDA....................... $ 18,505 $ 23,906 $ 30,397
EBITDA margin................ 41% 43% 40%
Capital expenditures,
excluding acquisitions...... $ 16,126 $ 33,887 $ 36,856
Pagers in service at end of
period...................... 354,000 720,000 959,000
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1993 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.................................... $ 7,411 $ 52,918
Total assets...................................... 51,453 272,245
Long-term debt, less current maturities........... 1,826 228,305
Stockholders' equity (deficit).................... (84,801) (4,051)
</TABLE>
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis should be read in conjunction with
Arch's Consolidated Financial Statements and Notes thereto included elsewhere
in this Prospectus.
Arch is a leading provider of wireless messaging services, primarily paging
services, and is the second largest paging company in the United States (based
on EBITDA). Arch had 4.0 million pagers in service at March 31, 1998. From
January 1, 1995 through March 31, 1998, Arch's total number of subscribers
grew at a compound rate on an annualized basis of 85.6%. For the same period
on an annualized basis, Arch's compound rate of internal subscriber growth
(excluding pagers added through acquisitions) was 59.2%.
Arch derives the majority of its revenues from fixed periodic (usually
monthly) fees, not dependent on usage, charged to subscribers for paging
services. As long as a subscriber remains on service, operating results
benefit from the recurring payments of the fixed periodic fees without
incurrence of additional selling expenses by Arch. Arch's service, rental and
maintenance revenues and the related expenses exhibit substantially similar
growth trends. Arch's average revenue per subscriber has declined over the
last three years for two principal reasons: (i) an increase in the number of
subscriber owned and reseller owned pagers for which Arch receives no
recurring equipment revenue and (ii) an increase in the number of reseller
customers whose airtime is purchased at wholesale rates. The reduction in
average paging revenue per subscriber resulting from these trends has been
more than offset by the elimination of associated expenses so that Arch's
margins have improved over such period. Furthermore, recent data indicates
such rate of decline has slowed.
Arch has achieved significant growth in pagers in service and operating cash
flow through a combination of internal growth and acquisitions, including USA
Mobile in September 1995 and Westlink Holdings, Inc. ("Westlink") in May 1996.
Arch's total revenues have increased from $162.6 million in the year ended
December 31, 1995 to $331.4 million in the year ended December 31, 1996 and to
$396.8 million in the year ended December 31, 1997. Over the same periods,
through operating efficiencies and economies of scale, Arch has been able to
reduce its per pager operating costs to enhance its competitive position in
its markets. Due to the rapid growth in its subscriber base, Arch has incurred
significant selling expenses, which are charged to operations in the period
incurred. Arch had net losses of $30.3 million, $87.0 million and $146.6
million in the years ended December 31, 1995, 1996 and 1997, respectively, as
a result of significant depreciation and amortization expenses related to
acquired and developed assets and interest charges associated with
indebtedness. However, as its subscriber base has grown, Arch's operating
results have improved, as evidenced by an increase in its EBITDA from $47.2
million in the year ended December 31, 1995 to $105.8 million in the year
ended December 31, 1996 and to $130.3 million in the year ended December 31,
1997.
EBITDA is a 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. EBITDA, as
determined by Arch, may not necessarily be comparable to similarly titled data
of other paging companies.
SHIFT IN OPERATING FOCUS
In April 1997, Parent reordered its operating priorities to improve capital
efficiency and strengthen its balance sheet by placing a higher priority on
leverage reduction than subscriber unit growth. As part of its reordered
operating priorities, Parent has implemented various initiatives to reduce
capital costs while sustaining acceptable levels of unit and revenue growth.
As a result, Arch's rate of internal growth in pagers in service slowed during
the second half of 1997 and is expected to remain below the rates of internal
growth previously
35
<PAGE>
achieved by Arch. As part of its reordered operating priorities, Parent is
also reviewing the possible sale of non-strategic assets. In April 1998,
Parent announced the Tower Site Sale, in which Arch will sell communications
towers, real estate, site management contracts and/or leasehold interests
involving 134 sites in 22 states, and will lease back space on the towers on
which it currently operates communications equipment to service its own paging
network. Arch will use its net proceeds from the Tower Site Sale to repay
indebtedness under its bank credit facility. The Tower Site Sale will result
in a reduction in Arch's rental income, an increase in its operating expenses
and the elimination of future interest expense on the repaid debt. See
"Prospectus Summary--Recent Developments--Tower Site Sale".
DIVISIONAL REORGANIZATION
In June 1998, Parent's Board of Directors approved the Divisional
Reorganization. As part of the Divisional Reorganization, which will be
implemented over a period of 18 to 24 months, Parent plans to consolidate its
seven operating divisions into four operating divisions, divide its National
Services Division into separate national sales and services units and
consolidate certain regional administrative support functions, resulting in
various operating efficiencies. Arch estimates that the Divisional
Reorganization, once fully implemented, will result in annual cost savings of
approximately $15 million (approximately $11.5 million for salary and employee
benefits and $3.5 million for lease obligations). Arch expects to reinvest a
portion of these cost savings to expand its sales activities.
In connection with the Divisional Reorganization, Parent (i) anticipates a
net reduction of approximately 10% of its workforce, (ii) plans to close
certain office locations and redeploy other real estate assets and (iii)
expects to record a restructuring charge of approximately $15 million to $25
million during the second quarter of 1998. The restructuring charge is
expected to consist of approximately (i) $8 million for employee severance and
benefits, (ii) $4 million to $9 million for lease obligations and
terminations, (iii) $1.5 million to $5 million for the writedown of fixed
assets and (iv) $1.5 million to $3 million for other items.
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:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Total revenues................ 114.7 % 109.0 % 107.9 % 108.1 % 107.8 %
Cost of products sold......... (14.7) (9.0) (7.9) (8.1) (7.8)
------- ------- ------- ------ ------
Net revenues.................. 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Service, rental and
maintenance................ 20.9 21.4 21.7 21.1 21.3
Selling..................... 17.3 15.4 14.0 14.9 12.6
General and administrative.. 28.5 28.4 28.9 28.5 29.9
Depreciation and
amortization............... 42.4 62.9 62.9 65.3 56.5
------- ------- ------- ------ ------
Operating income (loss)....... (9.1)% (28.1)% (27.5)% (29.8)% (20.3)%
======= ======= ======= ====== ======
Net income (loss)............. (21.4)% (28.6)% (39.9)% (42.2)% (38.6)%
======= ======= ======= ====== ======
EBITDA........................ 33.3 % 34.8 % 35.4 % 35.5 % 36.2 %
======= ======= ======= ====== ======
Annual service, rental and
maintenance expenses per
pager........................ $ 28 $ 25 $ 22 $ 22 $ 20
</TABLE>
36
<PAGE>
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997
Total revenues increased $6.5 million, or 6.8%, to $102.0 million in the
three months ended March 31, 1998 from $95.5 million in the three months ended
March 31, 1997, and net revenues (total revenues less cost of products sold)
increased $6.3 million, or 7.1%, from $88.4 million to $94.7 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
$7.0 million, or 8.3%, to $91.4 million in the three months ended March 31,
1998 from $84.4 million in the three months ended March 31, 1997. These
increases in revenues were due primarily to an increase through internal
growth in the number of pagers in service from 3.5 million at March 31, 1997
to 4.0 million at March 31, 1998. Maintenance revenues represented less than
10% of total service, rental and maintenance revenues in the three months
ended March 31, 1998 and 1997. Arch does not differentiate between service and
rental revenues. Product sales, less cost of products sold, decreased 18.0% to
$3.3 million in the three months ended March 31, 1998 from $4.0 million in the
three months ended March 31, 1997 as a result of a decline in the average
revenue per pager sold.
Service, rental and maintenance expenses, which consist primarily of
telephone line and site rental expenses, increased to $20.2 million (21.3% of
net revenues) in the three months ended March 31, 1998 from $18.7 million
(21.1% of net revenues) in the three months ended March 31, 1997. The increase
was due primarily to increased expenses associated with system expansions and
the provision of paging services to a greater number of subscribers. As
existing paging systems become more populated through the addition of new
subscribers, the fixed costs of operating these paging systems are spread over
a greater subscriber base. Annualized service, rental and maintenance expenses
per subscriber decreased to $20 in the three months ended March 31, 1998 from
$22 in the three months ended March 31, 1997.
Selling expenses decreased to $11.9 million (12.6% of net revenues) in the
three months ended March 31, 1998 from $13.2 million (14.9% of net revenues)
in the three months ended March 31, 1997. The number of net new pagers in
service resulting from internal growth decreased by 42.7% in the three months
ended March 31, 1998 compared to the three months ended March 31, 1997. Most
selling expenses are directly related to the number of net new subscribers
added.
General and administrative expenses increased to $28.3 million (29.9% of net
revenues) in the three months ended March 31, 1998 from $25.1 million (28.5%
of net revenues) in the three months ended March 31, 1997. The increase was
due primarily to administrative and facility costs associated with supporting
more pagers in service.
Depreciation and amortization expenses decreased to $53.5 million (56.5% of
net revenues) in the three months ended March 31, 1998 from $57.8 million
(65.3% of net revenues) in the three months ended March 31, 1997. These
expenses reflect Arch's acquisitions of paging businesses in prior periods,
accounted for as purchases, and investment in pagers and other system
expansion equipment to support growth.
Operating loss decreased to $19.2 million in the three months ended March
31, 1998 from $26.4 million in the three months ended March 31, 1997 as a
result of the factors outlined above.
Net interest expense increased to $16.3 million in the three months ended
March 31, 1998 from $15.4 million in the three months ended March 31, 1997.
The increase was attributable to an increase in Arch's average outstanding
debt.
Arch recognized an income tax benefit of $5.3 million in the three months
ended March 31, 1997 representing the tax benefit of operating losses incurred
subsequent to the acquisitions of USA Mobile and Westlink which were available
to offset deferred tax liabilities arising from Arch's acquisition of USA
Mobile in September 1995 and Westlink in May 1996. The tax benefit of these
operating losses was fully recognized during 1997. Accordingly, Arch has
established a valuation reserve against its deferred tax asset which reduced
the income tax benefit to zero. Arch does not expect to recover its deferred
tax asset and will continue to increase its valuation reserve accordingly.
37
<PAGE>
Net loss decreased to $36.5 million in the three months ended March 31, 1998
from $37.3 million in the three months ended March 31, 1997 as a result of the
factors outlined above.
EBITDA increased 9.3% to $34.3 million (36.2% of net revenues) in the three
months ended March 31, 1998 from $31.4 million (35.5% of net revenues) in the
three months ended March 31, 1997 as a result of the factors outlined above.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Total revenues increased $65.5 million, or 19.8%, to $396.8 million in the
year ended December 31, 1997 from $331.4 million in the year ended December
31, 1996 and net revenues increased $63.8 million, or 21.0%, from $303.9
million to $367.7 million over the same period. Service, rental and
maintenance revenues increased $60.5 million, or 20.8%, to $351.9 million in
the year ended December 31, 1997 from $291.4 million in the year ended
December 31, 1996. These increases in revenues were due primarily to the
increase in the number of pagers in service from 3.3 million at December 31,
1996 to 3.9 million at December 31, 1997 and the full year impact of the
Westlink acquisition which was completed in May 1996. Maintenance revenues
represented less than 10% of total service, rental and maintenance revenues in
the years ended December 31, 1996 and 1997. Product sales, less cost of
products sold, increased 25.9% to $15.7 million in the year ended December 31,
1997 from $12.5 million in the year ended December 31, 1996 as a result of a
greater number of pager unit sales.
Service, rental and maintenance expenses increased to $79.8 million (21.7%
of net revenues) in the year ended December 31, 1997 from $65.0 million (21.4%
of net revenues) in the year ended December 31, 1996. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of subscribers. Annual
service, rental and maintenance expenses per subscriber decreased to $22 in
the year ended December 31, 1997 from $25 in the year ended December 31, 1996.
Selling expenses increased to $51.5 million (14.0% of net revenues) in the
year ended December 31, 1997 from $47.0 million (15.4% of net revenues) in the
year ended December 31, 1996. The increase in selling expenses was due to the
full year impact of the Westlink acquisition and the marketing costs incurred
to promote Arch's Arch Paging brand identity. Arch's selling cost per net new
pager in service increased to $87 in the year ended December 31, 1997 from $58
in the year ended December 31, 1996, primarily due to fixed selling costs and
increased marketing costs being spread over fewer net new pagers put into
service.
General and administrative expenses increased to $106.0 million (28.9% of
net revenues) in the year ended December 31, 1997 from $86.2 million (28.4% of
net revenues) in the year ended December 31, 1996. The increase in absolute
dollars was due primarily to increased expenses associated with supporting
more pagers in service, including the full year impact of Westlink, as well as
expenses associated with the establishment of Arch's National Services
Division. See "Business--Subscribers and Marketing".
Depreciation and amortization expenses increased to $231.4 million (62.9% of
net revenues) in the year ended December 31, 1997 from $191.1 million (62.9%
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 $101.0 million in the year ended December 31,
1997 from $85.3 million in the year ended December 31, 1996 as a result of the
factors outlined above.
Net interest expense increased to $62.9 million in the year ended December
31, 1997 from $49.1 million in the year ended December 31, 1996. The increase
was attributable to an increase in Arch's average outstanding debt. See Note 3
to Arch's Consolidated Financial Statements.
During the years ended December 31, 1997 and 1996, Arch recognized income
tax benefits of $21.2 million and $51.2 million, respectively, representing
the tax benefit of operating losses subsequent to the acquisitions of USA
Mobile in September 1995 and Westlink in May 1996 which were available to
offset deferred tax liabilities arising from Arch's acquisitions of USA Mobile
and Westlink.
38
<PAGE>
During 1996, Arch recognized an extraordinary charge of $1.9 million,
representing the write-off of unamortized deferred financing costs associated
with the prepayment of indebtedness under a prior credit facility.
Net loss increased to $146.6 million in the year ended December 31, 1997
from $87.0 million in the year ended December 31, 1996 as a result of the
factors outlined above. Included in the net loss for the years ended December
31, 1997 and 1996 were charges of $3.9 million and $2.0 million, respectively,
representing Arch's pro rata share of Benbow's losses since the Westlink
acquisition in May 1996.
EBITDA increased 23.2% to $130.3 million (35.4% of net revenues) in the year
ended December 31, 1997 from $105.8 million (34.8% of net revenues) in the
year ended December 31, 1996 as a result of the factors outlined above.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Total revenues increased $168.8 million, or 103.8%, to $331.4 million in the
year ended December 31, 1996 from $162.6 million in the year ended December
31, 1995 and net revenues increased $162.1 million, or 114.3%, from $141.8
million to $303.9 million over the same period. Service, rental and
maintenance revenues increased $152.9 million, or 110.4%, to $291.4 million in
the year ended December 31, 1996 from $138.5 million in the year ended
December 31, 1995. These increases in revenues were due primarily to the
increase in the number of pagers in service from 2.0 million at December 31,
1995 to 3.3 million at December 31, 1996. Acquisitions of paging companies
added 0.5 million pagers in service during 1996, with the remaining 0.8
million pagers added through internal growth. Maintenance revenues represented
less than 10% of total service, rental and maintenance revenues in the years
ended December 31, 1995 and 1996. Product sales, less cost of products sold,
increased 274.0% to $12.5 million in the year ended December 31, 1996 from
$3.3 million in the year ended December 31, 1995 as a result of a greater
number of pager unit sales.
Service, rental and maintenance expenses increased to $65.0 million (21.4%
of net revenues) in the year ended December 31, 1996 from $29.7 million (20.9%
of net revenues) in the year ended December 31, 1995. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of subscribers. Annual
service, rental and maintenance expenses per subscriber decreased to $25 in
the year ended December 31, 1996 from $28 in the year ended December 31, 1995.
Selling expenses increased to $47.0 million (15.4% of net revenues) in the
year ended December 31, 1996 from $24.5 million (17.3% of net revenues) in the
year ended December 31, 1995. The increase in selling expenses was due to the
addition of sales personnel to support continued growth in the subscriber
base, as the number of net new pagers in service resulting from internal
growth increased by 122.7% from the year ended December 31, 1995 to the year
ended December 31, 1996. Arch's selling cost per net new pager in service
decreased to $58 in the year ended December 31, 1996 from $67 in the year
ended December 31, 1995, primarily due to increased sales through indirect
distribution channels.
General and administrative expenses increased to $86.2 million (28.4% of net
revenues) in the year ended December 31, 1996 from $40.4 million (28.5% of net
revenues) in the year ended December 31, 1995. The increase was due primarily
to increased expenses associated with supporting more pagers in service.
Depreciation and amortization expenses increased to $191.1 million (62.9% of
net revenues) in the year ended December 31, 1996 from $60.0 million (42.4% 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 $85.3 million in the year ended December 31,
1996 from $12.9 million in the year ended December 31, 1995 as a result of the
factors outlined above.
Net interest expense increased to $49.1 million in the year ended December
31, 1996 from $20.4 million in the year ended December 31, 1995. The increase
was attributable to an increase in Arch's average outstanding debt.
39
<PAGE>
During the years ended December 31, 1996 and 1995, Arch recognized income
tax benefits of $51.2 million and $4.6 million, respectively, representing the
tax benefit of operating losses subsequent to the acquisitions of USA Mobile
and Westlink which were available to offset deferred tax liabilities arising
from Arch's acquisitions of USA Mobile and Westlink.
During 1996 and 1995, Arch recognized an extraordinary charge of $1.9
million and $1.7 million, respectively, representing the write-off of
unamortized deferred financing costs associated with the prepayment of
indebtedness under separate prior credit facilities.
Net loss increased to $87.0 million in the year ended December 31, 1996 from
$30.3 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, 1996
was a charge of $2.0 million representing Arch's pro rata share of Benbow's
losses since the Westlink acquisition in May 1996.
EBITDA increased 124.2% to $105.8 million (34.8% of net revenues) in the
year ended December 31, 1996 from $47.2 million (33.3% of net revenues) in the
year ended December 31, 1995 as a result of the factors outlined above.
LIQUIDITY AND CAPITAL RESOURCES
Arch's business strategy requires the availability of substantial funds to
finance the expansion of existing operations, to fund capital expenditures for
pagers and paging system equipment, to service debt and to finance
acquisitions.
Capital Expenditures and Commitments
Excluding acquisitions of paging businesses, Arch's capital expenditures
were $60.5 million in the year ended December 31, 1995, $155.6 million in the
year ended December 31, 1996, $102.8 million in the year ended December 31,
1997 and $21.3 million in the three months ended March 31, 1998. To date, Arch
has funded its capital expenditures with net cash provided by operating
activities, the incurrence of debt and advances from Parent.
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, paging system equipment and transmission equipment, as
well as expenditures for information systems and advances to Benbow (as
described below). Such amounts are subject to change based on Arch's internal
growth rate and acquisition activity, if any, during 1998. Included in Arch's
anticipated capital expenditures for 1998 is funding to begin converting
Arch's customer base to a centralized billing and management information
system which is expected to offer the back office capability to support
significant future growth and to address year 2000 issues. See "Risk Factors--
Impact of the Year 2000 Issue". Arch believes that it will have sufficient
cash available from operations and credit facilities to fund these
expenditures.
Parent is obligated, to the extent such funds are not available to Benbow
from other sources and subject to the approval of Arch's designee on Benbow's
Board of Directors, to advance to Benbow sufficient funds to service its
license related debt obligations incurred by Benbow in connection with its
acquisition of its N-PCS licenses and to finance construction of an N-PCS
system. Arch estimates that the total cost to Benbow of servicing its debt
obligations and constructing an N-PCS system (including the effect of Benbow's
acquisition of Page Call) will be approximately $100 million over the next
five years. Arch currently anticipates that approximately $40 million
(approximately $10 million in each of the next four years) of such amount will
be funded by Arch and the balance will be funded through vendor financing and
other sources. See "Business--Investments in Narrowband PCS Licenses".
40
<PAGE>
Other Commitments
Commencing January 1, 1999, interest payments on the Notes equal to $8.3
million will be payable semi-annually in arrears on January 1 and July 1 of
each year until scheduled maturity on July 1, 2007. Arch expects to service
the interest payments on the Notes out of cash made available to it by its
subsidiaries. The ability of Arch to make payments of principal and interest
on the Notes will be dependent upon Arch's subsidiaries achieving and
sustaining levels of performance in the future that would permit such
subsidiaries to pay dividends, distributions or fees to Arch which are
sufficient to permit such payments on the Notes. Many factors, some of which
will be beyond Arch's control, such as prevailing economic conditions, will
affect the performance of Arch's subsidiaries. There can be no assurance that
Arch's subsidiaries will be able to generate sufficient cash flow to cover
required interest and principal payments on their current and future
indebtedness or the Notes. If Arch 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 Arch, that Arch will be able to refinance its existing
indebtedness or that sufficient funds could be raised through asset sales. See
"Risk Factors--Debt Service; Limitations on Access to Cash Flow of Operating
Subsidiaries".
Interest payments on the $467.4 million principal amount at maturity of
Parent Discount Notes commence September 15, 2001. Parent expects to service
such interest payments out of cash made available to it by Arch and Arch's
subsidiaries. Based on the principal amount of Parent Discount Notes presently
outstanding, such interest payments will equal $25.4 million on March 15 and
September 15 of each year until scheduled maturity on March 15, 2008.
Limitations contained in the Amended Credit Facility, the Indenture and the
indentures under which the 9 1/2% Notes and the 14% Notes are outstanding
would not currently permit Arch and its subsidiaries to make sufficient
payments to Parent to enable Parent to pay interest on the Parent Discount
Notes. Arch may need to modify the Amended Credit Facility, amend the
indentures under which the USAM Notes are outstanding or redeem the USAM Notes
in order to make payments to enable Parent to pay interest on the Parent
Discount Notes. No assurance can be given that, if necessary, Arch would be
able to modify the Amended Credit Facility, amend such indentures or redeem
the USAM Notes. A default by Parent in its payment obligations under the
Parent Discount Notes could have a material adverse effect on the business,
financial condition, results of operations or prospects of Parent or Arch or
Arch's ability to make payments with respect to the Notes when due. See "Risk
Factors--Holding Company Structure and Structural Subordination of the Notes".
Amended Credit Facility
Contemporaneously with the Merger, the ACE Credit Facility was amended and
restated to establish a $400.0 million Amended Credit Facility consisting of
(i) a $175.0 million reducing revolving credit facility (the "Tranche A
Facility"), (ii) a $100.0 million 364-day revolving credit facility under
which the principal amount outstanding on the 364th day following the closing
will convert to a term loan (the "Tranche B Facility") and (iii) a $125.0
million term loan which was available in a single drawing on the closing date
(the "Tranche C Facility").
The Tranche A Facility will be subject to scheduled quarterly reductions
commencing on September 30, 2000 and will mature on June 30, 2005. The term
loan portion of the Tranche B Facility will be amortized in quarterly
installments commencing September 30, 2000, with an ultimate maturity date of
June 30, 2005. The Tranche C Facility will be amortized in annual installments
commencing December 31, 1999, with an ultimate maturity date of June 30, 2006.
See "Description of Certain Indebtedness--Amended Credit Facility".
Equity Investment
On June 29, 1998, two partnerships managed by Sandler, together with certain
other private investors, made an equity investment of $25.0 million in Parent
in the form of Series C Preferred Stock. Simultaneously, Parent
41
<PAGE>
contributed to Arch as the Equity Investment $24.0 million of the net proceeds
from the sale of Series C Preferred Stock, Arch contributed such amount to API
as an equity investment and API used such amount to repay indebtedness under
the ACE Credit Facility as part of the establishment of the Amended Credit
Facility.
The Series C Preferred Stock: (i) is convertible into Common Stock of Parent
at an initial conversion price of $5.50 per share, subject to certain
adjustments; (ii) bears dividends at an annual rate of 8.0%, (A) payable
quarterly in cash or, at Parent's option, through the issuance of shares of
Parent's Common Stock valued at 95% of the then prevailing market price or (B)
if not paid quarterly, accumulating and payable upon redemption or conversion
of the Series C Preferred Stock or liquidation of Parent; (iii) permits the
holders after seven years to require Parent, at Parent's option, to redeem the
Series C Preferred Stock for cash or convert such shares into Parent's Common
Stock valued at 95% of the then prevailing market price of Parent's Common
Stock; (iv) is subject to redemption for cash or conversion into Parent's
Common Stock at Arch's option in certain circumstances; (v) in the event of a
"Change of Control" as defined in the Indenture governing the Parent Discount
Notes (the "Parent Discount Notes Indenture"), requires Parent, at its option,
to redeem the Series C Preferred Stock for cash or convert such shares into
Parent's Common Stock valued at 95% of the then prevailing market price of
Parent's Common Stock, with such cash redemption or conversion being at a
price equal to 105% of the sum of the original purchase price plus accumulated
dividends; (vi) limits certain mergers or asset sales by Parent; (vii) so long
as at least 50% of the Series C Preferred Stock remains outstanding, limits
the incurrence of indebtedness and "restricted payments" in the same manner as
contained in the Parent Discount Notes Indenture; and (viii) has certain
voting and preemptive rights. The holders of the Series C Preferred Stock also
received customary registration and information rights. See "Description of
Certain Indebtedness--Parent Discount Notes".
So long as at least 50% of the Series C Preferred Stock remains outstanding,
the holders of the Series C Preferred Stock have the right, voting as a
separate class, to designate one member of the Boards of Directors of Parent
and Arch, and such director will have the right to be a member of any
committee of such Boards of Directors. See "Management--Directors and
Executive Officers".
Immediately prior to the Series C Preferred Stock financing, partnerships
managed by Sandler owned 4.3% of Parent's outstanding Common Stock. After
giving effect to the issuance of the Series C Preferred Stock, the holders of
the Series C Preferred Stock beneficially owned (including the Common Stock
owned by partnerships managed by Sandler) 21.3% of Parent's Common Stock. The
investors in the Series C Preferred Stock financing agreed to certain
"standstill" provisions limiting their beneficial ownership in Parent to
24.99% (provided that the receipt of Parent's Common Stock in payment of
dividends on the Series C Preferred Stock does not constitute a breach of this
limitation).
Acquisitions
In May 1996, Arch completed its acquisition of Westlink for aggregate
consideration of $325.4 million in cash (including direct transaction costs).
In September 1995, Parent completed its acquisition of USA Mobile (USAM's
former parent) for an aggregate consideration of $582.2 million, consisting of
$88.9 million in cash (including direct transaction costs), 7,599,493 shares
of Parent's 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. During 1995, Arch also completed five additional
acquisitions for aggregate consideration of $36.1 million in cash plus the
issuance of 395,000 shares of Parent's Common Stock valued at $6.9 million on
the date of completion. See Note 2 of Notes to Arch's Combined Financial
Statements.
Arch believes that the paging industry will undergo further consolidation,
and Arch expects to participate in such consolidation, either as an acquiror
or an acquiree. Arch has evaluated and expects to continue to evaluate
possible acquisition transactions on an ongoing basis and, at the present time
is, and at any given time may be, engaged in discussions with respect to
possible acquisitions or other business combinations. See "Prospectus
Summary--Discussions for Possible MobileMedia Acquisition" and "Risk Factors--
Possible Acquisition Transactions".
42
<PAGE>
Sources of Funds
Arch's net cash provided by operating activities was $16.9 million, $40.5
million and $64.6 million in the years ended December 31, 1995, 1996 and 1997,
respectively, and $10.0 million in the three months ended March 31, 1998.
Arch believes that its capital needs for the foreseeable future will be
funded with borrowings under current and future credit facilities, net cash
provided by operations and, depending on Arch's needs and market conditions,
possible sales of equity or debt securities. For additional information, see
Note 3 of Notes to Arch's Combined Financial Statements. Arch's ability to
access future borrowings will be dependent, in part, on its ability to
continue to grow its cash flow. After giving effect to the Private Note
Offering and application of the estimated net proceeds therefrom as described
under "Use of Proceeds", borrowings pursuant to the Amended Credit Facility
and the completion of the Equity Investment and application of the proceeds
therefrom, Arch had $295.1 million outstanding, and approximately $50 million
in available borrowing capacity, under the $400.0 million Amended Credit
Facility. See "Risk Factors--Indebtedness and High Degree of Leverage".
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.
PENDING ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the Financial
Accounting Standards Board issued Statement of Position 98-5 ("SOP 98-5")
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. Initial
application of SOP 98-5 will be reported as the cumulative effect of a change
in accounting principle. Arch intends to adopt SOP 98-5 effective January 1,
1999. The adoption of SOP 98-5 is not expected to have a material effect on
Arch's financial position or results of operations.
43
<PAGE>
BUSINESS
GENERAL
Arch is a leading provider of wireless messaging services, primarily paging
services, and is the second largest paging company in the United States (based
on EBITDA). Arch had 4.0 million pagers in service at March 31, 1998. Arch
operates in 41 states and more than 180 of the 200 largest markets in the
United States. Arch offers local, regional and nationwide paging services
employing digital networks covering approximately 85% of the United States
population. Arch offers four types of paging services through its networks:
digital display, alphanumeric display, tone-only and tone-plus-voice. Arch
also offers enhanced and complementary services, including voice mail,
personalized greeting, message storage and retrieval, pager loss protection
and pager maintenance.
Arch has achieved significant growth in pagers in service and operating cash
flow through a combination of internal growth and acquisitions. From September
1, 1992 through March 31, 1998, Arch's total number of subscribers grew at a
compound rate on an annualized basis of 78.1%. For the same period on an
annualized basis, Arch's compound rate of internal subscriber growth
(excluding pagers added through acquisitions) was 61.6%. From commencement of
operations in September 1986, Arch has completed 33 acquisitions representing
an aggregate of 1.7 million pagers in service at the time of purchase.
The following table sets forth certain information regarding the approximate
number of pagers in service with Company subscribers and net increases in
number of pagers through internal growth and acquisitions during the periods
indicated:
<TABLE>
<CAPTION>
PAGERS IN SERVICE NET INCREASE IN
AT BEGINNING OF PAGERS THROUGH INCREASE IN PAGERS PAGERS IN SERVICE
YEAR ENDED AUGUST 31, PERIOD INTERNAL GROWTH (1) THROUGH ACQUISITIONS (2) AT END OF PERIOD
- --------------------- ----------------- -------------------- ------------------------- -----------------
<S> <C> <C> <C> <C>
1987.................... 4,000 3,000 12,000 19,000
1988.................... 19,000 8,000 3,000 30,000
1989.................... 30,000 14,000 34,000 78,000
1990.................... 78,000 20,000 4,000 102,000
1991.................... 102,000 24,000 1,000 127,000
1992.................... 127,000 33,000 -- 160,000
1993.................... 160,000 70,000 24,000 254,000
1994.................... 254,000 138,000 18,000 410,000
<CAPTION>
FOUR MONTHS ENDED
DECEMBER 31,
- -----------------
<S> <C> <C> <C> <C>
1994.................... 410,000 64,000 64,000 538,000
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C> <C> <C> <C>
1995.................... 538,000 366,000 1,102,000 2,006,000
1996.................... 2,006,000 815,000 474,000 3,295,000
1997.................... 3,295,000 595,000 -- 3,890,000
<CAPTION>
THREE MONTHS ENDED MARCH
31,
- ------------------------
<S> <C> <C> <C> <C>
1998.................... 3,890,000 126,000 -- 4,016,000
</TABLE>
- ---------------------
(1) Includes internal growth in acquired paging businesses after their
acquisition by Arch. Increases in pagers through internal growth are net
of subscriber cancellations during each applicable period.
(2) Based on pagers in service of acquired paging businesses at the time of
their acquisition by Arch.
Old Parent was incorporated in January 1986 in Delaware and conducted its
operations through wholly-owned direct and indirect subsidiaries. In September
1995, Old Parent completed the USA Mobile Merger. In accordance with generally
accepted accounting principles, Old Parent was treated as the acquirer in the
USA Mobile Merger for accounting and financial reporting purposes, and Parent
reports the historical financial statements of Old Parent as the historical
financial statements of Parent.
44
<PAGE>
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 or broadband PCS handset because a pager is smaller, has a
longer battery life and, most importantly, because pagers and air time
required to transmit an average message cost less than equipment and air time
for cellular telephones or broadband PCS handsets. Paging subscribers
generally pay a flat monthly service fee for pager services, regardless of the
number of messages, unlike cellular telephone or broadband PCS subscribers,
whose bills typically have a significant variable usage component. For these
reasons, some cellular subscribers use a pager in conjunction with their
cellular telephone to screen incoming calls and thus lower the expense of
cellular telephone service, and to a lesser extent, some broadband PCS
subscribers use a pager in conjunction with their broadband PCS handsets,
which often incorporate messaging functions, but have a much shorter battery
life.
Industry sources estimate that, since 1992, the number of pagers in service
in the United States has grown at an annual rate of approximately 25% and will
continue to grow at an annual rate of approximately 8% through the year 2001.
Based on industry sources, Arch believes that there were in excess of 49
million pagers in service in the United States at December 31, 1997. Factors
contributing to this growth include: (i) a continuing shift towards a service-
based economy; (ii) increasing mobility of workers and the population at
large; (iii) increasing awareness of the benefits of mobile communications
among the population at large; (iv) the relatively high cost of two-way mobile
communications, such as cellular telephone services; (v) introduction of new
or enhanced paging services, including nationwide paging capability; (vi)
continuing improvements in the performance of paging equipment; and (vii)
significant price/performance improvements in paging services. The paging
industry has undergone substantial consolidation over the past ten years, and
Arch believes that the top five paging carriers represent approximately 50% of
the pagers in service. Nonetheless, Arch believes that the paging industry
remains fragmented, with more than 300 licensed carriers in the United States,
and will continue to undergo consolidation.
The paging industry has benefited from technological advances resulting from
research and development conducted by vendors of pagers and transmission
equipment. Such advances include microcircuitry, liquid crystal display
technology and standard digital encoding formats, which have enhanced the
capability and capacity of paging services while lowering equipment and air
time costs. Technological improvements have enabled Arch to provide better
quality services at lower prices to its subscribers and have generally
contributed to strong growth in the market for paging services.
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.
45
<PAGE>
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, and that it
has the scope and presence to effectively compete on a national level. In
addition, Arch believes that the paging industry will undergo further
consolidation, and Arch expects to participate in such consolidation, either
as an acquiror or an acquiree. See "Prospectus Summary--Discussions for
Possible MobileMedia Acquisition" and "Risk Factors--Possible Acquisition
Transactions".
Arch's operating objectives are to increase its EBITDA, deploy its capital
efficiently, reduce its financial leverage and expand its customer
relationships. Arch pursues the following strategies to achieve its operating
objectives:
Low-Cost Operating Structure
Arch has selected a low-cost operating strategy as its principal competitive
tactic. Arch believes that a low-cost operating structure, compared to the
other two fundamental competitive tactics in the paging industry
(differentiated premium pricing and niche positioning), maximizes its
flexibility to offer competitive prices while still achieving target margins
and EBITDA. Arch maintains a low-cost operating structure through a
combination of (i) the consolidation of certain operating functions, including
centralized purchases from key vendors, to achieve economies of scale, and
(ii) the installation of technologically advanced and reliable transmission
systems. In June 1998, Parent's Board of Directors approved the Divisional
Reorganization, as part of which Parent plans, over a period of 18 to 24
months, to consolidate its seven operating divisions into four operating
divisions, divide its National Services Division into separate national sales
and services units and consolidate certain regional administrative support
functions, resulting in various operating efficiencies. Arch estimates that
the Divisional Reorganization, once fully implemented, will result in annual
cost savings of approximately $15 million (approximately $11.5 million for
salary and employee benefits and $3.5 million for lease obligations). See
"Prospectus Summary--Divisional Reorganization".
Efficient Capital Deployment
Arch's principal financial objective is to reduce financial leverage by
reducing capital requirements and increasing cash flow. To reduce capital
expenditures, Arch has implemented a company-wide focus on the sale, rather
than lease, of pagers, since subscriber-owned units require a lower level of
capital investment than Company-owned units. As a result of these efforts, the
number of subscriber-owned pagers, as a percentage of net new pagers in
service, increased from 60.0% in the three months ended March 31, 1997 to
78.6% in the three months ended March 31, 1998. In addition, Arch has modified
its incentive compensation programs for line managers so that bonuses are
based, in part, on capital efficiency.
Fast Follower on N-PCS Opportunities
Consistent with its low-cost provider competitive tactic, Arch has focused
its capital and marketing resources on one-way paging and other enhanced
services rather than N-PCS services. However, Arch recognizes the potential
benefits to current and prospective customers and the associated market
opportunities from certain N-PCS applications, such as two-way text and voice
messaging services. Arch has taken steps to position itself to participate in
new and emerging N-PCS services and applications, including (i) marketing N-
PCS services as a reseller, (ii) its 49.9% equity interest in Benbow and (iii)
Parent's funding of Benbow's acquisition of Page Call. See"--Investments in
Narrowband PCS Licenses".
46
<PAGE>
Exploit Revenue Enhancement Opportunities
Arch believes there are a number of new revenue opportunities associated
with its 4.0 million pagers in service, including increasing the proportion of
subscribers utilizing alphanumeric display services, which generate higher
revenue, and selling value-added, non-facilities based enhanced services such
as voicemail, resale of long-distance service and fax storage and retrieval.
See "--Paging Operations".
PAGING OPERATIONS
Arch currently provides four basic types of paging services: digital
display, alphanumeric display, tone-only and tone-plus-voice. Depending upon
the type of pager used, a subscriber may receive information displayed or
broadcast by the pager or may receive a signal from the pager indicating that
the subscriber should call a prearranged number or a company operator to
retrieve a message.
A digital display pager permits a caller to transmit to the subscriber a
numeric message that may consist of a telephone number, an account number or
coded information, and has the capability to store several such numeric
messages in memory for later recall by the subscriber. An alphanumeric display
pager allows subscribers to receive and store messages consisting of both
numbers and letters. A tone-only pager notifies the subscriber that a call has
been received by emitting an audible beeping sound or vibration. A tone-plus-
voice pager emits a beeping sound followed by a brief voice message. Arch
provides digital display, alphanumeric display and tone-only service in all of
its markets and provides tone-plus-voice service in only a few markets.
Digital display paging service, which was introduced by the paging industry
nearly 20 years ago, has in recent years grown at a faster rate than tone-only
or tone-plus-voice service and currently represents a majority of all pagers
in service. The growth of alphanumeric display service, which was introduced
in the mid-1980s, has been constrained by its difficult data-input and
specialized equipment requirements and its relatively high use of system
capacity during transmission. The following table summarizes the types of
Arch's pagers in service at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
AUGUST 31, --------------------------------------------------------
1994 1994 1995 1996 1997
----------- ----------- ------------- ------------- -------------
UNITS % UNITS % UNITS % UNITS % UNITS %
------- --- ------- --- --------- --- --------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Digital display......... 339,000 83% 466,000 87% 1,755,000 87% 2,796,000 85% 3,284,000 85%
Alphanumeric display.... 35,000 8 39,000 7 171,000 9 395,000 12 524,000 13
Tone-only............... 19,000 5 16,000 3 37,000 2 54,000 2 43,000 1
Tone-plus-voice......... 17,000 4 17,000 3 43,000 2 50,000 1 39,000 1
------- --- ------- --- --------- --- --------- --- --------- ---
Total.................. 410,000 100% 538,000 100% 2,006,000 100% 3,295,000 100% 3,890,000 100%
======= === ======= === ========= === ========= === ========= ===
</TABLE>
Arch provides paging service to subscribers for a monthly fee. Subscribers
either lease the pager from Arch for an additional fixed monthly fee or they
own the pager, having purchased it either from Arch or from another vendor.
The monthly service fee is generally based upon the type of service provided,
the geographic area covered, the number of pagers provided to the customer and
the period of the subscriber's commitment. Subscriber-owned pagers provide a
more rapid recovery of Arch's capital investment than pagers owned and
maintained by Arch, but may generate less recurring revenue. Arch also sells
pagers to third-party resellers who lease or resell pagers to their own
subscribers and resell Arch's paging services under marketing agreements. The
following table summarizes the number of Arch-owned and leased, subscriber-
owned and reseller-owned pagers in service at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
AUGUST 31, --------------------------------------------------------
1994 1994 1995 1996 1997
----------- ----------- ------------- ------------- -------------
UNITS % UNITS % UNITS % UNITS % UNITS %
------- --- ------- --- --------- --- --------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arch-owned and leased... 222,000 54% 259,000 48% 902,000 45% 1,533,000 47% 1,740,000 45%
Subscriber-owned........ 139,000 34 182,000 34 596,000 30 914,000 28 1,087,000 28
Reseller-owned.......... 49,000 12 97,000 18 508,000 25 848,000 25 1,063,000 27
------- --- ------- --- --------- --- --------- --- --------- ---
Total.................. 410,000 100% 538,000 100% 2,006,000 100% 3,295,000 100% 3,890,000 100%
======= === ======= === ========= === ========= === ========= ===
</TABLE>
47
<PAGE>
Arch provides enhancements and ancillary services such as voice mail,
personalized greetings, message storage and retrieval, pager loss protection
and pager maintenance services. Voice mail allows a caller to leave a recorded
message that is stored in Arch's computerized message retrieval center. When a
message is left, the subscriber can be automatically alerted through the
subscriber's pager and can retrieve the stored message by calling Arch's
paging terminal. Personalized greetings allow the subscriber to record a
message to greet callers who reach the subscriber's pager or voice mail box.
Message storage and retrieval allows a subscriber who leaves Arch's service
area to retrieve calls that arrived during the subscriber's absence from the
service area. Pager loss protection allows subscribers who lease pagers to
limit their costs of replacement upon loss or destruction of a pager. Pager
maintenance services are offered to subscribers who own their own equipment.
Arch is also in the process of test marketing various non-facilities-based
value-added services that can be integrated with existing paging services.
These include, among other services, voicemail, resale of long distance
service and fax storage and retrieval.
INVESTMENTS IN NARROWBAND PCS LICENSES
Arch has taken the following steps to position itself to participate in new
and emerging N-PCS services and applications.
Benbow PCS Ventures, Inc.
Arch holds a 49.9% equity interest in Benbow, which holds (directly or
through Page Call) exclusive rights to a 50 KHz outbound/12.5 KHz inbound N-
PCS license in each of the five regions of the United States. Benbow is a
"designated entity" (a small, minority-controlled or female-controlled
business) under FCC rules and is entitled to discounts and installment payment
schedules in the payment of its N-PCS licenses. Arch has the right to
designate one of Benbow's three directors and veto rights with respect to
specified major business decisions by Benbow. Parent is obligated, to the
extent such funds are not available to Benbow from other sources and subject
to the approval of Arch's designee on Benbow's Board of Directors, to advance
to Benbow sufficient funds to service debt obligations incurred by Benbow in
connection with the acquisition of its N-PCS licenses and to finance
construction of an N-PCS system. The total purchase price for Benbow's
licenses (together with the purchase price of licenses acquired from Page
Call), net of the discounts, was $42.5 million. Arch estimates that the total
cost to Benbow of servicing its license related debt obligations and
constructing such N-PCS system (including the effect of the Page Call
acquisition) will be approximately $100 million over the next five years. Arch
currently anticipates that approximately $40 million of such amount (including
$10 million in each of the next four years) will be funded by Arch and the
balance will be funded through vendor financing and other sources. Arch's
advances to Benbow are secured by Benbow's assets, bear interest at an
interest rate equal to that paid by Arch on its senior debt, are due on demand
and must be repaid prior to any distribution of profits by Benbow. With
certain exceptions, Arch has agreed not to exercise its right to demand
repayment of such advances prior to the occurrence of a default (as defined
therein). As of March 31, 1998, Arch had advanced $15.0 million to Benbow.
Pursuant to a five-year management agreement expiring on October 1, 2000,
Arch is responsible, subject to Benbow's ultimate control, for Benbow's day-
to-day operations and is paid a management fee and is reimbursed for its
expenses. Arch also has a right of first refusal to provide Benbow with
design, engineering and construction services for its N-PCS system as well as
to lease certain equipment to Benbow for use in connection with such system.
Arch has a right of first refusal with respect to any transfer of shares held
by June Walsh, who holds the remaining 50.1% equity interest in Benbow, and
Ms. Walsh has the right to require Parent, commencing January 23, 2000 (or
sooner under certain circumstances), to repurchase her Benbow shares for an
amount equal to the greater of (i) an amount between $3.5 million and $5.0
million, depending on the timing and circumstances under which Ms. Walsh
exercises her put option, and (ii) the fair market value of her shares (as
determined by arbitration absent agreement of the parties). If Arch exercises
its right of first refusal or Ms. Walsh exercises her put option, Benbow could
lose some of the benefits of the discounts and installment payment schedules
for its FCC payments unless another "designated entity" acquired control of
Benbow under FCC rules. See Note 1 of Notes to Arch's Consolidated Financial
Statements.
48
<PAGE>
Benbow needs to construct its N-PCS system (or make other arrangements)
before it can offer N-PCS services. Benbow has indicated that it plans to roll
out its services over time to reach approximately one-third of the population
in the licensed areas by the end of 1999. Benbow's network will use a Reflex
25 paging protocol. Arch believes that Benbow will provide Arch with a
platform for a new generation of wireless messaging services, including two-
way messaging and other enhanced services, and that the value of its Benbow
relationship will be significantly enhanced by the completion of the Page Call
acquisition.
On June 29, 1998, Benbow acquired Page Call's outstanding stock by issuing
to Page Call's former stockholders preferred stock and a promissory note in
the aggregate face amount of $17.2 million with a 12% annual return. Upon the
closing, Benbow entered into a five-year consulting agreement with one of Page
Call's stockholders requiring consulting payments in the aggregate amount of
$911,000. Benbow's preferred stock and promissory note are exchangeable for
Common Stock of Parent (i) at any time at the option of the holders thereof,
at an exchange price equal to the higher of (A) $13.00 per share or (B) the
market price of Parent's Common Stock, (ii) mandatorily on April 8, 2000, at
the then prevailing market price of Parent's Common Stock, or (iii)
automatically at an exchange price of $13.00 per share, if the market price of
Parent's Common Stock equals or exceeds $13.00 for 20 consecutive trading
days. Parent is permitted to require Benbow to redeem its preferred stock and
promissory note at any time for cash. Parent entered into guarantees (payable
in Parent's Common Stock or cash, at Parent's election) of all obligations of
Benbow under the Benbow preferred stock, promissory note and consulting
agreement described above. Benbow's redemption of its preferred stock and
promissory note for cash, or Parent's payment of cash pursuant to its
guarantees of Benbow's preferred stock and promissory note, would be subject
to the availability of capital and any restrictions contained in applicable
debt instruments and under applicable law (which currently would not permit
any such cash redemptions or payments). If Parent issues Common Stock or pays
cash pursuant to its guarantees, Parent will receive from Benbow a promissory
note and non-voting, non-convertible preferred stock of Benbow with an annual
yield of 14.5% payable upon an acquisition of Benbow or earlier to the extent
that available cash and applicable law permit. Page Call's stockholders
received customary registration rights with respect to any shares of Parent's
Common Stock issued in exchange for Benbow's preferred stock and promissory
note or pursuant to Parent's guarantees thereof.
CONXUS Communications, Inc.
Arch currently holds a 10.5% equity interest in CONXUS Communications, Inc.
("Conxus"), formerly known as PCS Development Corporation, which holds
exclusive rights to a 50 KHz outbound/50 KHz inbound two-way messaging license
throughout the United States. Conxus, like Benbow, is a "designated entity"
under FCC rules and is entitled to discounts and installment payment
schedules.
Each stockholder of Conxus is entitled to purchase services from Conxus at
"most favored customer" rates, based on like services. Conxus and Arch have
agreed to negotiate in good faith to enter into "mutually acceptable
intercarrier, network access and similar agreements". If Arch wishes to
purchase N-PCS services of the kind offered by Conxus, Arch has agreed to
contract exclusively with Conxus for such services so long as such services
are competitive in price and quality with comparable services offered by
others. Arch is currently acting as a reseller of voice messaging services
through Conxus in a limited number of markets.
SUBSCRIBERS AND MARKETING
Arch's paging accounts are generally businesses with employees who travel
frequently but must be immediately accessible to their offices or customers.
Arch's subscribers include proprietors of small businesses, professionals,
management and medical personnel, field sales personnel and service forces,
members of the construction industry and trades, and real estate brokers and
developers. Arch believes that pager use among consumers will increase
significantly in the future, although consumers do not currently account for a
substantial portion of Arch's subscriber base.
Although today Arch operates in more than 180 of the 200 largest U.S.
markets, Arch historically has focused on medium-sized and small market areas
with lower rates of pager penetration and attractive demographics. Arch
believes that such markets will continue to offer significant opportunities
for growth, and that its national scope and presence will also provide Arch
with growth opportunities in larger markets.
49
<PAGE>
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, 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.
In May 1997, Arch established a single national identity, Arch Paging, for
its paging services which previously had been marketed under various
trademarks. As part of this branding initiative, Arch adopted a new corporate
logo, a corporate-wide positioning strategy tied to customer service delivery,
and launched its Internet Web site at www.arch.com. Arch believes that its
unified branding identity will give the Arch name national exposure for the
first time and result in significant economic leverage in its marketing and
communications efforts.
COMPETITION
Arch competes with 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. 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., Metrocall, Inc.,
MobileMedia Corporation 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, the FCC has created potential sources
of competition by auctioning new spectrum for Wireless Communications Services
and speeding up licensing of other services by holding an auction in the Local
Multipoint Distribution Service and scheduling an auction in the 220-222 MHz
service. Further, the FCC has announced plans to auction licenses in the
General Wireless Communications Services, a service created from spectrum
reallocated from federal government use in 1995. Moreover, entities offering
service on wireless two-way communications technology, including cellular,
broadband PCS and specialized mobile radio services, also compete with the
paging services that Arch provides.
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. See "Risk Factors--Dependence on
Suppliers".
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.
50
<PAGE>
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.
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 decided to adopt a market
area licensing scheme for all paging channels under which carriers would be
licensed to operate on a particular channel throughout a broad geographic area
(for example, a Major Trading Area as defined by Rand McNally) rather than
being licensed on a site-by-site basis. These geographic area licenses will be
awarded pursuant to an auction. After auction, incumbent paging licensees that
do not acquire licenses at auction will be entitled to interference protection
from the market area licensee. 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. Arch depends in its
business on the assignment and use of standard and toll free telephone numbers
for its paging units. The FCC and 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 at specified locations.
Arch is licensed by the FCC to provide paging services at each such location.
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
51
<PAGE>
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 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. The FCC's Wireless
Telecommunications Bureau (the Bureau directly regulating Arch's paging
activities) recently announced that, effective April 2, 1998, it will forbear
from enforcing its filing requirements with respect to pro forma assignments
and transfers of control of certain wireless authorizations, such as Arch's
RCC and PCP licenses. Pursuant to this decision, wireless telecommunications
carriers now only have to file a written notification of a pro forma
transaction within 30 days after the transaction is completed. This decision
will expedite the process and reduce the costs related to corporate
reorganizations; however, Arch may still be required to obtain prior FCC
approval for the pro forma assignment or transfer of control of some of its
licenses not covered by the forbearance decision, such as certain business
radio authorizations.
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 not in the public
interest to deny an individual licensee's foreign ownership in excess of the
25% foreign ownership benchmark. Most recently, the FCC substantially
liberalized its authorization process for foreign entities investing in paging
companies that are domiciled in countries which are signatories to the World
Trade Organization agreement.
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, universal service obligations and 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
52
<PAGE>
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 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. See "Risk Factors--Government Regulation,
Foreign Ownership and Possible Redemption".
TRADEMARKS
Arch owns the service marks "Arch" and "Arch Paging", and holds a federal
registration for the service mark "Arch Nationwide Paging" as well as various
other trademarks.
PROPERTIES
At 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 leases transmitter
sites and/or owns transmitters on commercial broadcast towers, buildings and
other fixed structures in approximately 3,200 locations in 45 states. Arch's
leases are for various terms and provide for monthly lease payments at various
rates. Arch believes that it will be able to obtain additional space as needed
at acceptable cost. In April 1998, Parent announced an agreement for the Tower
Site Sale. If the Tower Site Sale is completed, Arch will sell communications
towers, real estate, site management contracts and/or leasehold interests
involving 134 sites (including one site acquired from a subsidiary of Benbow)
in 22 states, and will lease back space on the towers on which it currently
operates communications equipment to service its own paging network. As part
of the Divisional Reorganization, Arch will close certain office locations and
redeploy other real estate assets. See "Prospectus Summary--Recent
Developments--Tower Site Sale" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Divisional Reorganization".
EMPLOYEES
At March 31, 1998, Arch employed approximately 2,800 persons. None of Arch's
employees is represented by a labor union. Arch believes that its employee
relations are good. As part of the Divisional Reorganization, Arch anticipates
a net reduction of approximately 10% of its workforce. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Divisional Reorganization".
LEGAL PROCEEDINGS
Arch, from time to time, is involved in lawsuits arising in the normal
course of business. Arch believes that its currently pending lawsuits will not
have a material adverse effect on Arch.
53
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
individuals who are the directors and executive officers of Arch.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ --- -----------------------------------------------------------
<S> <C> <C>
C. Edward Baker, Jr..... 47 Chairman of the Board, Chief Executive Officer and Director
Lyndon R. Daniels....... 45 President and Chief Operating Officer
John B. Saynor.......... 57 Executive Vice President and Director
J. Roy Pottle........... 39 Executive Vice President and Chief Financial Officer
Paul H. Kuzia........... 56 Executive Vice President/Technology and Regulatory Affairs
R. Schorr Berman (1)(2). 49 Director
James S. Hughes (1)..... 55 Director
John Kornreich (3) ..... 52 Director
Allan L. Rayfield (2)... 63 Director
John A. Shane (1)(2).... 65 Director
</TABLE>
- ----------------
(1) Member of the Audit Committee of Parent.
(2) Member of the Executive Compensation and Stock Option Committee of Parent.
(3) Mr. Kornreich has the right to be a member of any committee of the Boards
of Directors of Parent and Arch, but has not yet selected the committees
he will join.
C. EDWARD BAKER, JR. has served as Chief Executive Officer and a director of
Parent since 1988 and of Arch since 1995. Mr. Baker became Chairman of the
Board of Parent in 1989 and of Arch in 1995. He also served as President of
Parent from 1988 to January 1998 and of Arch from 1995 to January 1998. From
1986 until joining Parent in March 1988, Mr. Baker was President and Chief
Executive Officer of US West Paging.
LYNDON R. DANIELS joined Parent and Arch in January 1998 as President and
Chief Operating Officer. From November 1993 to January 1998, Mr. Daniels was
the President and Chief Executive Officer of Pacific Bell Mobile Services, a
subsidiary of SBC Communications Inc. From May 1988 until November 1993, Mr.
Daniels was the Chief Financial Officer of Pactel Corp., a mobile telephone
company.
JOHN B. SAYNOR has served as a director of Parent since 1988 and of Arch
since 1995. Mr. Saynor has served as Executive Vice President of Arch since
1995 and of Parent since 1990. Mr. Saynor is a founder of Parent and served as
President and Chief Executive Officer of Parent from 1986 to March 1988 and as
Chairman of the Board from 1986 until May 1989.
J. ROY POTTLE joined Parent and Arch in February 1998 as Executive Vice
President and Chief Financial Officer. From October 1994 to February 1998, Mr.
Pottle was Vice President/Treasurer of Jones Intercable, Inc., a cable
television operator. From September 1989 to October 1994, he served as Vice
President and Relationship Manager at The Bank of Nova Scotia, New York
Agency.
PAUL H. KUZIA has served as Executive Vice President/Technology and
Regulatory Affairs of Parent and Arch since September 1996. He served as Vice
President/Engineering and Regulatory Affairs of Parent from 1988 to September
1996 and of Arch from 1995 to September 1996. Prior to 1988, Mr. Kuzia was
director of operations at Message Center Inc.
R. SCHORR BERMAN has been a director of Parent since 1986 and of Arch since
1995. Since 1987, he has been the President and Chief Executive Officer of MDT
Advisers, Inc., an investment adviser. He is a director of Mercury Computer
Systems, Inc. as well as a number of private companies.
54
<PAGE>
JAMES S. HUGHES has been a director of Parent since 1986 and of Arch since
1995. Since 1987, he has been President and Chief Executive Officer of Norwich
Corporation, a real estate investment and service firm, and, since 1992, he
has served as President and Managing Director of Inventa Corporation, an
international business development firm.
JOHN KORNREICH became a director of Parent and Arch in June 1998. Mr.
Kornreich has served as a Managing Director of Sandler since 1988.
ALLAN L. RAYFIELD has been a director of Parent since 1997 and of Arch since
1998. He has been a consultant since 1995. From November 1993 until December
1994, Mr. Rayfield served as Chief Executive Officer of M/A Com Inc., a
microwave electrical manufacturing company. From April 1991 until November
1993, he served as Chief Operating Officer of M/A Com Inc. He is a director of
Parker Hannifin Corporation and Acme Metals Incorporated.
JOHN A. SHANE has been a director of Parent since 1988 and of Arch since
1995. He has been the President of Palmer Service Corporation since 1972. He
has been a general partner of Palmer Partners L.P., a venture capital firm,
since 1981. He serves as a director of Overland Data, Inc., Summa Four, Inc.,
United Asset Management Corporation and Gensym Corporation and as a trustee of
Nvest Funds.
Arch's directors are elected by Parent, its sole stockholder, and hold
office until their successors are elected or their earlier death, resignation
or removal. Arch and Parent currently have the same directors. Parent's
Restated Certificate of Incorporation and By-Laws provide that Parent has a
classified Board of Directors composed of three classes, each of which serves
for three years, with one class being elected each year. The term of Messrs.
Hughes and Rayfield will expire at Parent's annual meeting of stockholders to
be held in 1999, the term of Messrs. Saynor and Shane will expire at Parent's
annual meeting of stockholders to be held in 2000 and the term of Messrs.
Baker, Berman and Kornreich will expire at Parent's annual meeting of
stockholders to be held in 2001.
So long as at least 50% of Parent's Series C Preferred Stock remains
outstanding, the holders thereof have the right, voting as a separate class,
to elect one member of the Boards of Directors of Parent and Arch, and such
director has the right to be a member of any committee of such Boards of
Directors. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Equity
Investment". In June 1998, John Kornreich was elected a director of Parent and
Arch pursuant to these arrangements.
Arch's executive officers are elected by its Board of Directors and hold
office until their successors are elected or until their earlier death,
resignation or removal.
Certain of Arch's executive officers have entered into non-competition
agreements with Arch which provide that, for a minimum period of one year
following termination, they will not compete with Arch nor, for a period of
three years following termination, recruit or hire any other Arch employee.
Parent has formed an offshore corporation to pursue wireless messaging
opportunities in Latin America. Parent and an entity owned by Mr. Hughes each
contributed $250,000 to this offshore corporation and each owns 18.56% of its
equity.
BOARD COMMITTEES
Arch's Board of Directors has no standing committees. Parent's Board of
Directors has an Audit Committee and an Executive Compensation and Stock
Option Committee (the "Compensation Committee"). There is no standing
nominating committee of Parent's Board of Directors. The Audit Committee
reviews the annual consolidated financial statements of Parent and its
subsidiaries (including Arch) prior to their submission to the Board of
Directors and consults with Parent's independent public accountants to review
financial results, internal
55
<PAGE>
financial controls and procedures, audit plans and recommendations. The Audit
Committee also recommends the selection, retention or termination of
independent public accountants and approves services provided by independent
public accountants prior to the provision of such services. The Compensation
Committee recommends to Parent's Board of Directors the compensation of
executive officers, key managers and directors and administers Parent's stock
option plans.
INDEMNIFICATION AND DIRECTOR LIABILITY
Arch's Restated Certificate of Incorporation provides that Arch will, to the
fullest extent permitted by the Delaware General Corporation Law (the "DGCL"),
indemnify all persons whom it has the power to indemnify against all costs,
expenses and liabilities incurred by them by reason of having been officers or
directors of Arch, any subsidiary of Arch or any other corporation for which
such persons acted as an officer or director at the request of Arch.
Arch's Restated Certificate of Incorporation also provides that the
directors of Arch will not be personally liable for monetary damages to Arch
or its stockholders for any act or omission, provided that the foregoing shall
not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to Arch or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
illegal dividends or stock redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. If the DGCL is amended to
permit further elimination or limitation of the personal liability of
directors, then the liability of a director of Arch shall be eliminated or
limited to the fullest extent permitted by the DGCL as so amended.
56
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to the annual
and long-term compensation of Arch's Chief Executive Officer and other
executive officers (the "Named Executive Officers") for the years ended
December 31, 1995, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ------------
OTHER
ANNUAL SECURITIES
COMPEN- UNDERLYING
SALARY BONUS SATION OPTIONS
NAME AND PRINCIPAL POSITION DURING 1997 YEAR $ ($)(1) ($)(2) (#)(3)
- --------------------------------------- ---- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
C. Edward Baker, Jr. ........... 1997 $353,317 $227,500 $600 459,324(4)
Chairman, President and 1996 329,050 36,833 600 268,860(5)(6)
Chief Executive Officer 1995 281,650 106,000 600 40,000(7)
Lyndon R. Daniels............... 1997 -- -- -- --
President and Chief Operating
Officer (joined Arch in January
1998)
J. Roy Pottle................... 1997 -- -- -- --
Executive Vice President and
Chief Financial Officer (joined
Arch in February 1998)
John B. Saynor.................. 1997 153,188 72,900 600 51,810(8)
Executive Vice President 1996 146,867 15,300 600 20,000(6)
1995 131,870 50,000 600 20,000(7)
Paul H. Kuzia................... 1997 157,633 77,400 600 86,574(9)
Executive Vice
President/Technology 1996 133,800 14,620 600 8,000(6)
and Regulatory Affairs 1995 123,300 46,000 600 8,000(7)
William A. Wilson............... 1997 133,599 150,500 600 32,836
Former Executive Vice President
and 1996 203,133 19,833 600 170,000(10)
Chief Financial Officer(11) 1995 157,300 58,000 600 20,000(7)
</TABLE>
- ---------------------
(1) Represents bonus paid in such fiscal year with respect to prior year.
(2) Represents Parent's matching contributions paid under Parent's 401(k)
plan.
(3) Listed options were granted by Parent. No restricted stock awards or stock
appreciation rights ("SARs") were granted to any of the Named Executive
Officers during the years ended December 31, 1995, 1996 or 1997.
(4) Includes options to purchase 409,688 shares granted as part of Parent's
January 16, 1998 option repricing program.
(5) Includes options to purchase 106,860 shares replaced in connection with
Parent's October 23, 1996 option repricing program.
(6) Option replaced in connection with Parent's January 16, 1998 option
repricing program.
(7) Option replaced in connection with Parent's October 23, 1996 option
repricing program.
(8) Includes options to purchase 35,905 shares granted as part of Parent's
January 16, 1998 option repricing program.
(9) Includes options to purchase 69,687 shares granted as part of Parent's
January 16, 1998 option repricing program.
(10) Includes options to purchase 75,000 shares replaced in connection with
Parent's October 23, 1996 option repricing program.
(11) Mr. Wilson resigned on June 30, 1997.
57
<PAGE>
Executive Retention Agreements
In January 1998, Parent's Board of Directors approved Executive Retention
Agreements (the "Agreements") for a total of 18 executives (the "Executives"),
including Messrs. Baker, Daniels, Kuzia, Pottle and Saynor.
The purpose of the Agreements is to assure the continued employment and
dedication of the Executives without distraction from the possibility of a
Change in Control (as defined in the Agreements) of Parent. In the event of a
Change in Control, and the termination of the Executive's employment by Parent
at any time within the 12-month period thereafter (other than for cause,
disability or death) or by the Executive for Good Reason (as defined in the
Agreements), the Executive shall be eligible to receive (i) a cash severance
payment equal to the Executive's base salary plus any other amounts earned
through the date of termination (to the extent not previously paid), (ii) an
additional lump sum cash payment equal to a specified multiple (the
"Multiple") of the sum of (a) the Executive's annual base salary in effect at
the time of the Change in Control and (b) the average bonus paid for the three
calendar years immediately preceding the calendar year during which the Change
in Control occurs, and (iii) any amounts or benefits required to be paid or
provided to the Executive or which the Executive is eligible to receive
following the Executive's termination under any plan, program, policy,
practice, contract or agreement of Parent. In addition, until the earlier of
(a) 12 months after termination or (b) the Executive becomes reemployed with
another employer and is eligible to receive substantially equivalent benefits,
Parent shall arrange to provide the Executive with life, disability, accident
and health insurance benefits similar to those previously maintained. The
Multiple for Messrs. Baker, Daniels, Kuzia, Pottle and Saynor is three, and
the Multiple for the other Executives is one or two. Good Reason is defined to
include, among other things, a material reduction in employment
responsibilities, compensation or benefits or, in the case of Mr. Baker, the
failure to become the Chief Executive of any entity succeeding or controlling
Parent.
Stock Option Grants
The following table summarizes certain information regarding options granted
to the Named Executive Officers during the year ended December 31, 1997. No
SARs were granted during the year ended December 31, 1997. All such stock
options have been granted by Parent.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTIONS TERM(3)
------------------------------------------------- -------------------
PERCENT OF
TOTAL
OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEE IN BASE PRICE EXPIRATION
(#)(1) FISCAL YEAR ($/SHARE)(2) DATE 5% ($) 10% ($)
------------ ------------ ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr. ... 49,636(4) 2.89 $6.875 03/05/07 $214,609 $ 543,861
409,688(5) 23.89 5.0625 01/16/08 553,600 2,110,041
Lyndon R. Daniels....... -- -- -- -- -- --
J. Roy Pottle........... -- -- -- -- -- --
John B. Saynor.......... 15,905(4) 0.93 6.875 03/05/07 68,768 174,271
35,905(5) 2.09 5.0625 01/16/08 48,517 184,924
Paul H. Kuzia........... 16,887(4) 0.98 6.875 03/05/07 73,013 185,031
69,687(5) 4.06 5.0625 01/16/08 94,166 358,913
William A. Wilson....... 32,836 1.92 6.875 03/05/07 141,971 359,783
</TABLE>
- --------
(1) Options generally become exercisable at a rate of 20% of the shares
subject to the option on the first anniversary of the date of grant and
5% of the shares subject to the option per calendar quarter thereafter.
(2) The exercise price is equal to the fair market value of Parent's Common
Stock on the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for the
options if exercised at the end of the option terms. These gains are
based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted and are not
intended to forecast future appreciation of the price of the Common
Stock. The Named Executive Officers will realize no gain upon the
exercise of these options without an increase in the price of the Common
Stock, which increase will benefit all Company stockholders
proportionately.
(4) Option replaced as part of the January 16, 1998 option repricing program.
(5) Option granted as part of the January 16, 1998 option repricing program.
58
<PAGE>
Option Exercises and Year-End Option Table
The following table sets forth certain information regarding the exercise of
stock options during the year ended December 31, 1997 and stock options held
as of December 31, 1997 by the Named Executive Officers. All such stock
options have been granted by Parent.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY
SHARES AT FISCAL YEAR- OPTIONS
ACQUIRED END AT FISCAL YEAR-END
ON VALUE (EXERCISABLE/ (EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)
NAME (#) ($)(1) (#) ($)(2)
- ------------------------ -------- -------- ------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr..... -- -- 314,904 (3) 188,816 $ 188,064 --
Lyndon R. Daniels....... -- -- -- -- -- --
John B. Saynor.......... -- -- 4,000 31,905 -- --
J. Roy Pottle........... -- -- -- -- -- --
Paul H. Kuzia........... -- -- 46,400 23,287 -- --
William A. Wilson....... -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Represents the difference between the exercise price and the fair market
value of Parent's Common Stock on the date of exercise.
(2) Based on the fair market value of Parent's Common Stock on December 31,
1997 ($5.125 per share) less the option exercise price.
(3) Subsequent to December 31, 1997, Mr. Baker exercised an option for 94,032
shares.
Repricing of Options
On December 16, 1997, the Compensation Committee of Parent approved the
repricing of certain outstanding stock options, including certain options held
by Parent's executive officers who were employed as of December 16, 1997. The
repricing became effective on January 16, 1998. Pursuant to the repricing
program, approximately 90% of all outstanding options (other than options
under Parent's outside directors' option plans) with exercise prices in excess
of $5.0625 per share were replaced with options exercisable at $5.0625 per
share. A total of 80 option holders, holding options to purchase an aggregate
of 1,083,216 shares of Common Stock of Parent with exercise prices ranging
from $5.9375 to $20.625 per share, were granted new options.
Effective October 23, 1996, the Compensation Committee of Parent approved
the repricing of certain outstanding stock options, including certain options
held by Parent's executive officers. Pursuant to the repricing program,
substantially all outstanding options (other than certain options held by Mr.
Baker and options under Parent's outside directors' option plans) with
exercise prices in excess of $12.50 per share were replaced with options
exercisable at $12.50 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of Parent's Compensation Committee are R. Schorr Berman,
Allan L. Rayfield and John A. Shane. Messrs. Berman and Shane served on the
Compensation Committee throughout 1997, and Mr. Rayfield joined the
Compensation Committee upon his election as a director in July 1997.
C. Edward Baker, Jr., the Chairman and Chief Executive Officer of Parent,
makes recommendations and participates in discussions regarding executive
compensation, but he does not participate directly in discussions regarding
his own compensation. No current executive officer of Parent has served as a
director or member of the Compensation Committee (or other committee serving
an equivalent function) of any other entity, any of whose executive officers
has served as a director of Parent or as a member of the Compensation
Committee of Parent.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of Arch is beneficially owned by
Parent. The following table sets forth certain information with respect to the
beneficial ownership of Parent's Common Stock, as of June 30, 1998, by (i)
each person who is known by Arch to beneficially own more than 5% of the
outstanding shares of Parent's Common Stock, (ii) each current director of
Arch, (iii) Arch's Chief Executive Officer and the other Named Executive
Officers and (iv) all current directors and executive officers of Arch as a
group.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES(1) PERCENTAGE(2)
--------------------------------------------------- --------- -------------
<S> <C> <C>
Sandler Capital Management (3) .................... 4,594,364 17.9%
Franklin Resources, Inc. (4)....................... 2,514,080 9.8
Memorial Drive Trust (5)........................... 1,947,990 7.6
State of Wisconsin Investment Board (6)............ 1,388,000 5.4
Dimensional Fund Advisors Inc. (7)................. 1,304,900 5.1
J. & W. Seligman & Co. Incorporated (8)............ 1,257,372 4.9
Goldman, Sachs & Co. (9)........................... 1,225,500 4.8
C. Edward Baker, Jr. .............................. 186,647 0.7
Lyndon R. Daniels.................................. 12,000 *
John B. Saynor..................................... 193,924 0.8
J. Roy Pottle...................................... -- --
Paul H. Kuzia...................................... 17,000 *
R. Schorr Berman (10).............................. 1,961,140 7.7
James S. Hughes.................................... 80,837 *
John Kornreich (11) ............................... 4,830,569 18.9
Allan L. Rayfield.................................. 3,250 *
John A. Shane (12)................................. 94,785 *
William A. Wilson (13)............................. 600 *
All current directors and executive officers of
Parent as a group (10 persons) (14)............... 7,380,152 28.6
</TABLE>
- ---------------------
* Less than 0.5%
(1) Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his
spouse) with respect to all shares of capital stock listed as owned by
such person or entity.
(2) Assumes the conversion of Series C Preferred Stock into Common Stock at
the initial conversion price of $5.50 per share. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Equity Investment".
(3) The business address of Sandler Capital Management ("Sandler") is 767
Fifth Avenue, 45th Floor, New York, New York 10153. Sandler has sole
voting and investment power over 348,000 of such shares and shared voting
and investment power over 4,246,364 of such shares. This information is
based on the Schedule 13G filed by Sandler with the Securities and
Exchange Commission on July 10, 1998.
(4) The business address of Franklin Resources, Inc. is 777 Mariners Island
Boulevard, San Mateo, California 94404. Franklin Advisers, Inc., a
subsidiary of Franklin Resources, Inc., has sole voting power and sole
investment power with respect to 2,493,700 shares. Franklin Management,
Inc., a subsidiary of Franklin Resources, Inc., has sole investment power
with respect to 20,380 shares. Franklin Resources, Inc., the principal
shareholders thereof, Franklin Advisers, Inc. and Franklin Management,
Inc. disclaim beneficial ownership of these securities. This information
is based on Amendment No. 1 to Schedule 13G filed by Franklin Resources,
Inc. with the Securities and Exchange Commission on January 26, 1998.
(5) The business address of Memorial Drive Trust is 125 Cambridge Park Drive,
Cambridge, Massachusetts 02140. All shares listed in the above table as
held by Memorial Drive Trust are held by MD Co. as nominee for Memorial
Drive Trust, a trust holding assets of a qualified profit sharing plan for
employees of Arthur D. Little, Inc., over which Mr. Berman may be deemed
to share voting and investment power. See footnote (10).
(6) The business address of the State of Wisconsin Investment Board is P.O.
Box 7842, Madison, Wisconsin 53707. This information is based on the
Schedule 13G filed by the State of Wisconsin Investment Board with the
Securities and Exchange Commission on January 27, 1998.
60
<PAGE>
(7) The business address of Dimensional Fund Advisors Inc. is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401. Dimensional Fund
Advisors Inc. has sole voting power with respect to 860,800 shares and
sole investment power with respect to all 1,304,900 shares. Officers of
Dimensional Fund Advisors Inc. also serve as officers of DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company, each an open-
end management investment company. These officers have sole voting power
with respect to 139,100 shares owned by DFA Investment Dimensions Group
Inc. and 305,000 shares owned by The DFA Investment Trust Company. All of
these securities are owned by advisory clients of Dimensional Fund
Advisors Inc., none of which, to the knowledge of Dimensional Fund
Advisors Inc., owns more than 5% of the class. Dimensional Fund Advisors
Inc. disclaims beneficial ownership of such securities. This information
is based on the Schedule 13G filed by Dimensional Fund Advisors Inc. with
the Securities and Exchange Commission on February 10, 1998.
(8) The business address of J. & W. Seligman & Co. Incorporated is 100 Park
Avenue, New York, New York 10017. J. & W. Seligman & Co. Incorporated has
shared voting power with respect to 1,129,325 of such shares and shared
investment power with respect to all 1,257,372 shares. This information is
based on Amendment No. 1 to Schedule 13G filed by J. & W. Seligman & Co.
Incorporated with the Securities and Exchange Commission on February 12,
1998.
(9) The business address of Goldman, Sachs & Co. and its parent holding
company, The Goldman Sachs Group, L.P. (collectively "Goldman Sachs"), is
85 Broad Street, New York, New York 10004. Goldman Sachs has shared voting
power with respect to 854,100 shares and shared investment power with
respect to all 1,225,500 shares. Goldman Sachs disclaims beneficial
ownership of the shares beneficially owned by (i) managed accounts and
(ii) certain investment limited partnerships, of which a subsidiary of
Goldman Sachs is the general partner or managing general partner, to the
extent partnership interests in such partnerships are held by persons
other than Goldman Sachs or their affiliates. This information is based on
the Schedule 13G filed by Goldman Sachs with the Securities and Exchange
Commission on February 17, 1998.
(10) Includes 1,947,990 shares held by Memorial Drive Trust, over which Mr.
Berman may be deemed to share voting and investment power as Administrator
and Chief Executive Officer of Memorial Drive Trust. Mr. Berman disclaims
beneficial ownership of such shares held by Memorial Drive Trust.
(11) Includes 4,594,364 shares beneficially owned by Sandler, over which Mr.
Kornreich may be deemed to have voting and investment power as Managing
Director, and 190,000 shares beneficially owned by two limited
partnerships, over which Mr. Kornreich may be deemed to have voting and
investment power as a general partner. Mr. Kornreich disclaims beneficial
ownership of all such shares.
(12) Includes 1,051 shares owned by Palmer Service Corporation, over which Mr.
Shane may be deemed to have voting and investment power as President and
sole stockholder of Palmer Service Corporation, and 59,701 shares issuable
upon conversion of $1,000,000 principal amount of Parent's 6 3/4%
Convertible Subordinated Debentures due 2003 (the "Arch Convertible
Debentures") held by Palmer Organization III, L.P., of which Mr. Shane is
the general partner of the general partner.
(13) Consists of 600 shares held by or jointly with Mr. Wilson's children.
(14) Includes (i) 4,594,364 shares beneficially owned by Sandler and 190,000
shares beneficially owned by two limited partnerships of which Mr.
Kornreich is a general partner, (ii) 1,947,990 shares held by Memorial
Drive Trust, (iii) 1,051 shares held by Palmer Service Corporation, (iv)
59,701 shares issuable upon conversion of $1,000,000 principal amount of
Arch Convertible Debentures held by Palmer Organization III, L.P. and (v)
74,347, 15,680, 10,250, 10,250, 750, 2,250, 10,250 and 123,777 shares
issuable upon the exercise of outstanding stock options held by Messrs.
Baker, Kuzia, Berman, Hughes, Kornreich, Rayfield, Shane and all current
directors and executive officers of Arch as a group, respectively,
exercisable within 60 days after June 30, 1998.
61
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
AMENDED CREDIT FACILITY
Contemporaneously with the Merger, the ACE Credit Facility was amended and
restated to establish the $400.0 million Amended Credit Facility with API, as
borrower, and The Bank of New York (the "Bank"), Royal Bank of Canada and
Toronto Dominion (Texas), Inc., as managing agents, consisting of (i) a $175.0
million reducing revolving credit facility (the "Tranche A Facility"), (ii) a
$100.0 million 364-day revolving credit facility under which the principal
amount outstanding on the 364th day following the closing will convert to a
term loan (the "Tranche B Facility") and (iii) a $125.0 million term loan
which was available in a single drawing on the closing date (the "Tranche C
Facility").
The Tranche A Facility will be subject to scheduled quarterly reductions
commencing on September 30, 2000 and will mature on June 30, 2005. The term
loan portion of the Tranche B Facility will be amortized in quarterly
installments commencing September 30, 2000, with an ultimate maturity date of
June 30, 2005. The Tranche C Facility will be amortized in annual installments
commencing December 31, 1999, with an ultimate maturity date of June 30, 2006.
API's obligations under the Amended Credit Facility are secured by its
pledge of the capital stock of the former ACE operating subsidiaries. The
Amended Credit Facility is guaranteed by Parent, Arch and the former ACE
operating subsidiaries. Parent's guarantee is secured by a pledge of Parent's
stock and notes in Arch, and the guarantees of the former ACE operating
subsidiaries are secured by a security interest in those assets of such
subsidiaries which were pledged under ACE's former credit facility. See
"Prospectus Summary--Corporate Structure". Lenders representing 40% of the
Amended Credit Facility have the right to require Arch and its subsidiaries to
grant security interests in certain additional assets not currently pledged
thereunder, subject to granting a ratable security interest to holders of the
9 1/2% Notes and the 14% Notes.
Borrowings under the Amended Credit Facility bear interest based on a
reference rate equal to either the Bank's Alternate Base Rate or LIBOR rate,
in each case plus a margin based on Arch's or API's ratio of total debt to
annualized operating cash flow.
The Amended Credit Facility requires payment of fees on the daily average
amount available to be borrowed under the Tranche A Facility and the Tranche B
Facility, which fees vary depending on Arch's or API's ratio of total debt to
annualized operating cash flow.
The Amended Credit Facility contains restrictions that limit, among other
things: additional indebtedness and encumbrances on assets; cash dividends and
other distributions; mergers and sales of assets; the repurchase or redemption
of capital stock; investments; acquisitions that exceed certain dollar
limitations without the lenders' prior approval; and prepayment of
indebtedness other than indebtedness under the Amended Credit Facility. In
addition, the Amended Credit Facility requires Arch and its subsidiaries to
meet certain financial covenants, including covenants with respect to ratios
of operating cash flow to fixed charges, operating cash flow to debt service,
operating cash flow to interest service and total indebtedness to operating
cash flow. See "Risk Factors--Amended Credit Facility and Indenture
Restrictions".
9 1/2% NOTES
Arch has outstanding $125.0 million in aggregate principal amount of 9 1/2%
Notes. The 9 1/2% Notes accrue interest at the rate of 9.5% per annum, payable
semi-annually on February 1 and August 1. The 9 1/2% Notes are scheduled to
mature on February 1, 2004.
Arch, at its option, may redeem the 9 1/2% Notes as a whole, or from time to
time in part, on or after February 1, 1999 at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period beginning February 1 of the years indicated below (in
each case together with accrued and unpaid interest to the redemption date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999........................................................ 104.750%
2000........................................................ 103.167%
2001........................................................ 101.583%
2002 and thereafter......................................... 100.000%
</TABLE>
62
<PAGE>
The covenants in the indenture under which the 9 1/2% Notes are outstanding
(the "9 1/2% Notes Indenture") limit the ability of Arch and its subsidiaries
to pay dividends to Parent. Additionally, the 9 1/2% Notes Indenture imposes
limitations on the incurrence of indebtedness, whether secured or unsecured,
by Arch and its subsidiaries, on the disposition of assets, on transactions
with affiliates, on guarantees of the obligations of Arch by any of its
subsidiaries, on the sale or issuance of stock by the subsidiaries of Arch and
on the merger, consolidation or sale of substantially all of the assets of
Arch.
Upon the occurrence of a "Change of Control", as defined in the 9 1/2% Notes
Indenture, each holder of 9 1/2% Notes has the right to require that Arch
repurchase such holder's 9 1/2% Notes at a repurchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of repurchase. The following constitute a Change of Control under
the 9 1/2% Notes Indenture: (i) the acquisition by a person or group of
beneficial ownership of the majority of the securities of Arch or Parent
having the right to vote in the election of directors; (ii) certain changes in
the boards of directors of Arch or Parent; (iii) the sale or transfer of all
or substantially all of the assets of Arch; or (iv) the merger or
consolidation of Arch or Parent with or into another corporation with the
effect that a person or group shall have become the beneficial owner of the
majority of the securities of the surviving corporation having the right to
vote in the election of directors. The Merger did not constitute a Change of
Control under the 9 1/2% Notes Indenture.
The following constitute "Events of Default" under the 9 1/2% Notes
Indenture: (i) a default in the payment of any installment of interest upon
any of the 9 1/2% Notes as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; (ii) a default in the
payment of all or any part of the principal of, or premium, if any, on any of
the 9 1/2% Notes as and when the same shall become due and payable either at
maturity, upon redemption or repurchase, by declaration or otherwise; (iii)
the failure on the part of Arch duly to observe or perform any other of the
covenants or agreements on the part of Arch in the 9 1/2% Notes or in the 9
1/2% Notes Indenture for a period or 60 days after the date on which written
notice specifying such failure, stating that such notice is a "Notice of
Default" and demanding that Arch remedy the same, shall have been given by
registered or certified mail, return receipt requested, to Arch by the
Trustee, or to Arch and the Trustee by the holders of at least 25% in
aggregate principal amount of the 9 1/2% Notes at the time outstanding; (iv)
certain events of bankruptcy, insolvency or reorganization in respect of Arch
or any of its restricted subsidiaries; (v) (A) a default in payment of the
principal of, premium, if any, or interest on any indebtedness for borrowed
money of Arch or any restricted subsidiary in principal amount aggregating
$5.0 million or more, whether such indebtedness now exists or is hereafter
created, when the same shall become due and payable and continuation of such
default after any applicable period of grace or (B) an event of default as
defined in any indenture or instrument evidencing or under which Arch or any
restricted subsidiary has at the date of the indenture or shall thereafter
have outstanding at least $5.0 million aggregate principal amount of
indebtedness for borrowed money shall happen and be continuing and such
indebtedness shall have been accelerated so that the same shall be or become
due and payable, and in any case referred to in the foregoing clause (A) or
(B) such non-payment or acceleration shall not be rescinded or annulled within
10 days after notice of such default in payment or event of default shall have
been given to Arch by the Trustee (if such event is known to it), or to Arch
and the Trustee by the holders of at least 25% in aggregate principal amount
of the 9 1/2% Notes at the time outstanding; (vi) one or more judgments,
orders or decrees for the payment of money (provided that the amount of such
money judgment shall be calculated net of any insurance coverage that the
insurer has irrevocably acknowledged to Arch as covering such money judgment
in whole or in part) in excess of $5.0 million, whether individually or in an
aggregate amount, shall be entered against Arch or any restricted subsidiary
of Arch or any of their respective properties and shall not be discharged and
there shall have been a period of 60 days during which a stay of enforcement
of such judgment or order, by reason of pending appeal or otherwise, shall not
be in effect; or (vii) the holder of any indebtedness of Arch or any
restricted subsidiary aggregating at least $5.0 million in principal amount
that is secured by a lien on the property or assets of Arch or any restricted
subsidiary (or any agent of such holder of such debt or the trustee or other
representative then acting under any indenture or other instrument under which
such debt is outstanding) shall commence any proceeding, or take any action
(including by way of set-off) to retain in satisfaction of such debt or to
collect on, seize, dispose of or apply in satisfaction of such debt, property
or assets of Arch or any of its restricted subsidiaries having a fair market
63
<PAGE>
value in excess of $5.0 million individually or in the aggregate (including
funds on deposit or held pursuant to lock-box or other similar arrangements).
14% NOTES
Arch has outstanding $100.0 million in aggregate principal amount of 14%
Notes. The 14% Notes accrue interest at the rate of 14% per annum, payable
semi-annually on May 1 and November. The 14% Notes are scheduled to mature on
November 1, 2004.
Arch may, at its option, redeem the 14% Notes as a whole, or from time to
time in part, at the redemption prices (expressed as percentages of the
principal amount thereof) if redeemed during the twelve-month period beginning
November 1 of the years indicated below (in each case together with accrued
and unpaid interest to the redemption date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999........................................................ 107.000%
2000........................................................ 104.625%
2001........................................................ 102.375%
2002 and thereafter......................................... 100.000%
</TABLE>
The covenants in the indenture under which the 14% Notes are outstanding
(the "14% Notes Indenture") limit the ability of Arch and its subsidiaries to
pay dividends to Parent. Additionally, the 14% Notes Indenture imposes
limitations on the incurrence of indebtedness, whether secured or unsecured,
by Arch and its subsidiaries, on the disposition of assets, on transactions
with affiliates, on guarantees of the obligations of Arch by any of its
subsidiaries, on the sale or issuance of stock by the subsidiaries of Arch and
on the merger, consolidation or sale of substantially all of the assets of
Arch.
Upon the occurrence of a "Change of Control", as defined in the 14% Notes
Indenture, each holder of 14% Notes has the right to require that Arch
repurchase such holder's 14% Notes at a repurchase price in cash equal to 102%
of the principal amount thereof plus accrued and unpaid interest, if any, to
the date of repurchase. The following constitute a Change of Control under the
14% Notes Indenture: (i) the acquisition by a person or group of beneficial
ownership of the majority of the securities of Arch or Parent having the right
to vote in the election of directors; (ii) certain changes in the boards of
directors of Arch or Parent; (iii) the sale or transfer of all or
substantially all of the assets of Arch; or (iv) the merger or consolidation
of Arch or Parent with or into another corporation with the effect that (A) a
person or group shall have become the beneficial owner of the majority
securities of the surviving corporation having the right to vote in the
election of directors or (B) the securities of Parent or Arch outstanding
immediately prior to such transaction and which represent 100% of the voting
securities having the right to vote in the election of directors are exchanged
for cash, securities or property unless such securities are changed into or
exchanged for securities of the surviving corporation representing a majority
of the voting securities having the right to vote in the election of
directors. The Merger did not constitute a Change of Control under the 14%
Notes Indenture.
The following constitute "Events of Default" under the 14% Notes Indenture:
(i) a default in the payment of any installment of interest upon any of the
14% Notes as and when the same shall become due and payable, and continuance
of such default for a period of 30 days; (ii) a default in the payment of all
or any part of the principal of, or premium, if any, on any of the 14% Notes
as and when the same shall become due and payable either at maturity, upon any
redemption or repurchase, by declaration or otherwise; (iii) the failure of
Arch to comply with the covenants limiting mergers and sales of assets; (iv)
the failure of Arch to comply with certain other covenants limiting its
ability to incur debt, make restricted payments, impose dividend restrictions
on its subsidiaries, dispose of assets, transact with affiliates, grant liens,
obtain guarantees from its subsidiaries, permit its subsidiaries to issue
stock or suffer a change of control, for a period of 30 days after notice; (v)
the failure on the part of Arch duly to observe or perform any other of the
covenants or agreements on the part of Arch in the 14% Notes or in the 14%
Notes Indenture for a period of 60 days after the date on which written notice
64
<PAGE>
specifying such failure, stating that such notice is a "Notice of Default" and
demanding that Arch remedy the same, shall have been given by registered or
certified mail, return receipt requested, to Arch by the Trustee, or Arch and
the Trustee by the holders of at least 25% in aggregate principal amount of
the 14% Notes at the time outstanding; (vi) certain events of bankruptcy,
insolvency or reorganization in respect of Arch or any of its restricted
subsidiaries; (vii) (A) a default in payment of the principal of, premium if
any, or interest on any indebtedness for borrowed money of Arch or any
restricted subsidiary in principal amount aggregating $5.0 million or more,
whether such indebtedness now exists or is hereafter created, when the same
shall become due and payable and continuation of such default after any
applicable period of grace or (B) an event of default as defined in any
indenture or instrument evidencing or under which Arch or any restricted
subsidiary has at the date of the indenture of shall thereafter have
outstanding at least $5.0 million aggregate principal amount of indebtedness
for borrowed money shall happen and be continuing and such indebtedness shall
have been accelerated so that the same shall be or become due and payable, and
in any case referred to in the foregoing clause (A) or (B) such non-payment or
acceleration shall not be rescinded or annulled within 10 days after notice of
such default in payment or event of default shall have been given to Arch by
the Trustee (if such event is known to it), or to Arch and the Trustee by the
holders of at least 25% in aggregate principal amount of the Arch 14% Notes at
the time outstanding; (viii) one or more judgments, orders or decrees for the
payment of money (provided that the amount of such money judgment shall be
calculated net of any insurance coverage that the insurer has irrevocably
acknowledged to Arch as covering such money judgment in whole or in part) in
excess of $5.0 million, whether individually or in an aggregate amount, shall
be entered against Arch or any restricted subsidiary of Arch or any of their
respective properties and shall not be discharged and there shall have been a
period of 60 days during which a stay of enforcement of such judgment or
order, by reason of pending appeal or otherwise, shall not be in effect; or
(ix) the holder of any indebtedness of Arch or any restricted subsidiary
aggregating at least $5.0 million in principal amount that is secured by a
lien on the property or assets of Arch or any restricted subsidiary (or any
agent of such holder of such debt or the trustee or other representative then
acting under any indenture or other instrument under which such debt is
outstanding) shall commence any proceeding, or take any action (including by
way of set-off) to retain in satisfaction of such debt or to collect on,
seize, dispose of or apply in satisfaction of such debt, property or assets of
Arch or any of its restricted subsidiaries having a fair market value in
excess of $5.0 million individually or in the aggregate (including funds on
deposit or held pursuant to lock-box or other similar arrangements).
PARENT DISCOUNT NOTES
In March 1996, Parent issued $467.4 million in aggregate principal amount at
maturity of Parent Discount Notes. The Parent Discount Notes are scheduled to
mature on March 15, 2008. The Parent Discount Notes were issued at a
substantial discount from the principal amount due at maturity. Interest does
not accrue on the Parent Discount Notes prior to March 15, 2001. Thereafter,
interest on the Parent Discount Notes will accrue at the rate of 10 7/8% per
annum, payable semi-annually on March 15 and September 15, commencing
September 15, 2001.
Parent, at its option, may redeem the Parent Discount Notes as a whole or
from time to time in part at any time on or after March 15, 2001 at the
following redemption prices (expressed as percentages of principal amount) if
redeemed during the twelve month period beginning on March 15 of the years
indicated below (in each case together with accrued and unpaid interest to the
redemption date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2001........................................................ 104.078%
2002........................................................ 102.719%
2003........................................................ 101.359%
2004 and thereafter......................................... 100.000%
</TABLE>
In addition, on or prior to March 15, 1999, Parent, at its option, may
redeem the Parent Discount Notes, in part, with the proceeds of a qualifying
equity offering at a redemption price equal to 110.875% of the accreted value
(as defined therein) to the date of redemption provided that, immediately
after giving effect to such redemption, Parent Discount Notes with an
aggregate principal amount at maturity at least equal to 66 2/3% of the
65
<PAGE>
original principal amount at maturity of the Parent Discount Notes remain
outstanding. Parent shall not, however, be obligated to redeem any Parent
Discount Notes with the proceeds of any equity offering.
The covenants in the indenture under which the Parent Discount Notes were
issued (the "Parent Discount Notes Indenture") limit the ability of Parent to
pay dividends to its stockholders. Additionally, the Parent Discount Notes
Indenture imposes limitations on the incurrence of indebtedness, whether
secured or unsecured, by Parent and its subsidiaries, on the disposition of
assets, on the occurrence of liens, on transactions with affiliates, on the
sale or issuance of stock by the subsidiaries of Parent and on the merger or
consolidation of Parent and its subsidiaries or sale of substantially all of
the assets of Parent.
Upon the occurrence of a "Change of Control", as defined in the Parent
Discount Notes Indenture, each holder of Parent Discount Notes has the right
to require Parent to repurchase such holder's Parent Discount Notes at a
repurchase price in cash equal to 101% of the accrued principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase. The
following constitute a Change of Control under the Parent Discount Notes
Indenture: (i) the acquisition by a person or group of beneficial ownership of
the majority of the securities of Parent having the right to vote in the
election of directors; (ii) certain changes in the Board of Directors of
Parent; (iii) the sale or transfer of all or substantially all of the assets
of Parent or the merger or consolidation of Parent with or into another
corporation with the effect that the outstanding voting stock of Parent is
converted into or exchanged for cash, securities or other property other than
certain transactions in which (i) the voting stock of Parent is exchanged for
or converted into either capital stock of the transferee or survivor entity
or, under limited circumstances, cash, securities or other property and (ii)
no person or group shall have become the beneficial owner of the majority of
the securities of the surviving corporation having the right to vote in the
election of directors. The Merger did not constitute a Change of Control under
the Parent Discount Notes Indenture.
The following constitute "Events of Default" under the Parent Discount Notes
Indenture: (i) a default in the payment of any installment of interest upon
any of the Parent Discount Notes as and when the same shall become due and
payable, and continuance of such default for a period of 30 days; (ii) a
default in the payment of all or any part of the principal of, or premium, if
any, on any of the Parent Discount Notes as and when the same shall become due
and payable either at maturity, upon any redemption or repurchase, by
declaration or otherwise; (iii) the failure of Parent to comply with the
covenants limiting mergers and sales of assets; (iv) the failure of the part
of Parent duly to observe or perform any other of the covenants or agreements
on the part of Parent in the Parent Discount Notes or in the Parent Discount
Notes Indenture for a period of 60 days after the date on which written notice
specifying such failure shall have been given by registered or certified mail,
return receipt requested, to Parent by the Trustee, or Parent and the Trustee
by the holders of at least 25% in aggregate principal amount of the Parent
Discount Notes at the time outstanding; (v) certain events of bankruptcy,
insolvency or reorganization in respect of Parent or any of its restricted
subsidiaries; (vii) (A) a default in any payment when due at final maturity on
any indebtedness for borrowed money of Parent or any restricted subsidiary in
principal amount aggregating $5.0 million or (B) an event of default as
defined in any indenture or instrument evidencing or under which Parent or any
restricted subsidiary has outstanding at least $5.0 million aggregate
principal amount of indebtedness for borrowed money shall happen and such
indebtedness shall have been accelerated so that the same shall be or become
due and payable prior to the date on which it would otherwise become due and
payable; (viii) one or more judgments, orders or decrees for the payment of
money in excess of $5.0 million, whether individually or in an aggregate
amount, shall be entered against Parent or any restricted subsidiary of Parent
and shall not be discharged and there shall have been a period of 60 days
during which a stay of enforcement of such judgment or order, by reason of
pending appeal or otherwise, shall not be in effect; or (ix) the holder of any
indebtedness of Parent or any restricted subsidiary aggregating at least $5.0
million in principal amount that is secured by a lien on the property or
assets of Parent or any restricted subsidiary shall notify the Trustee of the
intended sale or disposition of any assets of Parent of any restricted
subsidiary that have been pledged to or for the benefit of such holder or
shall commence any proceeding, or take any action to retain in satisfaction of
such debt or to collect on, seize, dispose of or apply in satisfaction of such
debt, property or assets of Parent or any of its restricted subsidiaries
pursuant to the terms of any agreement or instrument evidencing any such debt
of Parent or any restricted subsidiary or in accordance with applicable law.
66
<PAGE>
PARENT CONVERTIBLE DEBENTURES
As of March 31, 1998, there was outstanding $13.4 million in principal
amount of 6 3/4% Convertible Subordinated Debentures due 2003 of Parent (the
"Parent Convertible Debentures"). The Parent Convertible Debentures accrue
interest at the rate of 6.75% per annum, payable semi-annually on June 1 and
December 1. The Parent Convertible Debentures are scheduled to mature on
December 1, 2003. The principal amount of the Parent Convertible Debentures is
convertible into Common Stock at a conversion price of $16.75 per share at any
time prior to redemption or maturity.
The Parent Convertible Debentures may be redeemed at any time at the option
of Parent, in whole or from time to time in part, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period beginning December 1 of the years indicated
below (in each case together with accrued and unpaid interest to the
redemption date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1997........................................................ 104.050%
1998........................................................ 103.375%
1999........................................................ 102.700%
2000........................................................ 102.025%
2001........................................................ 101.350%
2002........................................................ 100.675%
2003 and thereafter......................................... 100.000%
</TABLE>
Upon the occurrence of a "Fundamental Change", as defined in the indenture
under which the Parent Convertible Debentures were issued (the "Parent
Debenture Indenture"), each holder of Parent Convertible Debentures has the
right, at the holder's option, to require Parent to repurchase all of such
holder's Parent Convertible Debentures, or any portion thereof, at a price
equal to 100% of the principal amount of the Parent Convertible Debentures,
plus accrued interest to the repurchase date. The following constitute a
Fundamental Change under the Parent Debenture Indenture: (i) the acquisition
by a person or group of beneficial ownership of capital stock of Parent
entitled to exercise more than 50% of the total voting power of all capital
stock (unless such beneficial ownership is approved by the board of directors
of Parent prior to such person or group acquiring such beneficial ownership);
(ii) certain changes in Parent's Board of Directors; (iii) a share exchange of
Parent with, or the merger of Parent into, any other person, any merger of
another person into Parent, or any sale or transfer of all or substantially
all of the assets of Parent to another person (subject in each case to certain
exceptions); (iv) the purchase by Parent of beneficial ownership in shares of
its Common Stock if such purchase would result in a default under any senior
debt agreements to which Parent is a party; or (v) certain distributions by
Parent of its Common Stock. The Merger did not constitute a Fundamental Change
under the Parent Debenture Indenture.
The Parent Convertible Debentures represent senior unsecured obligations of
Parent and are subordinated to "Senior Indebtedness" of Parent, as defined in
the Parent Debenture Indenture. The Parent Debenture Indenture does not
contain any limitation or restriction on the incurrence of Senior Indebtedness
or other indebtedness or securities of Parent or its subsidiaries.
The following constitute "Events of Default" under the Parent Debenture
Indenture: (i) a default in the payment of any interest on the Parent
Convertible Debentures that continues for 30 days after the date when due;
(ii) a default in the payment of principal of or premium, if any, on any
Parent Convertible Debenture when due and payable, whether at maturity, upon
redemption or otherwise; (iii) a default in the performance of any other
covenant or agreement of Parent that continues for 30 days after written
notice of such default, requiring Parent to remedy the same; (iv) a default
under any indebtedness for money borrowed by Parent, which default results in
such indebtedness in an amount exceeding $5.0 million becoming or being
declared due any payable prior to the date on which it would otherwise have
become due and payable, if such indebtedness is not discharged, or such
acceleration is not annulled, within 30 days after written notice of such
default, requiring Parent to remedy the same; or (v) the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect to Parent.
67
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes were issued pursuant to an Indenture, dated as of June 29, 1998
(the "Indenture"), between Arch and U.S. Bank Trust National Association, as
trustee (the "Trustee"). The Exchange Notes will be issued under the same
Indenture. The Exchange Notes will be issued solely in exchange for an equal
principal amount of Private Notes pursuant to the Exchange Offer. The form and
terms of the Exchange Notes will be identical in all material respects to the
form and terms of the Private Notes except that (i) the offering of the
Exchange Notes has been registered under the Securities Act, (ii) the Exchange
Notes will not be subject to transfer restrictions and (iii) certain
provisions relating to an increase in the stated interest rate on the Private
Notes provided for under certain circumstances will be eliminated.
The Private Notes and the Exchange Notes will constitute a single series of
debt securities under the Indenture. Upon consummation of the Exchange Offer,
holders of Private Notes who do not exchange their Private Notes for Exchange
Notes will vote together with holders of the Exchange Notes for all relevant
purposes under the Indenture. In that regard, the Indenture requires that
certain actions by the holders thereunder (including acceleration following an
Event of Default) must be taken, and certain rights must be exercised, by
specified minimum percentages of the aggregate principal amount of the
outstanding securities issued under the Indenture. In determining whether
holders of the requisite percentage in principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Private Notes that remain outstanding after the Exchange Offer will be
aggregated with the Exchange Notes, and the holders of such Private Notes and
the Exchange Notes will vote together as a single series for all such
purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the outstanding Notes shall be deemed to mean,
at any time after the Exchange Offer is consummated, such percentages in
aggregate principal amount of the Private Notes and the Exchange Notes then
outstanding.
The terms of the Notes include those stated in the Indenture and those made
a part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of the material provisions
of the Indenture does not purport to be complete and is qualified in its
entirety by reference to the Indenture, including the definitions of certain
terms used below. Copies of the Indenture and the Exchange and Registration
Rights Agreement have been filed as exhibits to the Registration Statement.
See "Additional Information". The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions".
Capitalized terms not otherwise defined below or elsewhere in this Prospectus
have the meanings given them in the Indenture. All references to the "Company"
in this "Description of Notes" refer only to Arch Communications, Inc. and do
not include its Subsidiaries or Parent.
Arch is an intermediate holding company with no material assets other than
the stock of its Subsidiaries. Because the operations of Arch are conducted
entirely through its Subsidiaries, Arch's cash flow and consequent ability to
service its Debt, including the Notes, is dependent upon the earnings of such
Subsidiaries and the distribution of those earnings to Arch or upon loans or
other payments of funds by such Subsidiaries to Arch. The Subsidiaries are
separate and distinct legal entities and will have no obligation, contingent
or otherwise, to pay any amounts due with respect to the Notes or to make any
funds available therefor, whether by dividends, loans or other payments.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited to an aggregate principal amount of $130,000,000
and will mature on July 1, 2007. Interest on the Notes will accrue at the rate
of 12 3/4% per annum, payable in cash semi-annually in arrears on each January
1 and July 1 commencing January 1, 1999, to the persons in whose names the
Notes are registered at the close of business on the preceding June 15 or
December 15, as the case may be. Interest will
68
<PAGE>
accrue from the most recent Interest Payment Date to which interest has been
paid or duly provided for or, if no interest has been paid or duly provided
for, from the date of original issuance of the Notes. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. See "Certain
Federal Income Tax Considerations".
The Notes are issuable only in registered form, without coupons, in
denominations of $1,000 or any integral multiple thereof. Principal of and
interest, premium and Liquidated Damages, if any, on each Note will be payable
and the Notes may be presented for transfer or exchange at the office or
agency of Arch maintained for such purpose. Unless otherwise designated by
Arch, Arch's office or agency for such purpose will be the principal corporate
trust office of the Trustee. At Arch's option, payment of interest may be made
by check mailed to registered holders of the Notes at the addresses set forth
on the registry books maintained by the Trustee, who will initially act as
registrar and transfer agent for the Notes. No service charge will be made for
any exchange or registration of transfer of Notes, but Arch may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
As of the date of the initial issuance of the Notes, all of Arch's
Subsidiaries will be Restricted Subsidiaries. However, under certain
circumstances, Arch will be able to designate current or future Subsidiaries
as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to
any of the restrictive covenants set forth in the Indenture.
SENIORITY; RANKING
The Notes will be senior unsecured obligations of Arch, ranking pari passu
with all unsubordinated Debt of Arch and senior to all subordinated Debt of
Arch. However, the Notes will be structurally subordinated to all liabilities
of Arch's Subsidiaries, including trade payables, capitalized lease
obligations and Debt that may be incurred by Arch's Subsidiaries under the
Bank Credit Facilities or other current or future financing arrangements. Any
right of Arch to receive assets of any Subsidiary upon such Subsidiary's
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in those assets) will be structurally subordinated to the
claims of that Subsidiary's creditors, except to the extent that Arch is
itself recognized as a creditor of such Subsidiary, in which case the claims
of Arch would still be subject to any security interests in the assets of such
Subsidiary and any liabilities of such Subsidiary senior to that held by Arch
and may otherwise be challenged in a liquidation or reorganization proceeding.
At June 30, 1998, after giving effect to the sale of the Notes and application
of the estimated net proceeds therefrom as described under "Use of Proceeds",
the Merger, borrowings pursuant to the Amended Credit Agreement and
application of the proceeds from the Equity Investment, the Notes would have
been structurally subordinated to approximately $343.2 million of liabilities
of Arch's Subsidiaries. In addition, Parent will not have any obligation to
pay any amounts due with respect to the Notes or to make any funds available
therefor. At June 30, 1998, Parent had approximately $364.0 million of
liabilities (excluding liabilities of its Subsidiaries and Parent's guarantees
thereof).
OPTIONAL REDEMPTION
The Notes will be redeemable at the election of Arch, as a whole or from
time to time in part, at any time on or after July 1, 2003 on not less than 30
nor more than 60 days' prior notice at the redemption prices (expressed as
percentages of principal amount) set forth below, together with accrued and
unpaid interest and Liquidated Damages, if any, to the redemption date, if
redeemed during the 12-month period beginning on July 1 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003..................................................... 106.375%
2004..................................................... 104.250%
2005..................................................... 102.125%
2006 and thereafter...................................... 100.000%
</TABLE>
69
<PAGE>
In addition, at any time or from time to time prior to July 1, 2001, Arch
may redeem up to an aggregate of 35% of the original aggregate principal
amount of the Notes within 75 days of an Equity Offering with the net proceeds
of such offering at a redemption price equal to 112 3/4% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, to but excluding the date of redemption; provided that, immediately after
giving effect to such redemption, Notes with an aggregate principal amount of
at least $84,500,000 remain outstanding.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 principal amount or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each holder of Notes
to be redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
and Liquidated Damages, if any, cease to accrue on Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
The Notes will not have the benefit of any sinking fund obligations.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs at any time, then each holder of Notes will
have the right to require that Arch purchase such holder's Notes, in whole or
in part in integral multiples of $1,000, at a purchase price (the "Change of
Control Purchase Price") in cash in an amount equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase (the "Change of Control Purchase Date"), pursuant
to the offer described below (the "Change of Control Offer") and the other
procedures set forth in the Indenture.
Within 30 days following any Change of Control, Arch will notify the Trustee
thereof and give written notice of such Change of Control to each holder of
Notes by first class mail, postage prepaid, at its registered address,
stating, among other things: (i) the Change of Control Purchase Price and the
Change of Control Purchase Date, which will be a Business Day no earlier than
30 days nor later than 60 days from the date such notice is mailed or such
later date as is necessary to comply with requirements under the Exchange Act;
(ii) that any Note not tendered will continue to accrue interest and
Liquidated Damages, if any; (iii) that, unless Arch defaults in the payment of
the Change of Control Purchase Price, any Notes accepted for payment pursuant
to the Change of Control Offer will cease to accrue interest and Liquidated
Damages, if any, after the Change of Control Purchase Date; and (iv) other
procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that Arch
will have available, or be able to obtain, funds sufficient to pay the Change
of Control Purchase Price for all of the Notes that might be tendered by
holders of the Notes seeking to accept the Change of Control Offer. The Bank
Credit Facilities will limit the purchase of the Notes by Arch prior to full
repayment of indebtedness under such Bank Credit Facilities. There can be no
assurance that in the event of a Change of Control Arch will be able to obtain
the necessary consents
70
<PAGE>
from the lenders under the Bank Credit Facilities or from any other debt
holders to consummate a Change of Control Offer. The failure of Arch to make
or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due would result in an Event of Default and would give the
Trustee and the holders of the Notes the rights described under "Events of
Default and Remedies".
In addition to the obligations of Arch under the Indenture with respect to
the Notes in the event of a Change of Control, the Bank Credit Facilities
contain a provision designating as an event of default a change of control as
described therein, the occurrence of which will obligate Arch to repay amounts
outstanding under the Bank Credit Facilities upon an acceleration of the
indebtedness issued thereunder.
One of the events which constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of Arch's assets. This term
has not been interpreted under New York law (which is the governing law of the
Indenture) to represent a specific quantitative test. As a consequence, in the
event holders of the Notes elect to require Arch to purchase the Notes and
Arch elects to contest such election, there can be no assurance as to how a
court interpreting New York law would interpret the phrase.
The definition of Change of Control in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require Arch to repurchase such Notes in the event of a highly leveraged
transaction or certain transactions with Arch's management or its affiliates,
including a reorganization, restructuring, merger or similar transaction
involving Arch (including, in certain circumstances, an acquisition of Arch by
management or its affiliates) that may adversely affect holders of the Notes,
if such transaction is not a transaction defined as a Change of Control. See
"--Certain Definitions" for the definition of Change of Control. A transaction
involving Arch's management or its affiliates, or a transaction involving a
recapitalization of Arch, would result in a Change of Control only if it is
the type of transaction specified in such definition. Any proposed highly
leveraged transaction, whether or not constituting a Change of Control, would
be required to comply with the other covenants in the Indenture, including
those described under "Incurrence of Indebtedness " and "Liens".
Arch will comply with the applicable tender offer rules, including Rule 14e-
1 under the Exchange Act, and any other applicable securities laws and
regulations, in connection with a Change of Control Offer.
Asset Sales
(a) Arch will not, and will not permit any Restricted Subsidiary to, engage
in any Asset Sale unless (i) the consideration received by Arch or such
Restricted Subsidiary for such Asset Sale is not less than the fair market
value of the assets sold (as determined by the Board of Directors of Arch,
whose good faith determination will be conclusive) and (ii) the consideration
received by Arch or the relevant Restricted Subsidiary in respect of such
Asset Sale consists of at least 85% (A) cash or cash equivalents and/or (B)
the assumption by the transferee of Pari Passu Debt of Arch or any Debt of a
Restricted Subsidiary and release of Arch or such Restricted Subsidiary from
all liability on such Debt.
(b) If Arch or any Restricted Subsidiary engages in an Asset Sale, Arch may
use the Net Cash Proceeds thereof, within 12 months after such Asset Sale, to
(i) make a permanent reduction of amounts outstanding under the Bank Credit
Facilities or repay or prepay any then outstanding Pari Passu Debt of Arch or
any Debt of a Restricted Subsidiary or (ii) invest (or enter into a legally
binding agreement to invest (within 90 days)) in (A) properties and assets to
replace the properties and assets that were the subject of the Asset Sale, or
(B) properties and assets that will be used in the telecommunications
businesses of Arch or its Restricted Subsidiaries, as the case may be. If any
such legally binding agreement to invest such Net Cash Proceeds is terminated,
then Arch may, within 90 days of such termination or within 12 months of such
Asset Sale, whichever is later, invest such Net Cash Proceeds as provided in
clause (i) or (ii) (without regard to the parenthetical in such clause (ii))
above. Pending application of the Net Cash Proceeds of an Asset Sale pursuant
to clause (ii) above, Arch may use such Net Cash Proceeds to reduce
temporarily borrowings under the Bank Credit Facilities. The amount of such
Net Cash Proceeds not so used as set forth in this paragraph (b) constitutes
"Excess Proceeds".
71
<PAGE>
(c) When the aggregate amount of Excess Proceeds exceeds $5.0 million, Arch
will, within 30 days, make an offer to purchase from all holders of Notes, on
a pro rata basis, in accordance with the procedures set forth in the
Indenture, the maximum principal amount (expressed as a multiple of $1,000) of
Notes that may be purchased with the Excess Proceeds. The offer price for each
Note will be payable in cash in an amount equal to 100% of the principal
amount of such Note, plus accrued and unpaid interest and Liquidated Damages,
if any, to the date such offer to purchase is consummated. To the extent that
the aggregate principal amount of Notes tendered pursuant to such offer to
purchase is less than the Excess Proceeds, Arch may use the then remaining
Excess Proceeds for other general corporate purposes not prohibited by the
Indenture. If the aggregate principal amount of Notes validly tendered and not
withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such offer
to purchase, the amount of Excess Proceeds will be reset to zero.
CERTAIN COVENANTS
Restricted Payments
Arch will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, take any of the following actions:
(a) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Capital Stock of Arch or any Restricted Subsidiary
(other than dividends or distributions payable solely in Qualified Equity
Interests of Arch and other than dividends or distributions by a Restricted
Subsidiary payable to Arch or another Restricted Subsidiary);
(b) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of Capital Stock (other than Disqualified Stock)
of Arch, any Restricted Subsidiary or any Affiliate of Arch, or any
options, warrants or other rights to acquire such shares of Capital Stock
(other than any such Capital Stock owned by Arch or any of its Restricted
Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Debt (including
Disqualified Stock);
(d) make any loan, advance, capital contribution to or other Investment
in, or guarantee any obligation of, any Affiliate of Arch, other than a
Permitted Investment; and
(e) make any other Investment (other than a Permitted Investment) in any
Person;
(such payments or any other actions described in (but not excluded from)
clauses (a) through (e) being referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment:
(i) no Default or Event of Default has occurred and is continuing;
(ii) Arch could Incur at least $1.00 of additional Debt (other than
Permitted Debt) in accordance with the provisions described under the
"Incurrence of Indebtedness" covenant; and
(iii) the aggregate amount of all Restricted Payments declared or made
after the issue date of the Notes does not exceed the sum of:
(A) the remainder of (x) 100% of the aggregate Consolidated Cash Flow of
Arch (excluding, for purposes other than determining whether Arch may, or
may permit a Restricted Subsidiary to, make Investments in any Person, the
net income (but not the net loss) of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is at the date of determination
restricted, directly or indirectly, except to the extent that such net
income could be paid to Arch or a Restricted Subsidiary thereof by loans,
advances, intercompany transfers, principal
72
<PAGE>
repayments or otherwise) measured on a cumulative basis during the period
beginning on the first day of Arch's fiscal quarter during which the Notes
are originally issued and ending on the last day of Arch's most recent
fiscal quarter for which internal financial statements are available ending
prior to the date of such proposed Restricted Payment, minus (y) the
product of 2.0 times Consolidated Interest Expense accrued on a cumulative
basis during the period beginning on the first day of Arch's fiscal quarter
during which the Notes are originally issued and ending on the last day of
Arch's most recent fiscal quarter for which internal financial statements
are available ending prior to the date of such proposed Restricted Payment;
plus
(B) the aggregate net proceeds received by Arch after the initial
issuance of the Notes (including the fair market value of property other
than cash as determined by Arch's Board of Directors, whose good faith
determination will be conclusive) from the issuance or sale (other than to
a Restricted Subsidiary) of Qualified Equity Interests of Arch; plus
(C) the aggregate net proceeds received by Arch after the initial
issuance of the Notes (including the fair market value of property other
than cash as determined by Arch's Board of Directors, whose good faith
determination will be conclusive) from the issuance or sale (other than to
a Restricted Subsidiary) of debt securities or Disqualified Stock that have
been converted into or exchanged for Qualified Stock of Arch, together with
the aggregate net cash proceeds received by Arch at the time of such
conversion or exchange; plus
(D) without duplication, the lesser of (x) Net Cash Proceeds received by
Arch or a wholly-owned Restricted Subsidiary of Arch upon the sale of any
Unrestricted Subsidiary or (y) the amount of Arch's or such Restricted
Subsidiary's Investment in such Unrestricted Subsidiary.
Notwithstanding the foregoing, Arch and its Restricted Subsidiaries may take
any one or more of the following actions, whether singly or in combination, so
long as (with respect to clauses (e) through (k) below) no Default or Event of
Default has occurred and is continuing:
(a) the payment of any dividend within 60 days after the date of
declaration thereof if at the declaration date such payment would not have
been prohibited by the foregoing provisions;
(b) the repurchase, redemption, defeasance or other acquisition or
retirement for value of any shares of Capital Stock of Arch, in exchange
for, or out of the net cash proceeds of, a substantially concurrent
issuance and sale (other than to a Restricted Subsidiary) of Qualified
Equity Interests of Arch;
(c) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Debt in exchange for, or out of the
net cash proceeds of, a substantially concurrent issuance and sale (other
than to a Restricted Subsidiary) of shares of Qualified Stock of Arch;
(d) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Debt (plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Debt refinanced or the amount of any premium reasonably
determined by Arch as necessary to accomplish such refinancing by means of
a tender offer or privately negotiated repurchase) in exchange for, or out
of the net cash proceeds of, a substantially concurrent Incurrence or sale
(other than to a Restricted Subsidiary) of Subordinated Debt of Arch, so
long as (i) such new Subordinated Debt is subordinated to the Notes to the
same extent as such Subordinated Debt so purchased, redeemed, acquired or
retired and (ii) such new Subordinated Debt has an Average Life longer than
the Average Life of the Notes and a final Stated Maturity of principal
later than the final Stated Maturity of the Notes;
(e) payments (whether made in cash, property or securities) by Arch or
any Subsidiary of Arch to any employee of Arch or any Subsidiary of Arch in
connection with the issuance or redemption of stock of any such company
pursuant to any employee stock option plan or board resolution to the
extent that such payments do not exceed $500,000 in the aggregate during
any fiscal year or $2.0 million in the aggregate during the term of the
Notes;
73
<PAGE>
(f) the repurchase of any Subordinated Debt at a purchase price not
greater than 101% of the principal amount of such Subordinated Debt in the
event of a Change of Control in accordance with provisions similar to the
"Repurchase at the Option of Holders--Change of Control" covenant; provided
that prior to such repurchase Arch has made the Change of Control Offer as
provided in such covenant with respect to the Notes and has repurchased all
Notes validly tendered for payment in connection with such Change of
Control Offer;
(g) Investments in Persons made with, or out of the net cash proceeds of
a substantially concurrent issuance and sale (other than to a Restricted
Subsidiary) of, shares of Qualified Stock of Arch;
(h) Investments in Persons all or substantially all of whose operations
are in the telecommunications business; provided that the aggregate amount
of Investments pursuant to this clause (h) in all such Persons does not
exceed $20.0 million;
(i) payments to Parent on or after September 14, 2001 to enable Parent to
pay when due accrued but unpaid interest on Parent's 10 7/8% Senior
Discount Notes due 2008; provided that such amounts are promptly used by
Parent to pay such interest and, provided further, that at the time of such
payment and giving pro forma effect thereto Arch's Consolidated Cash Flow
ratio would be less than 5.0 to 1.0;
(j) Investments in Benbow PCS Ventures, Inc. of up to $50.0 million in
the aggregate; and
(k) make any other payment or payments of up to $5.0 million in the
aggregate which would otherwise constitute a Restricted Payment.
The Restricted Payments described in clauses (b), (c), (e), (f), (g), (h),
(i), (j) and (k) of this paragraph will be Restricted Payments that will be
permitted to be taken in accordance with the preceding paragraph but will
reduce the amount that would otherwise be available for Restricted Payments
under clause (iii) of the first paragraph of this section and the Restricted
Payments described in clauses (a) and (d) of the preceding paragraph will be
Restricted Payments that will be permitted to be taken in accordance with the
preceding paragraph and will not reduce the amount that would otherwise be
available for Restricted Payments under clause (iii) of the first paragraph of
this section.
For the purpose of making any calculations under the Indenture, (i) an
Investment will include the fair market value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary and will, for the purpose of this
covenant, exclude the fair market value of the net assets of any Unrestricted
Subsidiary that is designated as a Restricted Subsidiary, (ii) any property
transferred to or from an Unrestricted Subsidiary will be valued at fair
market value at the time of such transfer; provided that, in each case, the
fair market value of an asset or property is as determined by the Board of
Directors of Arch in good faith and (iii) subject to the foregoing, the amount
of any Restricted Payment, if other than cash, will be determined by the Board
of Directors of Arch, whose good faith determination will be conclusive.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other Person that thereafter becomes a Restricted Subsidiary, such Investment
will no longer be counted as a Restricted Payment for purposes of calculating
the aggregate amount of Restricted Payments.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such
Investment (resulting from the payment of interest or dividend, loan
repayment, transfer of assets or otherwise) to the extent such net reduction
is not included in Arch's Consolidated Adjusted Net Income; provided that the
total amount by which the aggregate amount of all Restricted Payments may be
reduced may not exceed the lesser of (x) the cash proceeds received by Arch
and its Restricted Subsidiaries in connection with such net reduction and (y)
the initial amount of such Investment.
74
<PAGE>
In computing Consolidated Cash Flow of Arch under the first paragraph of
this section, (i) Arch may use audited financial statements for the portions
of the relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other current
financial data based on the books and records of Arch for the remaining
portion of such period and (ii) Arch will be permitted to rely in good faith
on the financial statements and other financial data derived from the books
and records of Arch that are available on the date of determination. If Arch
makes a Restricted Payment which, at the time of the making of such Restricted
Payment, would in the good faith determination of the Board of Directors of
Arch be permitted under the requirements of the Indenture, such Restricted
Payment will be deemed to have been made in compliance with the Indenture
notwithstanding any subsequent adjustments made in good faith to Arch's
financial statements affecting Consolidated Adjusted Net Income of Arch for
any period.
Incurrence of Indebtedness
Arch will not, and will not permit any Restricted Subsidiary to, Incur any
Debt; provided, however, that Arch may Incur Debt and may permit a Restricted
Subsidiary to Incur Debt if at the time of such Incurrence and after giving
effect thereto the Consolidated Cash Flow Ratio would be less than 5.5 to 1.0.
In making the foregoing calculation, there shall be excluded from Debt for
purposes of calculating the Consolidated Cash Flow Ratio all Debt of Arch and
its Restricted Subsidiaries incurred pursuant to clause (i) of the definition
of Permitted Debt, and pro forma effect will be given to (i) the Incurrence of
the Debt to be incurred and the application of the net proceeds therefrom to
refinance other Debt and (ii) the acquisition (whether by purchase, merger or
otherwise) or disposition (whether by sale, merger or otherwise) of any
company, entity or business acquired or disposed of by Arch or its Restricted
Subsidiaries, as the case may be, since the first day of the most recent full
fiscal quarter, as if such acquisition or disposition occurred at the
beginning of the most recent full fiscal quarter.
Notwithstanding the foregoing limitation, Arch may, and may permit its
Restricted Subsidiaries to, Incur the following additional Debt ("Permitted
Debt"):
(i) Debt under the Bank Credit Facilities in an aggregate amount not to
exceed $100.0 million at any one time outstanding, less any amounts by
which the commitments thereunder are permanently reduced pursuant to the
provisions thereof as described under "Repurchase at the Option of
Holders--Asset Sales";
(ii) other Debt of Arch or any Restricted Subsidiary outstanding on the
date of the Indenture;
(iii) Debt owed by Arch to any wholly-owned Restricted Subsidiary or owed
by any wholly-owned Restricted Subsidiary to Arch or any other wholly-owned
Restricted Subsidiary (provided that such Debt is held by Arch or such
wholly-owned Restricted Subsidiary and provided further that in the case of
Debt owed by Arch, such Debt is Subordinated Debt);
(iv) Debt represented by the Notes;
(v) Debt Incurred or Incurrable in respect of letters of credit, bankers'
acceptances or similar facilities not to exceed $5.0 million at any one
time outstanding;
(vi) Capital Lease Obligations whose Attributable Value does not exceed
$5.0 million at any one time outstanding;
(vii) Debt of Arch or any Restricted Subsidiary consisting of guarantees,
indemnities or obligations in respect of purchase price adjustments in
connection with the acquisition or disposition of assets, including,
without limitation, shares of Capital Stock;
(viii) Debt of Arch or any Restricted Subsidiary (including trade letters
of credit) in respect of purchase money obligations; provided that the
aggregate amount of such Debt outstanding at any time does not exceed $5.0
million;
75
<PAGE>
(ix) Debt arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business, provided that such
Debt is extinguished within two Business Days of its Incurrence; and
(x) any renewals, extensions, substitutions, refinancings or replacements
(each, for purposes of this clause, a "refinancing") of any outstanding
Debt, other than Debt Incurred pursuant to clause (i), (vii) or (ix) of
this definition, including any successive refinancings thereof, so long as
(A) any such new Debt is in a principal amount that does not exceed the
principal amount (or, if such Debt being refinanced provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced, plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the Debt
refinanced or the amount of any premium reasonably determined by Arch as
necessary to accomplish such refinancing by means of a tender offer or
privately negotiated repurchase, plus the amount of reasonable expenses
Incurred by Arch in connection with such refinancing, (B) in the case of
any refinancing of Subordinated Debt, such new Debt is made subordinate to
the Notes at least to the same extent as the Debt being refinanced, (C) in
the case of any refinancing of the Notes or any Pari Passu Debt, such new
Debt is made pari passu or subordinated to the Notes, and (D) such
refinancing Debt does not have an Average Life less than the Average Life
of the Debt being refinanced and does not have a final scheduled maturity
earlier than the final scheduled maturity of the Debt being refinanced, or
permit redemption at the option of the holder earlier than the earliest
date of redemption at the option of the holder of the Debt being
refinanced.
Liens
Arch will not, and will not permit any Restricted Subsidiary to, Incur any
Debt which is secured, directly or indirectly, with a Lien on the Property,
assets or any income or profits therefrom, of Arch or any Restricted
Subsidiary, except for Permitted Liens, unless contemporaneously therewith or
prior thereto, the Notes, including all payments of principal of, and premium,
interest and Liquidated Damages, if any, thereon, are secured equally and
ratably with (or prior to) the obligation or liability secured by such Lien
for so long as such obligation or liability is so secured.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
Arch will not, and will not permit any Restricted Subsidiary to, create,
assume or otherwise cause or suffer to exist or to become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay any dividends or make any other distributions on its
Capital Stock; (b) make payments in respect of any Debt owed to Arch or any
Restricted Subsidiary; (c) make loans or advances to Arch or any Restricted
Subsidiary; or (d) transfer any of its property or assets to Arch or any
Restricted Subsidiary, other than (i) those under the Bank Credit Facilities
existing as of the date of issuance of the Notes, (ii) those under other Debt
of Arch, Parent or any Restricted Subsidiary existing as of the date of
issuance of the Notes, (iii) those as may be contained in future agreements
provided that they are no more restrictive than those referred to in the
immediately preceding clauses (i) and (ii), (iv) those required by the Notes,
(v) customary non-assignment or sublease provisions of any lease governing a
leasehold interest of Arch or any Restricted Subsidiary, (vi) consensual
encumbrances or restrictions binding upon any Person at the time such Person
becomes a Subsidiary of Arch; provided, however, that such encumbrances or
restrictions were not incurred in anticipation of such Person becoming a
Subsidiary of Arch, (vii) encumbrances and restrictions imposed by applicable
law or (viii) any restrictions with respect to a Restricted Subsidiary imposed
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary pending the closing of such sale or disposition. Nothing contained
in this covenant shall prevent Arch from entering into any agreement permitted
by the "Liens" covenant; provided, however, that the encumbrance or
restriction in any such agreement is limited to the transfer of the property
or assets which is subject to such agreement.
76
<PAGE>
Consolidation, Merger or Sale of Assets
Arch will not consolidate with or merge with or into any other Person or
convey, transfer or lease its properties and assets as an entirety to any
Person or Persons, and Arch will not permit any Restricted Subsidiary to enter
into any such transaction or series of transactions, if such transaction or
series of transactions, in the aggregate, would result in the conveyance,
transfer or lease of all or substantially all of the properties and assets of
Arch and its Restricted Subsidiaries on a consolidated basis to any Person,
unless:
(a) either (i) Arch is the surviving corporation or (ii) the Person (if
other than Arch) formed by such consolidation or into which Arch or such
Restricted Subsidiary is merged or the Person which acquires, by
conveyance, transfer or lease, the properties and assets of Arch or such
Restricted Subsidiary, as the case may be, substantially as an entirety
(the "Surviving Entity") (A) shall be a corporation, partnership or trust
organized and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia and (B) shall
expressly assume, by a supplemental indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, Arch's obligation for the due
and punctual payment of the principal (and premium, if any, on) and
interest on all the Notes and the performance and observance of every
covenant of the Indenture on the part of Arch to be performed or observed;
(b) immediately after giving effect to such transaction or series of
transactions and treating any obligation of Arch or a Subsidiary in
connection with or as a result of such transaction as having been Incurred
as of the time of such transaction, no Default or Event of Default shall
have occurred and be continuing;
(c) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (on the
assumption that the transaction or series of transactions occurred on the
first day of the last full fiscal quarter immediately prior to the
consummation of such transaction or series of transactions with the
appropriate adjustments with respect to the transaction or series of
transactions being included in such pro forma calculation), Arch (or the
Surviving Entity if Arch is not the continuing obligor under the Indenture)
could Incur at least $1.00 of additional Debt (other than Permitted Debt)
under the provisions of the "Incurrence of Indebtedness" covenant; and
(d) if any of the property or assets of Arch or any of its Restricted
Subsidiaries would thereupon become subject to any Lien, the provisions of
the "Liens" covenant are complied with.
In connection with any such consolidation, merger, conveyance, transfer or
lease, Arch or the Surviving Entity shall have delivered to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an Officer's
Certificate (attaching the computations to demonstrate compliance with clause
(c) above) and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease, and if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
complies with the requirements of the covenant described under "Consolidation,
Merger or Sale of Assets", and that all conditions precedent therein provided
for relating to such transaction have been complied with.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, conditions described in the
immediately preceding paragraphs, the Surviving Entity shall succeed to, and
be substituted for, and may exercise every right and power of, Arch under the
Indenture with the same effect as if such Surviving Entity had been named as
Arch therein; and when a Surviving Entity duly assumes all of the obligations
and covenants of Arch pursuant to the Indenture and the Notes, except in the
case of a lease, the predecessor Person shall be relieved of all such
obligations.
Transactions with Affiliates and Related Persons
Arch will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into any transaction or series of transactions after the
date of the Indenture with any Affiliate of Arch or any Related Person (other
than Arch or a wholly-owned Restricted Subsidiary), unless (i) such
transaction or
77
<PAGE>
series of transactions is on terms no less favorable to Arch or such
Restricted Subsidiary than those that could be obtained in a comparable arm's-
length transaction with an entity that is not an Affiliate or a Related
Person; and (ii) if such transaction or series of transactions involves
aggregate consideration in excess of $1.0 million, then such transaction or
series of transactions is approved by a majority of the Board of Directors of
Arch, including the approval of a majority of the Disinterested Directors, and
is evidenced by a resolution of the Board of Directors of Arch. Any such
transaction or series of transactions shall be conclusively deemed to be on
terms no less favorable to Arch or such Restricted Subsidiary than those that
could be obtained in an arm's-length transaction if such transaction or
transactions are approved by a majority of the Board of Directors of Arch,
including a majority of the Disinterested Directors, and are evidenced by a
resolution of the Board of Directors.
This covenant will not apply to (i) transactions between Arch or any of its
Restricted Subsidiaries and any employee of Arch or any of its Restricted
Subsidiaries that are entered into in the ordinary course of business, (ii)
the payment of reasonable and customary regular fees and expenses to directors
of Arch, (iii) the making of indemnification, contribution or similar payments
to any director or officer of Arch or any Restricted Subsidiary of Arch under
Arch's or such Restricted Subsidiary's charter or by-laws (as each may be
amended after the date of the Indenture) or any indemnification or similar
agreement between Arch or any such Restricted Subsidiary and any of its
directors or officers (collectively, the "Indemnification Agreements") or (iv)
the entering into of any Indemnification Agreements with any current or future
directors or officers of Arch or any Restricted Subsidiary of Arch.
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries
Arch (a) will not permit any Restricted Subsidiary to issue any Capital
Stock (other than to Arch or a Restricted Subsidiary) and (b) will not permit
any Person (other than Arch or a Restricted Subsidiary) to own any Capital
Stock of any Restricted Subsidiary; provided, however, that this covenant will
not prohibit (i) the issuance and sale of all, but not less than all, of the
issued and outstanding Capital Stock of any Restricted Subsidiary owned by
Arch or any Restricted Subsidiary in compliance with the other provisions of
the Indenture or (ii) the acquisition by Arch of less than all of the equity
ownership or Voting Stock of a Person that, upon the consummation of such
acquisition, will be a Subsidiary.
Subsidiary Guarantees
Arch will not (i) permit any of its Restricted Subsidiaries, directly or
indirectly, to Guarantee or secure through the granting of Liens the payment
of any Debt of Arch (other than Debt under or with respect to the Bank Credit
Facilities and Permitted Liens in respect thereof) or (ii) pledge any
intercompany notes representing obligations of any of its Restricted
Subsidiaries to secure the payment of any Debt of Arch (other than Debt under
or with respect to the Bank Credit Facilities and Permitted Liens in respect
thereof), unless such Subsidiary (A) executes a supplemental indenture
evidencing its Guarantee of the Notes or (B) in the case of a grant of a
security interest or the pledge of an intercompany note in a situation which
does not comply with clause (A) above, the holders of the Notes receive a
security interest in the asset to which such security interest relates or such
intercompany note; provided, however, that this provision will not apply to
Guarantees of, or Liens granted to secure, the USAM Notes which Guarantees or
Liens are required to be granted solely and as a direct result of the granting
of Guarantees or Liens with respect to the Bank Credit Facilities.
Unrestricted Subsidiaries
(a) The Board of Directors of Arch may designate any Subsidiary (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (i) neither Arch nor any Restricted Subsidiary is
directly or indirectly liable for any Debt of such Subsidiary, (ii) no default
with respect to any Debt of such Subsidiary would permit (upon notice, lapse
of time or otherwise) any holder of any other Debt of Arch or any Restricted
Subsidiary to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as a result
78
<PAGE>
of designating such Subsidiary an Unrestricted Subsidiary will not violate the
provisions of the "Restricted Payments" covenant, (iv) neither Arch nor any
Restricted Subsidiary has a contract, agreement, arrangement, understanding or
obligation of any kind, whether written or oral, with such Subsidiary on terms
other than those that might be obtained at the time from Persons who are not
Affiliates of Arch and (v) neither Arch nor any Restricted Subsidiary has any
obligation to subscribe for additional shares of Capital Stock or other equity
interest in such Subsidiary, or to maintain or preserve such Subsidiary's
financial condition or to cause such Subsidiary to achieve certain levels of
operating results. Notwithstanding the foregoing, Arch may not designate as an
Unrestricted Subsidiary any Subsidiary which, on the date of the Indenture, is
a Significant Subsidiary, and may not sell, transfer or otherwise dispose of
any properties or assets of any such Significant Subsidiary to an Unrestricted
Subsidiary, other than in the ordinary course of business.
(b) The Board of Directors of Arch may designate any Unrestricted Subsidiary
as a Restricted Subsidiary; provided that such designation will be deemed to
be an Incurrence of Debt by a Restricted Subsidiary of any outstanding Debt of
such Unrestricted Subsidiary and such designation will only be permitted if
(i) such Debt is permitted under the "Incurrence of Indebtedness" covenant and
(ii) no Default or Event of Default would be in existence following such
designation.
Payments for Consent
Neither Arch nor any of its Subsidiaries will, directly or indirectly, pay
or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Notes unless such consideration is offered to be paid or is paid to all
holders of Notes that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
Arch will file on a timely basis with the Commission, to the extent such
filings are accepted by the Commission and whether or not Arch has a class of
securities registered under the Exchange Act, the annual reports, quarterly
reports and other documents that Arch would be required to file if it were
subject to Section 13 or 15 of the Exchange Act. Arch will also (a) file with
the Trustee, and upon written request, provide to each holder of Notes,
without cost to such holder, copies of such reports and documents within 15
days after the date on which Arch files such reports and documents with the
Commission or the date on which Arch would be required to file such reports
and documents if Arch were so required, and (b) if filing such reports and
documents with the Commission is not accepted by the Commission or is
prohibited under the Exchange Act, supply at Arch's cost copies of such
reports and documents to any prospective holder of Notes promptly upon written
request.
EVENTS OF DEFAULT AND REMEDIES
The following will be "Events of Default" under the Indenture:
(a) default in the payment of any interest, or Liquidated Damages, if
any, on any Note when it becomes due and payable and continuance of such
default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on)
any Note at its Maturity;
(c) failure to perform or comply with the Indenture provisions described
under "Repurchase at the Option of Holders--Change of Control" or
"Consolidation, Merger or Sale of Assets";
(d) default in the performance, or breach, of any covenant or agreement
of Arch contained in the Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in "Events of Default") and continuance of such
default or breach for a
79
<PAGE>
period of 60 days after written notice shall have been given to Arch by the
Trustee or to Arch and the Trustee by the holders of at least 25% in
aggregate principal amount of the Notes then outstanding;
(e) (i) an event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of Debt of
Arch or a Restricted Subsidiary (other than Benbow Investments, Inc. for so
long as either issue of the USAM Notes remains outstanding), which issue
has an aggregate outstanding principal amount of not less than $5.0
million, and such default has resulted in such Debt becoming, whether by
declaration or otherwise, due and payable prior to the date on which it
would otherwise become due and payable or (ii) a default in any payment
when due at final maturity of any such Debt;
(f) any Person entitled to take the actions described in this clause (f),
after the occurrence of any event of default under any agreement or
instrument evidencing any Debt in excess of $5.0 million in the aggregate
of Arch or any Restricted Subsidiary, shall notify the Trustee of the
intended sale or disposition of any assets of Arch or any Restricted
Subsidiary that have been pledged to or for the benefit of such Person to
secure such Debt or shall commence proceedings, or take action to retain in
satisfaction of any Debt, or to collect on, seize, dispose of or apply, any
such assets of Arch or any Restricted Subsidiary, pursuant to the terms of
any agreement or instrument evidencing any such Debt of Arch or any
Restricted Subsidiary or in accordance with applicable law;
(g) one or more final judgments or orders shall have been rendered
against Arch or any Restricted Subsidiary which require the payment of
money, either individually or in an aggregate amount, in excess of $5.0
million and shall not be discharged and there shall have been a period of
60 days during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, was not in effect; or
(h) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to Arch, any Significant Subsidiary or any two
or more Restricted Subsidiaries, which if considered as a single Person,
would constitute a Significant Subsidiary.
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, then and in every such case, the Trustee or the holders of
not less than 25% in aggregate principal amount of the Notes then outstanding
may declare the principal of and accrued and unpaid interest on (and premium
and Liquidated Damages, if any, on), in each case as of such date of
declaration, all of the outstanding Notes to be due and payable immediately by
a notice in writing to Arch (and to the Trustee if given by the holders); and
upon any such declaration all amounts payable in respect of the Notes shall
become immediately due and payable. If an Event of Default specified in clause
(h) above occurs, then all of the outstanding Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
Notes then outstanding, by written notice to Arch and the Trustee, may rescind
and annul such declaration and its consequences if: (i) Arch has paid or
deposited with the Trustee a sum sufficient to pay (A) all overdue interest on
all Notes, (B) all unpaid principal of (and premium and Liquidated Damages, if
any, on) any outstanding Notes which has become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Notes, (C) to the extent that payment of such interest is lawful, interest
upon overdue interest, premium and Liquidated Damages, if any, and overdue
principal at the rate borne by the Notes and (D) all sums paid or advanced by
the Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel; and (ii)
all Events of Default, other than the non-payment of amounts of principal of
(and premium and Liquidated Damages, if any, on) or interest on the Notes
which have become due solely by such declaration of acceleration, have been
cured or waived. No such rescission shall affect any subsequent default or
impair any right consequent thereon.
80
<PAGE>
The holders of not less than a majority in aggregate principal amount of the
Notes then outstanding may, on behalf of the holders of all the Notes, waive
any past defaults under the Indenture, except a default in the
payment of the principal of (and premium and Liquidated Damages, if any) or
interest on any Note, or in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each Note outstanding affected thereby.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after the occurrence thereof, or,
if later, promptly upon the Trustee obtaining knowledge thereof. Except in the
case of a Default or an Event of Default in payment of principal of (and
premium and Liquidated Damages, if any, on) or interest on any Notes, the
Trustee may withhold the notice to the holders of such Notes if the board of
directors, executive committee or a committee of its trust officers in good
faith determines that withholding the notice is in the interest of the holders
of the Notes.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the Notes then outstanding shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the
holders of a majority in aggregate principal amount of the Notes then
outstanding a direction inconsistent with such request and shall have failed
to institute such proceeding within 60 days. However, such limitations do not
apply to a suit instituted by a holder of a Note for enforcement of payment of
the principal of (and premium and Liquidated Damages, if any, on) or interest
on such Note on or after the respective due dates expressed in such Note.
Arch is required to furnish to the Trustee annual statements as to the
performance by Arch of its obligations under the Indenture and as to any
default in such performance. Arch is also required to notify the Trustee
within five days of becoming aware of any Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Arch or any
Restricted Subsidiary (other than Arch and its Restricted Subsidiaries), as
such, shall have any liability for any obligations of Arch or such Restricted
Subsidiary under the Notes, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder
of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE
Arch may, at its option and at any time, terminate the obligations of Arch
with respect to the outstanding Notes ("defeasance"). Such defeasance means
that Arch shall be deemed to have paid and discharged the entire Debt
represented by the outstanding Notes, except for (i) the rights of holders of
outstanding Notes to receive, solely from the trust fund described below,
payments in respect of the principal of (and premium and Liquidated Damages,
if any, on) and interest on such Notes when such payments are due, (ii) Arch's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office
or agency for payments in respect of the Notes and segregate and hold such
payments in trust, (iii) the rights, powers, trusts, duties and immunities of
the Trustee and (iv) the defeasance provisions of the Indenture. In addition,
Arch may, at its option and at any time, elect to terminate the obligations of
Arch with respect to certain covenants set forth in the Indenture described
under "--Certain Covenants" above, and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes ("covenant defeasance").
81
<PAGE>
In order to exercise either defeasance or covenant defeasance: (a) Arch must
irrevocably deposit or cause to be deposited with the Trustee, as trust funds
in trust, specifically pledged as security for, and dedicated solely to the
benefit of the holders of, the Notes, money in an amount, or Government
Securities which through the scheduled payment of principal and interest
thereon will provide money in an amount, or a combination thereof, sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay and discharge the principal of (and premium and Liquidated
Damages, if any, on) and interest on the outstanding Notes at maturity (or
upon redemption, if applicable) of such principal (and premium and Liquidated
Damages, if any) or installment of interest; (b) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or,
insofar as an event of bankruptcy under clause (h) of "Events of Default"
above is concerned, at any time during the period ending on the 91st day after
the date of such deposit; (c) such defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest (as defined in the
Indenture), and for purposes of the Trust Indenture Act with respect to any
securities of Arch; (d) such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument to which Arch is a party or by which it is
bound or cause the Trustee or the trust so created to be subject to the
Investment Company Act of 1940; (e) in the case of defeasance, Arch shall have
delivered to the Trustee an Opinion of Counsel stating that (x) Arch has
received a ruling from the Internal Revenue Service or (y) since the date of
the Indenture, there has been a change in applicable federal income tax law or
there has been published by the Internal Revenue Service a document that may
be used or cited as precedent, in either case to the effect, and based thereon
such opinion shall confirm, that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (f) in the case of covenant defeasance, Arch
shall have delivered to the Trustee an Opinion of Counsel to the effect that
the holders of the Notes outstanding will not recognize income, gain or loss
for federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant defeasance
had not occurred; and (g) Arch shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
Upon the request of Arch, the Indenture will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) and the Trustee, at the
expense of Arch, will execute proper instruments acknowledging satisfaction
and discharge of the Indenture when: (a) either (i) all the Notes theretofore
authenticated and delivered (other than destroyed, lost or stolen Notes which
have been replaced or paid and Notes which have been subject to defeasance as
described under "--Legal Defeasance or Covenant Defeasance") have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (A) have become due and payable, (B)
will become due and payable at Stated Maturity within one year or (C) are to
be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in the name,
and at the expense, of Arch, and Arch has irrevocably deposited or caused to
be deposited with the Trustee funds in trust for the purpose in an amount
sufficient to pay and discharge the entire Debt on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium and
Liquidated Damages, if any, on) and interest to the date of such deposit (in
the case of Notes which have come due and payable) or to the Stated Maturity
or Redemption Date, as the case may be; (b) Arch has paid or caused to be paid
all other sums payable under the Indenture by Arch; and (c) Arch has delivered
to the Trustee an Officer's Certificate and an Opinion of Counsel, each
stating that all conditions precedent provided in the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
82
<PAGE>
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. Arch is not required to transfer or exchange any
Note selected for redemption. Also, Arch is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
AMENDMENT, SUPPLEMENT AND WAIVER
Modifications and amendments of the Indenture may be made by Arch and the
Trustee with the consent of the holders of a majority in aggregate principal
amount of the Notes then outstanding; provided, however, that no such
modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any installment of
interest or Liquidated Damages, if any, on, any Note, or reduce the
principal amount thereof or the rate of interest or Liquidated Damages, if
any, thereon or any premium payable upon the redemption thereof, or change
the place of payment where, or the coin or currency in which, any Note or
any premium or interest or Liquidated Damages, if any, thereon is payable,
or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date);
(b) reduce the percentage in aggregate principal amount of the Notes then
outstanding, the consent of whose holders is required for any such
amendment or for any waiver of compliance with certain provisions of, or
certain defaults and their consequences provided for under, the Indenture;
or
(c) modify any provisions relating to "Amendment, Supplement and Waiver"
or the fourth full paragraph under "Events of Default" above, except to
increase the percentage of outstanding Notes required for such actions or
to provide that certain other provisions of the Indenture cannot be
modified or waived without the consent of the holder of each outstanding
Note affected thereby.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture except as set forth above.
CONCERNING THE TRUSTEE
U.S. Bank Trust National Association, the Trustee under the Indenture, will
be the initial paying agent and registrar for the Notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. Under the Indenture, the holders of a majority in
aggregate principal amount of the Notes then outstanding will have the right
to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to certain exceptions.
If an Event of Default has occurred and is continuing, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee
indemnity reasonably satisfactory to it against any loss, liability or
expense.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of Arch, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined in the Indenture) it must eliminate such conflict upon the
occurrence of an Event of Default or else resign.
83
<PAGE>
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
the Exchange and Registration Rights Agreement without charge by writing to
Arch Communications, Inc., 1800 West Park Drive, Suite 250, Westborough, MA
01581 Attention: Treasurer.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be represented by a single, permanent Global Note (which may
be subdivided) in definitive, fully-registered form without interest coupons
in minimum denominations of $1,000 and integral multiples in excess thereof.
The Global Note will be deposited with the Trustee as custodian for DTC and
registered in the name of a nominee of DTC for credit to the respective
accounts of the purchasers at DTC.
Notes that are (i) transferred subsequent to the consummation of the Private
Note Offering to institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) who are
not "qualified institutional buyers" ("QIBs") as defined in Rule 144A under
the Securities Act ("Rule 144A") ("IAIs"); (ii) issued in the limited
circumstances described below; or (iii) issued as provided in the Indenture in
reliance upon Rule 144 under the Securities Act, will be issued in definitive,
fully-registered form without interest coupons in minimum denominations of
$1,000 and integral multiples in excess thereof (the "Certificated
Securities"). Upon the purchase of a Note, each IAI will be required to
execute and deliver to Arch and the Trustee a letter containing certain
representations and agreements relating to the transfer of the Notes (the form
of which letter can be obtained from the Trustee) and an opinion of counsel,
if Arch or the Trustee so requests. If Certificated Securities initially
issued to an IAI are transferred to a QIB in reliance on Rule 144A or to non-
U.S. persons in compliance with Regulation S, such Certificated Securities
will, unless the Global Note has previously been exchanged in whole for
Certificated Securities, be exchanged for an interest in the Global Note.
The Notes are not issuable in bearer form. The Global Note may be
transferred, in whole or in part, only to another nominee of DTC.
The Global Note and any Certificated Securities will be subject to certain
restrictions on transfer set forth therein and in the Indenture and will bear
legends regarding such restrictions as described under "Notice to Investors".
The Global Note
Upon the issuance of the Global Note, DTC or its custodian will credit, on
its internal system, the respective principal amount of the individual
beneficial interests represented by the Global Note to the accounts of persons
who have accounts with DTC. Such accounts initially will be designated by or
on behalf of the Initial Purchasers. Ownership of beneficial interests in the
Global Note will be limited to persons who have accounts with DTC (including
participants of other securities clearance organizations, "participants") or
persons who hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominees, as the case may be, will be considered the
sole owner or holder of the Notes represented by the Global Note for all
purposes under the Indenture and the Notes. Owners of beneficial interests in
the Global Note will not be considered to be the owners or holders of any
Notes under the Indenture. In addition, no beneficial owner of an interest in
the Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures (in addition to those under the Indenture
referred to herein and, if applicable, those of Euroclear and Cedel Bank).
84
<PAGE>
Investors may hold their interests in the Global Note directly through DTC
if they are participants in DTC, or indirectly through organizations which are
participants in DTC, including Cedel Bank and Euroclear. Cedel Bank and
Euroclear will hold interests in the Global Note on behalf of their
participants through their respective depositaries, which in turn will hold
such interests in the Global Note in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank, N.A., New York, will
initially act as depositary for Cedel Bank and Morgan Guaranty Trust Company
of New York, Brussels office, will initially act as depositary for Euroclear.
Payments of the principal, interest, premium and Liquidated Damages, if any,
on the Global Note will be made to DTC or its nominee, as the registered owner
thereof. Neither Arch, the Trustee, nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Arch expects that DTC or its nominee, upon receipt of any payment of
principal, interest, premium or Liquidated Damages, if any, in respect of the
Global Note, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the
principal amount of the Global Note as shown on the records of DTC or its
nominee. Arch also expects that payments by participants to owners of
beneficial interests in the Global Note held through such participants
including Cedel Bank and Euroclear, will be governed by standing instructions
and customary practices and, in the case of Cedel Bank and Euroclear, in
accordance with the relevant system's rules and procedures. Such payments will
be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. The laws
of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer
beneficial interests in the Global Note to such persons may be limited.
Because DTC can only act on behalf of participants, who in turn act on behalf
of indirect participants and certain banks, the ability of a person having a
beneficial interest in the Global Note to pledge such interest to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest. Transfers between participants in
Euroclear and Cedel Bank will be effected in the ordinary way in accordance
with their respective rules and operating procedures.
Cross-market transfers between DTC participants, on the one hand, and
directly or indirectly through Euroclear or Cedel Bank participants, on the
other, will be effected in DTC in accordance with DTC rules on behalf of
Euroclear or Cedel Bank, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions
to Euroclear or Cedel Bank, as the case may be, by the counterparty in such
system in accordance with its rules and procedures and within its established
deadlines (Brussels time). Euroclear or Cedel Bank, as the case may be, will,
if the transaction meets its settlement requirements deliver instructions to
its respective depositary to take action to effect final settlement on its
behalf by delivery or receiving interest in the Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Cedel Bank participants and Euroclear
participants may not deliver instructions directly to the depositaries for
Cedel Bank or Euroclear.
Arch expects that DTC will take any action permitted to be taken by a holder
of Notes (including the presentation of Notes for exchange as described below)
only at the direction of one or more participants to whose account with DTC
interest in the Global Note are credited and only in respect of such portion
of the aggregate principal amount of the Notes as to which such participant or
participants has or have given such direction. However, if an Event of Default
has occurred and in continuing or in the limited circumstances described
below, DTC will surrender the Global Note and certificated notes in definitive
form will be distributed to its participants and will be legended as set forth
under "Notice to Investors" below. The giving of notices and other
communications by DTC to participants in DTC, by participants in DTC to
persons who hold accounts with them and by such persons to holders of
beneficial interests in the Global Note will be governed by arrangements
between them, subject to any statutory or regulatory requirements as may exist
from time to time.
85
<PAGE>
Arch understands that DTC is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC holds securities for its participants and facilitates the
clearance and settlement of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Participants include securities brokers
and delivers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. The rules applicable to DTC and
its participants are on file with the Commission.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of interests in the Global Note
among participants of DTC, Cedel Bank and Euroclear, they are under no
obligation to perform or continue to perform such procedures may be changed or
discontinued at any time. Neither Arch nor the Trustee will have any
responsibility for the performance by DTC, Cedel Bank or Euroclear or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
ADDITIONAL INFORMATION CONCERNING EUROCLEAR AND CEDEL BANK
Euroclear and Cedel Bank hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in
accounts of such participants. Euroclear and Cedel Bank provide to their
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Euroclear and Cedel Bank interface with U.S. securities
markets. Euroclear and Cedel Bank participants are financial institutions such
as underwriters, securities brokers and dealers, banks, trust companies and
certain other organizations. Indirect access to Euroclear and Cedel Bank is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodian relationship with a Euroclear or
Cedel Bank participant, either directly or indirectly.
When beneficial interests are to be transferred from the account of a
participant (other than Morgan Guaranty Trust Company of New York and
Citibank, N.A., as depositaries for Euroclear and Cedel Bank, respectively) to
the account of a Euroclear participant or a Cedel Bank participant, the
purchaser must send instructions to Euroclear or Cedel Bank through a
participant at least one business day prior to settlement. Euroclear or Cedel
Bank, as the case may be, will instruct Morgan Guaranty Trust Company of New
York or Citibank, N.A., to receive the beneficial interests against payment.
Payment will include interest attributable to the beneficial interest from and
including the last payment date to and excluding the settlement date, on the
basis of a calendar year consisting of twelve 30-day calendar months. For
transactions settling on the 31st day of the month, payment will include
interest accrued to and excluding the first day of the following month.
Payment will then be made by Morgan Guaranty Trust Company of New York or
Citibank, N.A., as the case may be, to the participant's account against
delivery of the beneficial interests. After settlement has been completed, the
beneficial interests will be credited to the respective clearing systems and
by the clearing system, in accordance with its usual procedures, to the
Euroclear participants' or Cedel Bank participants' account. Credit for the
beneficial interests will appear on the next business day (European time) and
the cash debit will be back-valued to, and interest attributable to the
beneficial interests will accrue from, the value date (which would be the
preceding business day when settlement occurs in New York). If settlement is
not completed on the intended value date (i.e., the trade fails), the
Euroclear or Cedel Bank cash debit will instead be valued as of the actual
settlement date.
86
<PAGE>
Euroclear participants and Cedel Bank participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, they may take on credit exposure to Euroclear or Cedel Bank
until the beneficial interests are credited to their accounts one day later.
Finally, day traders that use Euroclear or Cedel Bank and that purchase
beneficial interests from participants for credit to Euroclear participants or
Cedel Bank participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken to avoid these potential
problems.
Due to time zone differences in their favor, Euroclear participants and
Cedel Bank participants may employ their customary procedures for transactions
in which beneficial interests are to be transferred by the respective clearing
system, through Morgan Guaranty Trust Company of New York or Citibank, N.A.,
to another participant. The seller must send instructions to Euroclear or
Cedel Bank through a participant at least one business day prior to
settlement. In these cases, Euroclear or Cedel Bank will instruct Morgan
Guaranty Trust Company of New York or Citibank, N.A., as the case may be, to
credit the beneficial interests to the participant's account against payment.
Payment will include interest attributable to the beneficial interest from and
including the last payment date to and excluding the settlement date on the
basis of a calendar year consisting of twelve 30-day calendar months. For
transactions settling on the 31st day of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the Euroclear participant or
Cedel Bank participant the following business day, and receipt of the cash
proceeds in the Euroclear or Cedel Bank participant's account will be back-
valued to the value date (which would be the preceding business day, when
settlement occurs in New York). If the Euroclear participant or Cedel Bank
participant has a line of credit with its representative clearing system and
elects to draw on such line of credit in anticipation of receipt of the sale
proceeds in its account, the back-valuation may substantially reduce or offset
any overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., if the trade fails), receipt of
the cash proceeds in the Euroclear or Cedel Bank participant's account would
instead be valued as of the actual settlement date.
CERTIFICATED SECURITIES
The Global Note is exchangeable for Certificated Securities only (i) if the
Depositary notifies Arch that it is unwilling or unable to continue as
depositary for the Global Note and Arch thereupon fails to appoint a successor
depositary; (ii) if Arch, at its option, notifies the Trustee in writing that
it elects to cause the issuance of the Notes in definitive registered form; or
(iii) if there shall have occurred and be continuing an Event of Default or
any event which after notice or lapse of time or both would be an Event of
Default with respect to the Notes. Such Certificated Securities shall be
registered in the names of the owners of the beneficial interests in the
Global Note as provided by the participants. Upon issuance of the Notes in
definitive form, the Trustee is required to register the Notes in the name of,
and cause the Notes to be delivered to, the person or persons (or the nominee
thereof) identified as the beneficial owners, as the Depositary shall direct.
In all cases described herein, such Certificated Securities will bear the
restrictive legend referred to in "Notice to Investors", unless Arch
determines otherwise in compliance with applicable law.
Neither Arch nor the Trustee will be liable for any delay by the holder of a
Global Note or the Depositary in identifying the beneficial owners of Notes
and Arch and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of a Global Note or the Depositary
for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to
the accounts specified by the holder of a Global Note. With respect to
Certificated Securities, Arch
87
<PAGE>
will make all payments of principal, premium, interest and Liquidated Damages,
if any, by wire transfer of immediately available funds to the accounts
specified by the holders thereof or, if no such account is specified, by
mailing a check to each such holder's registered address.
The Notes represented by the Global Note are expected to be eligible to
trade in the PORTAL market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. Arch expects that secondary trading in the
Certificated Securities will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Arch and the Initial Purchasers entered into the Exchange and Registration
Rights Agreement on June 24, 1998. Pursuant to the Exchange and Registration
Rights Agreement, Arch agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, Arch is required to offer (as defined below) pursuant
to the Exchange Offer to the holders of Transfer Restricted Securities who are
able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for Exchange Notes. If (i) Arch is not required
to file the Exchange Offer Registration Statement or permitted to consummate
the Exchange Offer because the Exchange Offer is not permitted by applicable
law or Commission policy or (ii) any holder of Transfer Restricted Securities
notifies Arch prior to the 20th day following consummation of the Exchange
Offer that (a) it is prohibited by law or Commission policy from participating
in the Exchange Offer or (b) that it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (c) that it is a
broker-dealer and owns Notes acquired directly from Arch or an affiliate of
Arch, Arch will file with the Commission a Shelf Registration Statement to
cover resales of the Notes by the holders thereof who satisfy certain
conditions relating to the provision of information in connection with the
Shelf Registration Statement. Arch will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer
Restricted Securities" means each Note until (i) the date on which such Note
has been exchanged by a person other than a broker-dealer for an Exchange Note
in the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of a Note for an Exchange Note, the date on which such Exchange
Note is sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in the Exchange
Offer Registration Statement, (iii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Act.
The Exchange and Registration Rights Agreement provides that (i) Arch must
file an Exchange Offer Registration Statement with the Commission on or prior
to 30 days after the Closing Date, (ii) Arch will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 120 days after the Closing Date, (iii) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, Arch will
commence the Exchange Offer and use its best efforts to issue, on or prior to
30 business days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission, Exchange Notes in exchange
for all Notes tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, Arch shall file the Shelf
Registration Statement with the Commission on or prior to 30 days after such
filing obligation arises and use its best efforts to cause the Shelf
Registration to be declared effective by the Commission on or prior to 90 days
after such obligation arises. If (a) Arch fails to file any of the
Registration Statements required by the Exchange and Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective
88
<PAGE>
by the Commission on or prior to the Effectiveness Target Date, (c) Arch fails
to consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Exchange and Registration Rights Agreement, then Arch will
pay Liquidated Damages to each holder of Notes, with respect to the first 90-
day period, or any portion thereof, immediately following the occurrence of
such a Registration Default, in an amount equal to 25 basis points per annum
of the principal amount of Notes held by such holder. The amount of the
Liquidated Damages will increase by an additional 25 basis points per annum of
the principal amount of Notes with respect to each subsequent 90-day period,
or any portion thereof, until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of 100 basis points per annum of the
principal amount of Notes. All accrued and unpaid Liquidated Damages will be
paid by Arch on each Interest Payment Date to the Global Note holder by wire
transfer of immediately available funds or by federal funds check and to
holders of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to Arch
(as described in the Exchange and Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Exchange and Registration Rights Agreement in order to have their Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as
any other capitalized term used herein for which no definition is provided:
"Acquired Debt" means Debt of a Person (a) existing at the time such Person
is merged with or into Arch or becomes a Subsidiary, (b) assumed in connection
with the acquisition of assets from such Person or (c) secured by a Lien
encumbering assets acquired from such Person.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, to any Person of: (a)
any Capital Stock of any Restricted Subsidiary; (b) all or substantially all
of the properties and assets of Arch and its Restricted Subsidiaries
representing a division or line of business; or (c) any other properties or
assets of Arch or any Restricted Subsidiary, other than in the ordinary course
of business. For the purposes of this definition, the term "Asset Sale" shall
not include any transfer of properties or assets (i) that is governed by the
provisions of the Indenture described under "Consolidation, Merger or Sale of
Assets", (ii) between or among Arch and its Restricted Subsidiaries, (iii)
constituting an Investment in a telecommunications business, if permitted
under the "Restricted Payments" covenant, (iv) representing obsolete or
permanently retired equipment and facilities or (v) the gross proceeds of
which (exclusive of indemnities) do not exceed $1.0 million for any particular
item or $2.0 million in the aggregate for any fiscal year of Arch.
89
<PAGE>
"Attributable Value" means, with respect to any lease at the time of
determination, the present value (discounted at the interest rate implicit in
the lease, or, if not known, at Arch's incremental borrowing rate) of the
obligations of the lessee of the property subject to such lease for rental
payments during the lesser of (i) the remaining term of the lease included in
such transaction, including any period for which such lease has been extended
or may, at the option of the lessor, be extended, or (ii) until any date on
which the lessee may terminate such lease without penalty or upon payment of
penalty (in which case the rental payments shall include such penalty);
provided that on the date of determination it is the lessee's intention to
terminate such lease on such date, after excluding from such rental payments
all amounts required to be paid on account of maintenance and repairs,
insurance, taxes, assessments, water, utilities and similar charges.
"Average Life" means, as of the date of determination with respect to any
Debt or Disqualified Stock, the quotient obtained by dividing (a) the sum of
the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund requirements) of such Debt or
Disqualified Stock, respectively, multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.
"Bank Credit Facilities" means one or more credit or loan agreements or
facilities (which may include revolving credit facilities or working capital
facilities or term loans), whether now existing or created after the date of
the Indenture, with a bank or other financial institution or group of banks or
other financial institutions, as such agreements or facilities may be amended
(including any amendments and restatements thereof), modified, supplemented,
increased, restated or replaced from time to time, and includes without
limitation (i) the Second Amended and Restated Credit Agreement (Tranche A and
Tranche C Facilities), dated as of June 29, 1998, among API, the lenders and
agents party thereto, and The Bank of New York, as administrative agent,
together with all such Loan Documents under and as defined therein, as each
such agreement and document may be amended, restated, supplemented,
refinanced, increased or otherwise modified from time to time, and (ii) the
Second Amended and Restated Credit Agreement (Tranche B Facility), dated as of
June 29, 1998, among API, the lenders and agents party thereto, and The Bank
of New York, as administrative agent, together with all such Loan Documents
under and as defined therein, as each such agreement and document may be
amended, restated, supplemented, refinanced, increased or otherwise modified
from time to time.
"Capital Lease Obligation" means, with respect to any Person, an obligation
Incurred in the ordinary course of business under or in connection with any
capital lease of real or personal property which, in accordance with GAAP, has
been recorded as a capitalized lease.
"Capital Stock" of any Person means any and all shares, interests,
partnership interests, participation, rights in or other equivalents (however
designated) of such Person's equity interest (however designated) and any
rights (other than debt securities convertible into capital stock), warrants
or options exchangeable for or convertible into such capital stock, whether
now outstanding or issued after the date of the Indenture.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than a
majority of the voting power of all classes of Voting Stock of Arch or
Parent;
(b) Arch or Parent consolidates with, or merges with or into, another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, Arch or Parent, in any such event pursuant to
a transaction in which the outstanding Voting Stock of Arch or Parent is
converted into or exchanged for cash, securities or other property, other
than any such transaction where (i) the outstanding Voting Stock of Arch or
Parent is not
90
<PAGE>
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation) or is converted into or
exchanged for (A) Capital Stock (other than Disqualified Stock) of the
surviving or transferee Person or (B) cash, securities or other property
(other than Capital Stock described in the foregoing clause (A)) of the
surviving or transferee Person in an amount that could be paid as a
Restricted Payment as described under the "Restricted Payments" covenant
and (ii) immediately after such transaction, no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of
all securities that such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than a majority of the total outstanding
Voting Stock of the surviving or transferee Person;
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of Arch or
Parent (together with any new directors whose election to such Board of
Directors, or whose nomination for election by the stockholders of Arch or
Parent, was approved by a vote of 66-2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of Arch or
Parent then in office; or
(d) Arch is liquidated or dissolved or adopts a plan of liquidation or
dissolution other than in a transaction which complies with the provisions
described under "--Consolidation, Merger or Sale of Assets" below.
"Consolidated Adjusted Net Income" means, for any period, the net income (or
net loss) of Arch and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any
net after-tax extraordinary gains or losses (less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to Asset Sales, (c) the portion of net
income (or loss) of any Person (other than Arch or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which Arch or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to Arch or any Restricted
Subsidiary in cash dividends or distributions by such Person during such
period, and (d) the net income (or loss) of any Person combined with Arch or
any Restricted Subsidiary on a "pooling of interests" basis attributable to
any period prior to the date of combination.
"Consolidated Cash Flow" means for any period Consolidated Adjusted Net
Income for such period increased, without duplication, by (i) Consolidated
Interest Expense for such period, plus (ii) Consolidated Income Tax Expense
for such period, plus (iii) Consolidated Non-Cash Charges for such period.
"Consolidated Cash Flow Ratio" means, at any date, the ratio of (a) the
aggregate principal amount of Debt of Arch and its Restricted Subsidiaries on
a consolidated basis outstanding as of such date to (b) Consolidated Cash Flow
for the most recently ended full fiscal quarter multiplied by four.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of Arch and its Restricted
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the amount which, in conformity with GAAP, would be set forth
opposite the caption "interest expense" (or any like caption) on a
consolidated statement of operations of Arch and its Restricted Subsidiaries
for such period, including, without limitation, (i) amortization of debt
discount, (ii) the net cost of interest rate contracts (including amortization
of discounts), (iii) the interest portion of any deferred payment obligation,
(iv) amortization of debt issuance costs, (v) the interest component of
Capital Lease Obligations of Arch and its Restricted Subsidiaries, and (vi)
the portion of any rental obligation of Arch and its Restricted Subsidiaries
in
91
<PAGE>
respect of any Sale and Leaseback Transaction allocable during such period to
interest expense (determined as if it were treated as a Capital Lease
Obligation) plus (b) all interest on any Debt of any other Person guaranteed
and paid by Arch or any of its Restricted Subsidiaries; provided, however,
that Consolidated Interest Expense will not include any gain or loss from
extinguishment of debt, including write-off of debt issuance costs.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of Arch and its
Restricted Subsidiaries reducing Consolidated Adjusted Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge that requires an accrual of or reserve for cash
charges for any future period).
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, and whether or
not contingent, (a) every obligation of such Person for money borrowed, (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (d) every obligation of such Person
issued or assumed as the deferred purchase price of property or services, (e)
the Attributable Value of every Capital Lease Obligation and Sale and
Leaseback Transaction of such Person, (f) all Disqualified Stock of such
Person valued at its maximum fixed repurchase price, plus accrued and unpaid
dividends and (g) every obligation of the type referred to in clauses (a)
through (f) of another Person and dividends of another Person the payment of
which, in either case, such Person has guaranteed. For purposes of this
definition, the "maximum fixed repurchase price" of any Disqualified Stock
that does not have a fixed repurchase price will be calculated in accordance
with the terms of such Disqualified Stock as if such Disqualified Stock were
repurchased on any date on which Debt is required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair
market value of such Disqualified Stock, such fair market value will be
determined in good faith by the board of directors of the issuer of such
Disqualified Stock. Notwithstanding the foregoing, trade accounts payable and
accrued liabilities arising in the ordinary course of business and any
liability for federal, state or local taxes or other taxes owed by such Person
shall not be considered Debt for purposes of this definition. The amount
outstanding at any time of any Debt issued with original issue discount is the
aggregate principal amount of such Debt, less the remaining unamortized
portion of the original issue discount of such Debt at such time, as
determined in accordance with GAAP.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver
a resolution of the Board of Directors under the Indenture, a member of the
Board of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions
(other than solely by virtue of such person's ownership of Capital Stock or
other securities of Arch).
"Disqualified Stock" means any class or series of Capital Stock that, either
by its terms, by the terms of any security into which it is convertible or
exchangeable at the option of the holder thereof or by contract or otherwise,
is, or upon the happening of an event or passage of time would be, required to
be redeemed prior to the final Stated Maturity of the Notes or is redeemable
at the option of the holder thereof at any time prior to such final Stated
Maturity, or is convertible into or exchangeable at the option of the holder
thereof for debt securities at any time prior to such final Stated Maturity.
"Equity Offering" means an offering of equity securities of Arch or Parent
for cash to Persons other than Arch or Subsidiaries of Arch.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied, that are in effect on the date of the Indenture.
92
<PAGE>
"Government Securities" means direct obligations of, obligations fully
guaranteed by, or participation in pools consisting solely of obligations of
or obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the option
of the issuer thereof.
"Guarantee" means, as applied to any obligation, (a) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
obligation to reimburse amounts drawn down under letters of credit securing
such obligations.
"Incur" means, with respect to any Debt, to incur, create, issue, assume,
Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Debt;
provided that neither the accrual of interest nor the accretion of original
issue discount shall be considered an Incurrence of Debt.
"Investment" means, (a) directly or indirectly, any advance, loan or capital
contribution to, the purchase of any stock, bonds, notes, debentures or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, or the Guarantee of any obligation of, any Person or
making of any investment in any Person, (b) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (c) the transfer of any assets or
properties from Arch or a Restricted Subsidiary to any Unrestricted
Subsidiary, other than the transfer of assets or properties in the ordinary
course of business. Investments will not include extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim,
preference, priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as provided therein or in the Indenture,
whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption, purchase or otherwise.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations when received in the form of, or stock or
other assets when disposed for, cash or cash equivalents (except to the extent
that such obligations are financed or sold by Arch or any Restricted
Subsidiary with recourse to Arch or any Restricted Subsidiary), net of (a)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (b)
provisions for all taxes payable as a result of such Asset Sale, (c) payments
made to retire Debt where payment of such Debt is secured by the assets that
are the subject of such Asset Sale, (d) amounts required to be paid to any
Person (other than Arch or any Restricted Subsidiary) owning a beneficial
interest in the assets that are subject to the Asset Sale and (e) appropriate
amounts to be provided by Arch or any Restricted Subsidiary, as the case may
be, as a reserve required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by the seller after such Asset
Sale, including pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Parent" means Arch Communications Group, Inc., a Delaware corporation.
93
<PAGE>
"Pari Passu Debt" means Debt of Arch which ranks pari passu in right of
payment with the Notes.
"Permitted Investments" means any of the following:
(a) Investments in (i) any evidence of Debt consisting of Government
Securities with a maturity of 180 days or less; (ii) certificates of
deposit or acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500,000,000;
and (iii) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of Arch and is organized under the
laws of any state of the United States or the District of Columbia and
having the highest rating obtainable from Moody's Investors Service or
Standard & Poor's Corporation;
(b) Investments by Arch or any Restricted Subsidiary in another Person,
if as result of such Investment such other Person (i) becomes a Restricted
Subsidiary or (ii) is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to, Arch or a Restricted
Subsidiary;
(c) Investments by Arch or any Restricted Subsidiary in another Person
made pursuant to the terms of a definitive merger, stock purchase or
similar agreement providing for a business combination transaction between
Arch or a Restricted Subsidiary and such Person if, (i) within 365 days of
the date of such Investment, such other Person, pursuant to the terms of
such agreement, (A) becomes a Restricted Subsidiary or (B) is merged or
consolidated with or into, or transfers or conveys all or substantially all
of its assets to, Arch or a Restricted Subsidiary, or (ii) in the event
such agreement is terminated prior to the consummation of the transactions
contemplated thereunder, within 365 days of such termination Arch or such
Restricted Subsidiary liquidates such Investment.
(d) Investments by Arch or any of the Restricted Subsidiaries in any one
of the other of them;
(e) Investments in assets owned or used in the ordinary course of
business;
(f) Investments in existence on the date of initial issuance of the
Notes; and
(g) promissory notes received as a result of Asset Sales permitted under
the "Asset Sales" covenant.
"Permitted Liens" means any of the following:
(a) Liens (other than Liens securing Debt under the Bank Credit
Facilities) existing as of the date of issuance of the Notes;
(b) Liens on Property or assets of Arch or a Restricted Subsidiary of
Arch securing Debt under or with respect to the Bank Credit Facilities or
which are required to secure the USAM Notes solely and as a direct result
of the granting of Liens with respect to the Bank Credit Facilities;
(c) Liens securing the Notes;
(d) Liens on Property or assets of a Restricted Subsidiary securing Debt
of such Restricted Subsidiary other than Guarantees with respect to Debt of
Arch;
(e) any interest or title of a lessor under any Capital Lease Obligation
or Sale and Leaseback Transaction under which Arch is lessee so long as the
Attributable Value secured by such Lien does not exceed the principal
amount of Debt permitted under the "Incurrence of Indebtedness" covenant;
(f) Liens securing Acquired Debt created prior to (and not in connection
with or in contemplation of) the Incurrence of such Debt by Arch; provided
that such Lien does not extend to any Property or assets of Arch other than
the assets acquired in connection with the Incurrence of such Acquired
Debt;
(g) Liens arising from purchase money mortgages and purchase security
interests Incurred in the ordinary course of the business of Arch; provided
that (i) the related Debt is not secured by any Property or assets of Arch
other than the Property and assets so acquired and (ii) the Lien securing
such Debt is created within 60 days of such acquisition;
94
<PAGE>
(h) statutory Liens or landlords' and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(i) Liens for taxes, assessments, government charges or claims that are
being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, if a reserve or other appropriate
provision, if any, as is required in conformity with GAAP has been made
therefor;
(j) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(k) rights of banks to set off deposits against debts owed to said banks;
(l) other Liens incidental to the conduct of the business of Arch or any
of its Subsidiaries, as the case may be, or the ownership of their assets
that do not materially detract from the value of the Property subject
thereto;
(m) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance bonds and other obligations of a like nature
incurred in the ordinary course of business (other than contracts for the
payment of money);
(n) easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of
Arch and the Restricted Subsidiaries, taken as a whole, incurred in the
ordinary course of business;
(o) Liens arising by reason of any judgment, decree or order of any court
so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired; and
(p) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (o); provided that any
such extension, renewal or replacement shall not extend to any additional
Property or assets.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person under GAAP.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital Stock of such
Person other than Disqualified Stock.
"Related Person" means any beneficial owner of 10% or more of Arch's Voting
Stock.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which a Person sells or transfers any property or
asset in connection with the leasing, or the resale against installment
payments, of such property or asset to the seller or transferor.
95
<PAGE>
"Significant Subsidiary" means any Restricted Subsidiary of Arch that,
together with its Subsidiaries, (a) for the most recent fiscal year of Arch,
accounted for more than 10% of the consolidated revenues of Arch and its
Restricted Subsidiaries or (b) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of Arch and its Restricted
Subsidiaries, all as set forth on the most recently available consolidated
financial statements of Arch for such fiscal year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable and, when used with respect to any other Debt, means the date
specified in the instrument governing such Debt as the fixed date on which the
principal of such Debt or any installment of interest thereon is due and
payable.
"Subordinated Debt" means Debt of Arch that is subordinated in right of
payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by Arch and/or
one or more other Subsidiaries of Arch.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by
Arch's Board of Directors as an Unrestricted Subsidiary in accordance with the
"Unrestricted Subsidiaries" covenant and (b) any Subsidiary of an Unrestricted
Subsidiary.
"USAM Notes" means the 9 1/2% Senior Notes due 2004 and 14% Senior Notes due
2004 issued by USA Mobile Communications, Inc. II (to be renamed Arch
Communications, Inc. upon consummation of the Merger).
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
GOVERNING LAW
The Indenture, the Notes, the Exchange Notes and the Exchange and
Registration Rights Agreement are governed by, and are to be construed in
accordance with, the laws of the State of New York, without regard to
conflicts of laws principles thereof.
96
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax considerations relating to the Exchange Offer but does not purport to be a
complete analysis of all the potential tax considerations relating thereto.
This summary is based on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the applicable Treasury Regulations promulgated or
proposed thereunder ("Treasury Regulations"), judicial authority and current
administrative rulings and practice, all of which are subject to change
without notice, possibly on a retroactive basis. This summary deals only with
holders that hold Notes as "capital assets" (within the meaning of Section
1221 of the Code) and does not address tax considerations applicable to
investors that may be subject to special tax rules, such as banks and other
financial institutions; tax-exempt organizations; insurance companies; traders
or dealers in securities or currencies; custodians, nominees or similar
financial intermediaries holding Notes for others; persons that hold Notes as
a position in a hedging transaction, "straddle" or "conversion transaction"
for tax purposes; or persons that have a "functional currency" other than the
United States dollar. Arch has not sought any ruling from the Internal Revenue
Service (the "IRS") with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the IRS
will agree with such statements and conclusions. INVESTORS IN THE EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF
THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
The exchange of Private Notes for Exchange Notes pursuant to the Exchange
Offer should not constitute a taxable exchange. As a result, a holder (i)
should not recognize taxable gain or loss as a result of exchanging Private
Notes for Exchange Notes pursuant to the Exchange Offer; (ii) the holding
period of the Exchange Notes should include the holding period of the Private
Notes exchanged therefor and (iii) the adjusted tax basis of the Exchange
Notes should be the same as the adjusted tax basis of the Private Notes
exchanged therefor immediately before the exchange. The Exchange Offer will
result in no federal income tax consequences to a Holder of Notes who does not
participate in the Exchange Offer.
97
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resale of Exchange Notes received in exchange for
market-making activities or other trading activities. Arch has agreed that for
a period not less than one year after the Expiration Date (or such shorter
period as will terminate when all Exchange Notes acquired by Participating
Broker-Dealers (as defined in the Exchange and Registration Rights Agreement)
have been resold by such broker-dealers), it will make this Prospectus, as
amended or supplemented, available to any broker-dealer that requests such
document in the Letter of Transmittal for use in connection with any such
resale. In addition, until , 1998 all dealers effecting
transactions in Exchange Notes may be required to deliver a prospectus.
Arch will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of one year after the Expiration Date (or such shorter period
as will terminate when all Exchange Notes acquired by Participating Broker-
Dealers (as defined in the Exchange and Registration Rights Agreement) have
been resold by such broker-dealers), Arch will promptly send additional copies
of this Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. Arch
has agreed to pay all expenses incident to Arch's performance of, or
compliance with, the Exchange and Registration Rights Agreement (including the
expenses of one counsel for the holders of the Private Notes) and will
indemnify the holders or Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities,
including liabilities under the Securities Act.
98
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
Arch by Hale and Dorr LLP, 60 State Street, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Arch Communications, Inc. as of
December 31, 1996 and 1997 and the three years in the period ended December
31, 1997 appearing in this Prospectus and the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as set forth
in their report thereon, appearing elsewhere herein, and are included in
reliance upon the authority of such firm as experts in accounting and
auditing.
The descriptions of the regulatory requirements under the Communications Act
and the regulations thereunder set forth under "Risks Factors--Government
Regulation, Foreign Ownership and Possible Redemption" and "Business--
Regulation" have been included under the authority of Wilkinson, Barker,
Knauer & Quinn, LLP, as experts in telecommunications law. Potential investors
in the Exchange Notes should not rely on Wilkinson, Barker, Knauer & Quinn,
LLP with respect to any other matters.
99
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31,
1998 (unaudited).......................................................... F-3
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 1997 and for the Three Months Ended March 31,
1997 and 1998 (unaudited)................................................. F-4
Predecessor Consolidated Statement of Operations for the Period from
January 1, 1995 to
September 7, 1995......................................................... F-5
Consolidated Statements of Stockholder's Equity for Each of the Three Years
in the Period Ended December 31, 1997 and for the Three Months Ended March
31, 1998 (unaudited)...................................................... F-6
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 1997 and for the Three Months Ended March 31,
1997 and 1998 (unaudited)................................................. F-7
Predecessor Consolidated Statement of Cash Flows for the Period from
January 1, 1995 to
September 7, 1995 ........................................................ F-8
Notes to Consolidated Financial Statements................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arch Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Arch
Communications, Inc. (a Delaware corporation and a wholly-owned subsidiary of
Arch Communications Group, Inc.) (the "Company") and subsidiaries as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1997 and the statements of operations and cash
flows for the period from January 1, 1995 to September 7, 1995 (predecessor
basis). These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Arch
Communications, Inc. and subsidiaries as of December 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 and for the period from January 1,
1995 to September 7, 1995 (predecessor basis), in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 9, 1998 (except
with respect to the matter
discussed in Note 8, as to
which the date is April 13,
1998)
F-2
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 1,271 $ 1,887 $ 3,089
Accounts receivable (less reserves of
$4,111, $5,744 and $5,806 in 1996, 1997
and 1998, respectively)................. 25,344 30,147 31,424
Inventories.............................. 10,239 12,633 18,202
Prepaid expenses and other............... 4,531 4,917 3,566
---------- ---------- --------
Total current assets................... 41,385 49,584 56,281
---------- ---------- --------
Property and equipment, at cost:
Land, buildings and improvements......... 8,780 10,089 10,152
Paging and computer equipment............ 339,391 361,713 367,933
Furniture, fixtures and vehicles......... 9,921 16,233 16,713
---------- ---------- --------
358,092 388,035 394,798
Less accumulated depreciation and
amortization............................ 96,448 146,542 162,179
---------- ---------- --------
Property and equipment, net.............. 261,644 241,493 232,619
---------- ---------- --------
Intangible and other assets (less
accumulated amortization of $140,605,
$258,856 and $286,858 in 1996, 1997 and
1998, respectively)....................... 831,299 718,969 694,636
---------- ---------- --------
$1,134,328 $1,010,046 $983,536
========== ========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt..... $ 46 $ 24,513 $ 19,316
Accounts payable......................... 17,395 22,486 18,439
Accrued expenses......................... 14,287 11,894 11,304
Accrued interest......................... 10,189 11,174 11,589
Customer deposits........................ 6,698 6,150 5,806
Deferred revenue......................... 7,181 8,787 10,804
---------- ---------- --------
Total current liabilities.............. 55,796 85,004 77,258
---------- ---------- --------
Long-term debt, less current maturities.... 605,513 623,000 640,438
---------- ---------- --------
Deferred income taxes...................... 21,172 -- --
---------- ---------- --------
Commitments and contingencies
Stockholder's equity:
Common Stock - $.01 par value, authorized
1,000 shares, issued and outstanding:
749 shares.............................. -- -- --
Additional paid-in capital............... 620,740 617,563 617,861
Accumulated deficit...................... (168,893) (315,521) (352,021)
---------- ---------- --------
Total stockholder's equity 451,847 302,042 265,840
---------- ---------- --------
$1,134,328 $1,010,046 $983,536
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ --------------------
1995 1996 1997 1997 1998
-------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service, rental and
maintenance revenues... $138,466 $ 291,399 $ 351,944 $ 84,417 $ 91,397
Product sales........... 24,132 39,971 44,897 11,122 10,642
-------- --------- --------- --------- ---------
Total revenues...... 162,598 331,370 396,841 95,539 102,039
Cost of products sold... (20,789) (27,469) (29,158) (7,126) (7,366)
-------- --------- --------- --------- ---------
141,809 303,901 367,683 88,413 94,673
-------- --------- --------- --------- ---------
Operating expenses:
Service, rental and
maintenance.......... 29,673 64,957 79,836 18,682 20,189
Selling............... 24,502 46,962 51,474 13,201 11,870
General and
administrative....... 40,448 86,181 106,041 25,143 28,318
Depreciation and
amortization......... 60,037 191,101 231,376 57,776 53,471
-------- --------- --------- --------- ---------
Total operating
expenses........... 154,660 389,201 468,727 114,802 113,848
-------- --------- --------- --------- ---------
Operating income
(loss)................. (12,851) (85,300) (101,044) (26,389) (19,175)
Interest expense........ (20,435) (50,330) (63,680) (15,536) (16,397)
Interest income......... 38 1,270 796 176 127
Equity in loss of
affiliate.............. -- (1,968) (3,872) (888) (1,055)
-------- --------- --------- --------- ---------
Income (loss) before
income tax benefit and
extraordinary item..... (33,248) (136,328) (167,800) (42,637) (36,500)
Benefit from income
taxes.................. 4,600 51,207 21,172 5,300 --
-------- --------- --------- --------- ---------
Income (loss) before
extraordinary item..... (28,648) (85,121) (146,628) (37,337) (36,500)
Extraordinary charge
from early
extinguishment of
debt................... (1,684) (1,904) -- -- --
-------- --------- --------- --------- ---------
Net income (loss)....... $(30,332) $ (87,025) $(146,628) $ (37,337) $ (36,500)
======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
USA MOBILE COMMUNICATIONS, INC. II
PREDECESSOR CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1995 TO SEPTEMBER 7, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Service, rental and maintenance revenues.............................. $ 72,185
Product sales......................................................... 9,996
--------
Total revenues.................................................... 82,181
Cost of products sold................................................. (6,726)
--------
75,455
--------
Operating expenses:
Service, rental and maintenance..................................... 13,875
Selling............................................................. 11,916
General and administrative.......................................... 19,267
Depreciation and amortization....................................... 29,239
--------
Total operating expenses.......................................... 74,297
--------
Operating income...................................................... 1,158
Interest expense, net................................................. (18,522)
Non-operating expenses................................................ (7,844)
--------
Income (loss) before income tax benefit............................... (25,208)
Benefit from income taxes............................................. 2,675
--------
Net income (loss)..................................................... $(22,533)
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994........ $-- $309,357 $ (51,536) $ 257,821
Capital Contribution from Arch
Communications Group, Inc........ -- 49,054 -- 49,054
Net loss.......................... -- -- (30,332) (30,332)
---- -------- --------- ---------
BALANCE, DECEMBER 31, 1995........ -- 358,411 (81,868) 276,543
Capital Contribution from Arch
Communications Group, Inc........ -- 262,329 -- 262,329
Net loss.......................... -- -- (87,025) (87,025)
---- -------- --------- ---------
BALANCE, DECEMBER 31, 1996........ -- 620,740 (168,893) 451,847
Distribution to Arch
Communications Group, Inc. ...... -- (3,177) -- (3,177)
Net loss.......................... -- -- (146,628) (146,628)
---- -------- --------- ---------
BALANCE, DECEMBER 31, 1997........ -- 617,563 (315,521) 302,042
Capital Contribution from Arch
Communications Group, Inc.
(unaudited)...................... -- 298 -- 298
Net loss (unaudited).............. -- -- (36,500) (36,500)
---- -------- --------- ---------
BALANCE, MARCH 31, 1998
(UNAUDITED)...................... $-- $617,861 $(352,021) $ 265,840
==== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- ------------------
1995 1996 1997 1997 1998
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)....... $ (30,332) $ (87,025) $(146,628) $(37,337) $(36,500)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization........... 60,037 191,101 231,376 57,776 53,471
Deferred income tax
benefit................ (4,600) (51,207) (21,172) (5,300) --
Extraordinary charge
from early
extinguishment of
debt................... 1,684 1,904 -- -- --
Equity in loss of
affiliate.............. -- 1,968 3,872 888 1,055
Accounts receivable loss
provision.............. 3,915 8,198 7,181 1,844 1,831
Changes in assets and
liabilities, net of
effect from
acquisitions of paging
companies:
Accounts receivable... (9,582) (15,513) (11,984) (4,696) (3,108)
Inventories........... (3,176) 1,845 (2,394) (6,203) (5,569)
Prepaid expenses and
other................ (511) 89 (386) 503 1,351
Accounts payable and
accrued expenses..... (551) (12,440) 3,683 10,917 (4,222)
Customer deposits and
deferred revenue..... (10) 1,556 1,058 2,335 1,673
--------- --------- --------- -------- --------
Net cash provided by
operating activities..... 16,874 40,476 64,606 20,727 9,982
--------- --------- --------- -------- --------
Cash flows from investing
activities:
Additions to property
and equipment, net..... (45,331) (138,899) (87,868) (25,510) (15,915)
Additions to intangible
and other assets....... (15,137) (16,676) (14,899) (4,811) (5,404)
Acquisition of paging
companies, net of cash
acquired............... (132,081) (325,420) -- -- --
--------- --------- --------- -------- --------
Net cash used for
investing activities..... (192,549) (480,995) (102,767) (30,321) (21,319)
--------- --------- --------- -------- --------
Cash flows from financing
activities:
Issuance of long-term
debt................... 191,617 401,000 91,000 70,000 24,500
Repayment of long-term
debt................... (63,705) (225,166) (49,046) (56,012) (12,259)
Capital contribution
from (distribution to)
Arch Communications
Group, Inc............. 49,054 262,329 (3,177) (4,241) 298
--------- --------- --------- -------- --------
Net cash provided by
financing activities..... 176,966 438,163 38,777 9,747 12,539
--------- --------- --------- -------- --------
Net increase (decrease) in
cash and cash
equivalents.............. 1,291 (2,356) 616 153 1,202
Cash and cash equivalents,
beginning of period...... 2,336 3,627 1,271 1,271 1,887
--------- --------- --------- -------- --------
Cash and cash equivalents,
end of period............ $ 3,627 $ 1,271 $ 1,887 $ 1,424 $ 3,089
========= ========= ========= ======== ========
Supplemental disclosure:
Interest paid........... $ 18,769 $ 46,448 $ 61,322 $ 14,009 $ 15,289
========= ========= ========= ======== ========
Liabilities assumed in
acquisition of paging
companies.............. $ 312,833 $ 58,233 $ -- $ -- $ --
========= ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
USA MOBILE COMMUNICATIONS, INC. II
PREDECESSOR CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1995 TO SEPTEMBER 7, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income (loss).................................................. $(22,533)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization...................................... 29,239
Amortization of debt issuance costs................................ 720
Deferred tax benefit............................................... (2,675)
Accounts receivable loss provision................................. 2,149
Changes in assets and liabilities, net of effect from acquisitions
of paging companies:
Accounts receivable.............................................. (3,122)
Inventories...................................................... 418
Prepaid expenses and other....................................... (198)
Accounts payable................................................. (3,969)
Accrued expenses................................................. 972
Accrued acquisition costs........................................ 2,553
Accrued interest................................................. 1,375
Customer deposits................................................ 950
Deferred revenue................................................. (39)
--------
Net cash provided by operating activities............................ 5,840
--------
Cash flows from investing activities:
Sale of investment in repurchase agreements........................ 37,000
Acquisitions of paging companies, net of cash acquired............. (28,684)
Release of pending acquisition escrow deposits..................... 14,234
Additions to property and equipment, net........................... (34,044)
Additions to intangible and other assets........................... (2,812)
--------
Net cash used for investing activities............................... (14,306)
--------
Cash flows from financing activities:
Issuance of long-term debt......................................... 12,840
Repayment of long-term debt........................................ (651)
Capital contributions.............................................. 54
--------
Net cash provided by financing activities............................ 12,243
--------
Net increase in cash................................................. 3,777
Cash, beginning of period............................................ 420
--------
Cash, end of period.................................................. $ 4,197
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization--Arch Communications, Inc. ("Arch" or the "Company") is a
leading provider of wireless messaging services, primarily paging services,
and is the second largest paging company in the United States (based on
operating cash flow). The Company had 4.0 million pagers in service at March
31, 1998. The financial statements for the Company represents the merger of
Arch Communications Enterprises, Inc. ("ACE") with and into a subsidiary of
USA Mobile Communications, Inc. II ("USAM"). ACE, USAM and the Company are
wholly-owned subsidiaries of Arch Communications Group, Inc. ("Parent").
Arch Communications Group, Inc. ("Old Parent") was incorporated in January
1986 in Delaware and conducted its operations through wholly-owned direct and
indirect subsidiaries. On September 7, 1995, Old Parent completed its
acquisition of USA Mobile Communications Holdings, Inc. ("USA Mobile") through
the merger (the "USA Mobile Merger") of Old Parent with and into USA Mobile,
which simultaneously changed its name to Arch Communications Group, Inc. and
continued in existence as a Delaware corporation. In accordance with generally
accepted accounting principles, Old Parent was treated as the acquirer in the
USA Mobile Merger for accounting and financial reporting purposes, and Parent
reports the historical financial statements of Old Parent as the historical
financial statements of Parent.
The USA Mobile Merger has been accounted for using the purchase method of
accounting. Parent is treated as the acquirer in the USA Mobile Merger for
accounting and financial reporting purposes. The fair values of USAM's assets
and liabilities at the effective time of the USA Mobile Merger represent a new
cost basis for those assets and liabilities that have been pushed down to the
accompanying financial statements of Arch dated subsequent to September 7,
1995. The principal effect of push down accounting was to increase the
carrying values of intangible assets by $374.1 million and to decrease the
carrying values of property and equipment by $9.2 million. Substantially all
USA Mobile's assets and liabilities were composed of the assets and
liabilities of USAM on the USA Mobile Merger date. Pro forma information is
included in Note 2.
The aggregate consideration paid or exchanged in the USA Mobile Merger was
$582.2 million, consisting of cash paid of $88.9 million (including direct
transaction costs), 7,599,493 shares of Parent common stock valued at $209.0
million and the assumption of liabilities of $284.3 million, including $241.2
million of long-term debt. Resulting goodwill is being amortized over a ten-
year period using the straight-line method. The accompanying consolidated
statements of operations and cash flows for the period January 1, 1995 to
September 7, 1995 are collectively referred to herein as "USAM Financial
Statements". Application of the purchase method of accounting at the USA
Mobile Merger date primarily resulted in higher values assigned to intangible
assets which will have the effect of increased amortization expense charged in
future periods. Accordingly, USAM Financial Statements are not comparable to
the financial statements of USAM subsequent to the USA Mobile Merger. Certain
amounts in the USAM Financial Statements, however, were reclassified to
conform with the current period presentation.
Unaudited Interim Combined Financial Statements--The combined balance sheet
as of March 31, 1998, the combined statements of operations and cash flows for
the three months ended March 31, 1997 and 1998 and the combined statement of
parent company investment for the three months ended March 31, 1998 are
unaudited and, in the opinion of the Company's management, include all
adjustments and accruals, consisting only of normal recurring accrual
adjustments, which are necessary for a fair presentation of the Company's
combined financial position, results of operations and cash flows. The results
of operations for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the full year.
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company, and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
F-9
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition--Arch recognizes revenue under rental and service
agreements with customers as the related services are performed. Maintenance
revenues and related costs are recognized ratably over the respective terms of
the agreements. Sales of equipment are recognized upon delivery. Commissions
are recognized as an expense when incurred.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents--Cash equivalents include short-term, interest-bearing
instruments purchased with remaining maturities of three months or less. The
carrying amount approximates fair value due to the relatively short period to
maturity of these instruments.
Inventories--Inventories consist of new pagers which are held specifically
for resale. Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out basis.
Property and Equipment--Pagers sold or otherwise retired are removed from
the accounts at their net book value using the first-in, first-out method.
Property and equipment is stated at cost and is depreciated using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Buildings and improvements......................... 20 Years
Leasehold improvements............................. Lease Term
Pagers............................................. 3 Years
Paging and computer equipment...................... 5-8 Years
Furniture and fixtures............................. 5-8 Years
Vehicles........................................... 3 Years
</TABLE>
Effective October 1, 1995, Arch changed its estimate of the useful life of
pagers from four years to three years. This change was made to better reflect
the estimated period during which pagers will produce equipment rental
revenue. The change did not have a material effect on depreciation expense or
net loss in the quarter ended December 31, 1995.
Depreciation and amortization expense related to property and equipment
totaled $25.0 million, $87.5 million and $108.0 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
Intangible and Other Assets--Intangible and other assets, net of accumulated
amortization, are composed of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill......................................... $351,969 $312,017 $301,957
Purchased FCC licenses........................... 330,483 293,922 284,573
Purchased subscriber lists....................... 120,981 87,281 79,599
Investment in CONXUS Communications, Inc......... 6,500 6,500 6,500
Investment in Benbow PCS Ventures, Inc........... 3,642 6,189 8,171
Non-competition agreements....................... 3,594 2,783 2,520
Deferred financing costs......................... 3,420 526 2,149
Other............................................ 10,710 9,751 9,167
-------- -------- --------
$831,299 $718,969 $694,636
======== ======== ========
</TABLE>
F-10
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amortization expense related to intangible and other assets totaled $35.0
million, $103.7 million and $123.4 million for the years ended December 31,
1995, 1996 and 1997, respectively.
Subscriber lists, Federal Communications Commission ("FCC") licenses and
goodwill are amortized over their estimated useful lives, ranging from five to
ten years using the straight-line method. Non-competition agreements are
amortized over the terms of the agreements using the straight-line method.
Other assets consist of contract rights, organizational and FCC application
and development costs which are amortized using the straight-line method over
their estimated useful lives not exceeding ten years. Development and start up
costs include nonrecurring, direct costs incurred in the development and
expansion of paging systems, and are amortized over a two-year period.
On November 8, 1994, CONXUS Communications, Inc. ("CONXUS"), formerly PCS
Development Corporation, was successful in acquiring the rights to a two-way
paging license in five designated regions in the United States in the FCC
narrowband wireless spectrum auction. As of December 31, 1997 Arch's
investment in CONXUS totaled $6.5 million representing an equity interest of
10.5% accounted for under the cost method.
In connection with Arch's May 1996 acquisition of Westlink Holdings, Inc.
("Westlink") (see Note 2), Arch acquired Westlink's 49.9% share of the capital
stock of Benbow PCS Ventures, Inc. ("Benbow"). Benbow has exclusive rights to
a 50kHz outbound/12.5kHz inbound narrowband personal communications license in
each of the central and western regions of the United States. Arch is
obligated, to the extent such funds are not available to Benbow from other
sources and subject to the approval of Arch's designee on Benbow's Board of
Directors, to advance Benbow sufficient funds to service debt obligations
incurred by Benbow in connection with its acquisition of its narrowband PCS
licenses and to finance the build out of a regional narrowband PCS system.
Arch's investment in Benbow is accounted for under the equity method whereby
Arch's share of Benbow's losses since the acquisition date of Westlink are
recognized in Arch's accompanying combined statements of operations under the
caption equity in loss of affiliate.
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 $1.7 million was recognized in the second
quarter of 1995 in connection with the closing of a new credit facility and a
charge of $1.9 million was recognized in the second quarter of 1996 in
connection with the closing of a new credit facility.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of" Arch evaluates the recoverability of its carrying value of
the Company's long-lived assets and certain intangible assets based on
estimated undiscounted cash flows to be generated from each of such assets as
compared to the original estimates used in measuring the assets. To the extent
impairment is identified, Arch reduces the carrying value of such impaired
assets. To date, Arch has not had any such impairments.
Fair Value of Financial Instruments--Arch's financial instruments, as
defined under SFAS No. 107 "Disclosures about Fair Value of Financial
Instruments", include its cash, its debt financing and interest rate
protection agreements. The fair value of cash is equal to the carrying value
at December 31, 1996 and 1997.
As discussed in Note 3, Arch's debt financing primarily consists of senior
bank debt and fixed rate senior notes. Arch considers the fair value of senior
bank debt to be equal to the carrying value since the related facilities bear
a current market rate of interest. Arch's fixed rate senior notes are traded
publicly. The following
F-11
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
table depicts the fair value of this debt based on the current market quote as
of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
DESCRIPTION VALUE VALUE VALUE VALUE
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
9 1/2% Senior Notes due 2004............... $125,000 $117,500 $125,000 $122,488
14% Senior Notes due 2004.................. 100,000 115,000 100,000 112,540
</TABLE>
Arch had off balance sheet interest rate protection agreements consisting of
interest rate swaps and interest rate caps with notional amounts of $165.0
million and $55.0 million, respectively, at December 31, 1996 and $140.0
million and $80.0 million, respectively, at December 31, 1997. The fair values
of the interest rate swaps and interest rate caps were $361,000 and $10,000,
respectively, at December 31, 1996 and $47,000 and $9,000, respectively, at
December 31, 1997.
Reclassifications--Certain amounts of prior periods were reclassified to
conform with the 1997 presentation.
2. ACQUISITIONS
In May 1996, Arch completed its acquisition of all the outstanding capital
stock of Westlink for $325.4 million in cash, including direct transaction
costs. The purchase price was allocated based on the fair values of assets
acquired and liabilities assumed (including deferred income taxes arising in
purchase accounting), which amounted to $383.6 million and $58.2 million,
respectively.
During the year ended December 31, 1995, Arch completed five acquisitions of
paging companies, in addition to the USA Mobile Merger, for purchase prices
aggregating approximately $43.0 million, consisting of cash of $36.1 million
and 395,000 shares of Parent common stock valued at $6.9 million. Goodwill
resulting from the acquisitions and the USAM Merger is being amortized over a
ten-year period using the straight-line method.
These acquisitions (including the USA Mobile Merger) have been accounted for
as purchases, and the results of their operations have been included in the
consolidated financial statements from the dates of the respective
acquisitions. The following unaudited pro forma summary presents the
consolidated results of operations as if the acquisitions had occurred at the
beginning of the periods presented, after giving effect to certain
adjustments, including depreciation and amortization of acquired assets and
interest expense on acquisition debt. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions been made at the beginning of
the period presented, or of results that may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996
-------------- --------------
(UNAUDITED AND IN THOUSANDS)
<S> <C> <C>
Revenues..................................... $ 321,963 $ 358,900
Income (loss) before extraordinary item...... (86,125) (100,807)
Net income (loss)............................ (87,809) (102,711)
</TABLE>
F-12
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
-------- -------- ----------- ---
(UNAUDITED)
<S> <C> <C> <C> <C>
ACE Credit Facility........................... $327,500 $359,500 $370,250
USAM Credit Facility.......................... 53,000 63,000 64,500
9 1/2% Senior Notes due 2004.................. 125,000 125,000 125,000
14% Senior Notes due 2004..................... 100,000 100,000 100,000
Other......................................... 59 13 4
-------- -------- --------
605,559 647,513 659,754
Less-current maturities....................... 46 24,513 $19,316
-------- -------- --------
Long-term debt................................ $605,513 $623,000 $640,438
======== ======== ========
</TABLE>
Senior Bank Debt--The Company, through its operating subsidiaries, has
entered into two credit agreements. ACE entered into a credit facility dated
May 5, 1995, as amended, with a group of banks and financial institutions who
agreed, subject to certain terms and conditions, to provide (i) a $250
million, seven-year reducing revolver facility (the "ACE Revolver"), (ii) a
$150 million, seven-year term loan (the "Tranche A Term Loan"), and (iii) a
$100 million, eight-year term loan (the "Tranche B Term Loan"). The ACE
Revolver, which 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 ACE Credit Facility. The ACE Credit Facility is secured by all assets
of the operating subsidiaries of ACE and a pledge of all the stock of Arch's
direct and indirect subsidiaries. In addition, Parent and the operating
subsidiaries of ACE have guaranteed all obligations under the ACE Credit
Facility.
The ACE 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.
Except for the Tranche B Term Loan, borrowings under the ACE Credit Facility
bear interest based on a reference rate equal to either (i) the agent bank's
Alternate Base Rate, or (ii) the agent bank's LIBOR rate, in each case plus a
margin which is based on the ratio of total debt to annualized operating cash
flow. Borrowings under the Tranche B Term Loan bear interest at either the
agent bank's Alternate Base Rate or LIBOR rate, in each case plus a margin
based on the ratio of total debt to annualized EBITDA. Interest is payable
quarterly in arrears. In addition, an annual commitment fee is payable based
on the average daily unused portion of the ACE Revolver.
ACE is also required to maintain interest rate protection on at least 50% of
outstanding borrowings under the ACE Credit Facility, and has therefore
entered into interest rate swap and interest rate cap agreements. Entering
into interest rate cap and swap agreements involves both the credit risk of
dealing with counterparties and their ability to meet the terms of the
contracts and interest rate risk. In the event of non-performance by the
counterparty to these interest rate protection agreements, ACE would be
subject to the prevailing interest rates specified in the ACE Credit Facility.
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
F-13
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1997. The weighted average fixed payment rate was 5.818% while
the weighted average rate of variable interest payments under the ACE Credit
Facility was 5.872% at December 31, 1997. At December 31, 1996 and 1997, the
Company had a net payable of $124,000 and a net receivable of $18,000,
respectively, on the interest rate swaps.
The interest rate cap agreements will pay the Company the difference between
LIBOR and the cap level if LIBOR exceeds the cap levels at any of the
quarterly reset dates. If LIBOR remains below the cap level, no payment is
made to the Company. The total notional amount of the interest rate cap
agreements was $80 million with cap levels between 7.5% and 8% at December 31,
1997. The transaction fees for these instruments are being amortized over the
terms of the agreements.
The ACE Credit Facility contains restrictive and financial covenants which,
among other things, limit the ability of ACE to: incur additional
indebtedness, advance funds to Benbow (see Note 1), pay dividends, grant liens
on its assets, merge, sell or acquire assets; repurchase or redeem capital
stock; incur capital expenditures; and prepay indebtedness other than
indebtedness under the ACE Credit Facility. As of December 31, 1997, ACE and
its operating subsidiaries were in compliance with the covenants of the ACE
Credit Facility.
As of December 31, 1997, $359.5 million was outstanding and $28.7 million
was available under the ACE Credit Facility. At December 31, 1997, such
advances bore interest at an average annual rate of 8.76%.
USAM and the direct subsidiaries of USAM (the "USAM Borrowing Subsidiaries")
are parties to a $110 million reducing revolving credit facility dated March
19, 1997, as amended, with a group of banks pursuant to which the banks have
agreed to make advances for working capital and other purposes (the "USAM
Credit Facility").
Upon the closing of the USAM Credit Facility, the banks did not require the
contemporaneous grant of a security interest in the assets of USAM and its
subsidiaries but they have reserved the right to require such a security
interest upon the occurrence of certain triggering events. Parent and USAM
have guaranteed the obligations of the USAM Borrowing Subsidiaries under the
USAM Credit Facility. Parent's guarantee is secured by the pledge of the stock
of ACE and USAM.
Obligations under the USAM Credit Facility bear interest based on a
reference rate equal to either (i) the agent bank's Alternate Base Rate or
(ii) the agent bank's LIBOR rate, in each case plus a margin based on the
ratio of USAM's total indebtedness to annualized operating cash flow. The
annual commitment fee is payable based on the average daily unused portion of
the USAM Credit Facility.
The USAM Credit Facility contains restrictive and financial covenants which,
among other things, limit the ability of USAM to: incur additional
indebtedness, pay dividends, grant liens on its assets, merge, sell or acquire
assets; repurchase or redeem capital stock; incur capital expenditures; and
prepay indebtedness other than indebtedness under the USAM Credit Facility. As
of December 31, 1997, USAM and the USAM Borrowing Subsidiaries were in
compliance with the covenants of the USAM Credit Facility.
As of December 31, 1997, $63.0 million was outstanding and $4.6 million was
available under the USAM Credit Facility. At December 31, 1997, such advances
bore interest at an average annual rate of 8.55%.
Interest on the USAM 14% Notes and the USAM 9 1/2% Notes (collectively, the
"Senior Notes") is payable semiannually. The Senior Notes contain certain
restrictive and financial covenants which, among other things, limit the
ability of Parent or USAM 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.
F-14
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of Debt--Scheduled long-term debt maturities at December 31,
1997, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998.......................... $ 24,513
1999.......................... 37,750
2000.......................... 83,000
2001.......................... 74,750
2002.......................... 122,500
Thereafter.................... 305,000
--------
$647,513
========
</TABLE>
4. INCOME TAXES
Arch accounts for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes". Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities given the provisions of enacted laws.
The components of the net deferred tax asset (liability) recognized in the
accompanying consolidated balance sheets at December 31, 1996 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Deferred tax assets..................................... $ 94,597 $134,944
Deferred tax liabilities................................ (115,769) (90,122)
--------- --------
(21,172) 44,822
Valuation allowance..................................... -- (44,822)
--------- --------
$ (21,172) $ --
========= ========
</TABLE>
The approximate effect of each type of temporary difference and carryforward
at December 31, 1996 and 1997 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Net operating losses.................................... $ 89,764 $106,214
Intangibles and other assets............................ (115,769) (87,444)
Depreciation of property & equipment.................... 3,692 24,388
Accruals and reserves................................... 1,141 1,664
--------- --------
(21,172) 44,822
Valuation allowance..................................... -- (44,822)
--------- --------
$ (21,172) $ --
========= ========
</TABLE>
The effective income tax rate differs from the statutory federal tax rate
primarily due to the nondeductibility of goodwill amortization. The net
operating loss (NOL) carryforwards expire at various dates through 2012. The
Internal Revenue Code contains provisions that may limit the NOL carryforwards
available to be used in any given year if certain events occur, including
significant changes in ownership, as defined.
The Company has established a valuation reserve against its net deferred tax
asset until it becomes more likely than not that this asset will be realized
in the foreseeable future.
F-15
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
In March 1996, Parent completed a public offering of 10 7/8% Senior Discount
Notes ("Parent Discount Notes") in aggregate principal amount at maturity of
$467.4 million ($275.0 million initial accreted value). Parent Discount Notes
mature on March 15, 2008. Interest does not accrue on the Parent Discount
Notes prior to March 15, 2001. Thereafter, interest on the Parent Discount
Notes will accrue at the rate of 10 7/8% per annum (approximately $50.8
million), payable semi-annually. Parent has no significant business operations
and its primary asset represents its investment in Arch. The ability of Parent
to make payments of principal and interest on the Parent Discount Notes will
be dependent upon Arch's achieving and sustaining levels of performance in the
future that would permit the Company to pay dividends, distributions or fees
to Parent which are sufficient to permit such payments on the Notes.
In the ordinary course of business, the Company and its subsidiaries are
defendants in a variety of judicial proceedings. In the opinion of management,
there is no proceeding pending, or to the knowledge of management threatened,
which in the event of an adverse decision, would result in a material adverse
change in the financial condition of the Company.
Arch has operating leases for office and transmitting sites with lease terms
ranging from one month to approximately ten years. In most cases, Arch expects
that, in the normal course of business, leases will be renewed or replaced by
other leases.
Future minimum lease payments under noncancellable operating leases at
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998............................. $16,909
1999............................. 7,706
2000............................. 4,546
2001............................. 2,689
2002............................. 950
Thereafter....................... 1,680
-------
Total.......................... $34,480
=======
</TABLE>
Total rent expense under operating leases for the years ended December 31,
1995, 1996 and 1997 approximated $6.4 million, $14.7 million, and $19.8
million, respectively.
6. EMPLOYEE BENEFIT PLANS
Retirement Savings Plan--Arch has a retirement savings plan, qualifying
under Section 401(k) of the Internal Revenue Code covering eligible employees,
as defined. Under the plan, a participant may elect to defer receipt of a
stated percentage of the compensation which would otherwise be payable to the
participant for any plan year (the deferred amount) provided, however, that
the deferred amount shall not exceed the maximum amount permitted under
Section 401(k) of the Internal Revenue Code. The plan provides for employer
matching contributions. Matching contributions for the years ended December
31, 1995, 1996 and 1997 approximated $124,000, $217,000 and $302,000
respectively.
Stock Option Plans--Employees of Arch are eligible to be granted options
under Parent's stock option plans. Parent 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 of its
subsidiaries ("employees"), directors and consultants to purchase Parent'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
F-16
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 ten years. The 1989 Plan provides for the granting of
options to purchase a total of 1,128,944 shares of common stock. All options
outstanding on September 7, 1995 under the 1989 Plan became fully exercisable
and vested as a result of the USA Mobile Merger. The 1997 Plan provides for
the granting of options to purchase a total of 1,500,000 shares of Parent's
common stock.
Effective October 23, 1996, the Compensation Committee of the Board of
Directors of Parent authorized the grant of new options to each employee who
had an outstanding option at a price greater then $12.50 (the fair market
value of Parent'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 USA Mobile Merger, Parent 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 options to
purchase up to 601,500 shares of Parent'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.
On December 16, 1997, the Compensation Committee of the Board of Directors
of Parent 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, Parent 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.
The following table summarizes the activity under Parent's stock option
plans (including Parent's outside director plans) for the periods presented:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
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
========= ======
</TABLE>
F-17
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Outside directors' options outstanding and options exercisable were 57,000
and 30,000, respectively, at December 1997.
The following table summarizes the options outstanding and options
exercisable by price range at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3.13 - $ 5.94 186,284 1.58 $ 4.39 169,784 $ 4.36
$ 6.25 - $ 8.25 617,654 7.45 $ 7.09 195,010 $ 7.77
$10.29 - $14.10 410,377 8.08 $12.34 209,853 $12.19
$15.85 - $20.63 124,640 8.10 $20.12 51,292 $19.66
$23.50 - $27.56 18,000 7.84 $25.53 13,500 $25.53
--------------- --------- ---- ------ ------- ------
$ 3.13 - $27.56 1,356,955 6.90 $ 9.75 639,439 $ 9.64
=============== ========= ==== ====== ======= ======
</TABLE>
Employee Stock Purchase Plan--Employees of Arch may also participate in
Parent's stock purchase plan. On May 28, 1996, Parent's stockholders approved
the 1996 Employee Stock Purchase Plan (the "ESPP"). The ESPP allows eligible
employees the right to purchase common stock, through payroll deductions not
exceeding 10% of their compensation, at the lower of 85% of the market price
at the beginning or the end of each six-month offering period. During 1996 and
1997, 46,842 and 151,343 shares, respectively, were issued at an average price
per share of $7.97 and $5.29, respectively. At December 31, 1997, 51,815
shares were available for future issuance.
Accounting for Stock-Based Compensation--Arch accounts for its stock option
and stock purchase plans under APB Opinion No. 25 "Accounting for Stock Issued
to Employees", since all options have been issued at a grant price equal to
fair market value, no compensation cost has been recognized in the Company's
Combined 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) would have been increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss), as reported.................. $(30,332) $(87,025) $(146,628)
Net income (loss), pro forma.................... (30,470) (88,149) (148,224)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to the
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. In computing these pro forma amounts Arch
has assumed a risk-free interest rate of 6%, an expected life of five years,
an expected dividend yield of zero and an expected volatility of 50% to 60%.
The weighted average fair values (computed consistent with SFAS No. 123) of
options granted under all plans in 1995, 1996 and 1997, were $11.89, $4.95 and
$3.37, respectively. The weighted average fair value of shares sold under the
ESPP in 1996 and 1997 was $5.46 and $2.83, respectively.
F-18
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. RELATED PARTY TRANSACTIONS
Intercompany transactions with Arch Communications Group, Inc.--In February
1995, Parent completed a public offering of 2,701,296 shares of common stock
generating net proceeds of approximately $46.2 million. Parent invested the
proceeds as a capital contribution to Arch. Arch used the funds to repay
outstanding indebtedness under its credit facilities. In March 1996, Parent
completed a public offering of 10 7/8% Senior Discount Notes due 2008
generating net proceeds of $266.1 million. Parent invested $263.8 million of
the net proceeds as a capital contribution to Arch. Arch used the funds to
repay all the then outstanding indebtedness under its credit facilities.
8. SUBSEQUENT EVENT
On April 13, 1998, Parent announced an agreement to sell the tower site
assets (the "Tower Site Sale") owned by Arch for approximately $38.0 million
in cash (subject to adjustment), of which $1.3 million will be paid to
entities affiliated with Benbow's controlling shareholder, in which Arch holds
a 49.9% equity interest, in payment of certain assets owned by such entities
and included in the Tower Site Sale. Arch will sell communications towers,
real estate, site management contracts and/or leasehold interests involving
134 sites in 22 states, and will lease back space on the towers on which it
currently operates communications equipment to service its own paging network.
The closing of the Tower Site Sale is subject to receipt of customary
regulatory approvals and other conditions. The agreement for the Tower Site
Sale calls for an initial closing to be followed 60 days later by a final
closing. Arch currently expects to hold the initial closing for approximately
one-third to one-half of the dollar amount of the Tower Site Sale in the
second quarter of 1998 and the final closing 60 days thereafter for the
balance of the transaction.
9. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial information for the years ended December 31, 1996 and
1997 is summarized below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Revenues........................... $ 67,171 $ 78,983 $ 90,886 $ 94,330
Operating income (loss)............ (12,907) (18,578) (23,404) (30,411)
Income (loss) before extraordinary
item.............................. (15,895) (17,793) (24,150) (27,283)
Extraordinary charge............... -- (1,904) -- --
Net income (loss).................. (15,895) (19,697) (24,150) (27,283)
YEAR ENDED DECEMBER 31, 1997:
Revenues........................... $ 95,539 $ 98,729 $101,331 $101,242
Operating income (loss)............ (26,389) (29,403) (26,965) (18,287)
Net income (loss).................. (37,337) (40,680) (38,683) (29,928)
</TABLE>
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ARCH SINCE THE DATE HEREOF OR THAT ANY INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 14
The Exchange Offer....................................................... 22
Use of Proceeds.......................................................... 30
Capitalization........................................................... 31
Selected Consolidated Financial and Operating Data....................... 32
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 35
Business................................................................. 44
Management............................................................... 54
Principal Stockholders................................................... 60
Description of Certain Indebtedness...................................... 62
Description of Notes..................................................... 68
Certain Federal Income Tax Considerations................................ 97
Plan of Distribution..................................................... 98
Legal Matters............................................................ 99
Experts.................................................................. 99
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$130,000,000
LOGO
ARCH COMMUNICATIONS, INC.
OFFER TO EXCHANGE
12 3/4% SENIOR NOTES DUE 2007 FOR ALL OUTSTANDING 12 3/4% SENIOR NOTES DUE
2007
------------------------
PROSPECTUS
------------------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Arch's Restated Certificate of Incorporation provides that Arch will, to the
fullest extent permitted by the Delaware General Corporation Law (the "DGCL"),
indemnify all persons whom it has the power to indemnify against all costs,
expenses and liabilities incurred by them by reason of having been officers or
directors of Arch, any subsidiary of Arch or any other corporation for which
such persons acted as an officer or director at the request of Arch.
Arch's Restated Certificate of Incorporation also provides that the
directors of Arch will not be personally liable for monetary damages to Arch
or its stockholders for any act or omission, provided that the foregoing shall
not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to Arch or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
illegal dividends or stock redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. If the DGCL is amended to
permit further elimination or limitation of the personal liability of
directors, then the liability of a director of Arch shall be eliminated or
limited to the fullest extent permitted by the DGCL as so amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation. (1)
3.2 By-laws, as amended. (1)
4.1 Indenture, dated February 1, 1994, between Arch Communications, Inc.
(formerly known as USA Mobile Communications, Inc. II) and United
States Trust Company of New York, as Trustee, relating to the 9 1/2%
Senior Notes due 2004 of Arch Communications, Inc. (1)
4.2 Indenture, dated December 15, 1994, between Arch Communications,
Inc. and United States Trust Company of New York, as Trustee,
relating to the 14% Senior Notes due 2004 of Arch Communications,
Inc. (2)
4.3 Indenture, dated June 29, 1998, between Arch Communications, Inc.
and U.S. Bank Trust National Association, as Trustee, relating to
the 12 3/4% Senior Notes due 2007 of Arch Communications, Inc. (3)
5.1* Opinion of Hale and Dorr LLP.
10.1 Second Amended and Restated Credit Agreement (Tranche A and Tranche
C Facilities), dated June 29, 1998, among Arch Paging, Inc., the
Lenders party thereto, The Bank of New York, Royal Bank of Canada
and Toronto Dominion (Texas), Inc. (3)
10.2 Second Amended and Restated Credit Agreement (Tranche B Facility),
dated June 29, 1998, among Arch Paging, Inc., the Lenders party
thereto, The Bank of New York, Royal Bank of Canada and Toronto
Dominion (Texas), Inc. (3)
10.3 Asset Purchase and Sale Agreement, dated April 10, 1998, among
OmniAmerica, Inc. and certain subsidiaries of Arch Communications
Group, Inc. (3)
10.4 Letter agreement, dated June 10, 1998, between Arch Communications
Group, Inc. and Motorola, Inc. (3)(4)
12.1* Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Hale and Dorr LLP (contained in its opinion filed as
Exhibit 5.1).
23.2** Consent of Arthur Andersen LLP.
23.3** Consent of Wilkinson, Barker, Knauer & Quinn, LLP.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
24.1 Power of Attorney (included on signature page to this Registration
Statement).
25.1 Statement of Eligibility and Qualification (Form T-1) under the
Trust Indenture Act of 1939 from U.S. Bank Trust National
Association.
27.1** Financial Data Schedule.
99.1** Form of Letter of Transmittal and related documents.
99.2** Forms of Notices of Guaranteed Delivery.
</TABLE>
- --------
* To be filed by amendment.
** Filed herewith.
(1) Incorporated by reference from the Registration Statement on Form S-1
(file No. 33-72646) of Arch Communications, Inc.
(2) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-85580) of Arch Communications, Inc.
(3) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated June 26, 1998.
(4) A Confidential Treatment Request has been filed with respect to portions
of this exhibit so incorporated by reference.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed with or furnished to the Commission
by the registrant pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of a registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(e) The undersigned registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section 305(b)(2)
of the Act.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Westborough,
Commonwealth of Massachusetts on July 23, 1998.
ARCH COMMUNICATIONS, INC.
/s/ C. Edward Baker, Jr.
By: _________________________________
C. Edward Baker, Jr.
Chairman of the Board and
Chief Executive Officer
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints J.
Roy Pottle, Gerald Cimmino and David A. Westenberg as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, if any and all
capacities, to sign any and all amendments (including post-effective
amendments and any Registration Statement pursuant to Rule 462(b)) to this
Registration Statement on Form S-4 and to file the same with all exhibits
thereto and any other documents in connection therewith, with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ C. Edward Baker, Jr. Chairman of the Board and July 23, 1998
- ------------------------- Chief Executive Officer
Director (principal executive officer)
/s/ J. Roy Pottle Executive Vice President and July 23, 1998
- ------------------------- Chief Financial Officer
(principal financial officer and
principal accounting officer)
/s/ John B. Saynor Director July 23, 1998
- -------------------------
/s/ R. Schorr Berman Director July 13, 1998
- -------------------------
/s/ James S. Hughes Director July 10, 1998
- -------------------------
/s/ Allan L. Rayfield Director July 23, 1998
- -------------------------
/s/ John A. Shane Director July 23, 1998
- -------------------------
/s/ John Kornreich Director July 23, 1998
- -------------------------
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<C> <S> <C>
3.1 Restated Certificate of Incorporation. (1)
3.2 By-laws, as amended. (1)
4.1 Indenture, dated February 1, 1994, between Arch
Communications, Inc. (formerly known as USA Mobile
Communications, Inc. II) and United States Trust
Company of New York, as Trustee, relating to the 9 1/2%
Senior Notes due 2004 of Arch Communications, Inc. (1)
4.2 Indenture, dated December 15, 1994, between Arch
Communications, Inc. and United States Trust Company of
New York, as Trustee, relating to the 14% Senior Notes
due 2004 of Arch Communications, Inc. (2)
4.3 Indenture, dated June 29, 1998, between Arch
Communications, Inc. and U.S. Bank Trust National
Association, as Trustee, relating to the 12 3/4% Senior
Notes due 2007 of Arch Communications, Inc. (3)
5.1* Opinion of Hale and Dorr LLP.
10.1 Second Amended and Restated Credit Agreement (Tranche A
and Tranche C Facilities), dated June 29, 1998, among
Arch Paging, Inc., the Lenders party thereto, The Bank
of New York, Royal Bank of Canada and Toronto Dominion
(Texas), Inc. (3)
10.2 Second Amended and Restated Credit Agreement (Tranche B
Facility), dated June 29, 1998, among Arch Paging,
Inc., the Lenders party thereto, The Bank of New York,
Royal Bank of Canada and Toronto Dominion (Texas), Inc.
(3)
10.3 Asset Purchase and Sale Agreement, dated April 10,
1998, among OmniAmerica, Inc. and certain subsidiaries
of Arch Communications Group, Inc. (3)
10.4 Letter agreement, dated June 10, 1998, between Arch
Communications Group, Inc. and Motorola, Inc. (3)(4)
12.1* Statement of Computation of Ratio of Earnings to Fixed
Charges.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Hale and Dorr LLP (contained in its opinion
filed as Exhibit 5.1).
23.2** Consent of Arthur Andersen LLP.
23.3** Consent of Wilkinson, Barker, Knauer & Quinn, LLP.
24.1** Power of Attorney (included on signature page to this
Registration Statement).
25.1** Statement of Eligibility and Qualification (Form T-1)
under the Trust Indenture Act of 1939 from U.S. Bank
Trust National Association.
27.1** Financial Data Schedule.
99.1** Form of Letter of Transmittal and related documents.
99.2** Forms of Notices of Guaranteed Delivery.
</TABLE>
- --------
* To be filed by amendment.
** Filed herewith.
(1) Incorporated by reference from the Registration Statement on Form S-1
(file No. 33-72646) of Arch Communications, Inc.
(2) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-85580) of Arch Communications, Inc.
(3) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated June 26, 1998.
(4) A Confidential Treatment Request has been filed with respect to portions
of this exhibit so incorporated by reference.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 9, 1998
(except with respect to the matter discussed in Note 8, as to which the date
is April 13, 1998) included herein and to all references to our Firm included
in this Registration Statement.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 21, 1998
<PAGE>
EXHIBIT 23.3
CONSENT
We hereby consent to the reference to our firm under the heading "Experts" in
the Prospectus constituting part of the Registration Statement on Form S-4
(File Number 333- ) of Arch Communications, Inc.
Wilkinson, Barker, Knauer & Quinn,
LLP
By: /s/ Kenneth D. Patrich
------------------------------
Kenneth D. Patrich
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
ARCH COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 31-1236804
(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)
12% SENIOR NOTES DUE 2007
(Title of the Indenture Securities)
<PAGE>
GENERAL
-------
1. General Information Furnish the following information as to the Trustee.
-------------------
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
------------------------------------------
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
----------------
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number
333-53211.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee
has no reason to doubt the accuracy of any such information, it cannot accept
any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 16th day of July, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
________________________________
Richard H. Prokosch
Assistant Vice President
/s/ Judith M. Zuzek
- ----------------------
Judith M. Zuzek
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that reports
of examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: July 16, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
______________________________
Richard H. Prokosch
Assitant Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FDS IS RESTATED TO REFLECT MERGER OF ENTITIES UNDER COMMON CONTROL. MERGER WAS
ACCOUNTED FOR AS A POOLING OF INTERESTS.
</LEGEND>
<CIK> 0000916122
<NAME> ARCH COMMUNICATIONS, INC.
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 3,089 1,887 1,271
<SECURITIES> 0 0 0
<RECEIVABLES> 31,424 30,147 25,344
<ALLOWANCES> 5,806 5,744 4,111
<INVENTORY> 18,202 12,633 10,239
<CURRENT-ASSETS> 56,281 49,584 41,385
<PP&E> 394,798 388,035 358,092
<DEPRECIATION> 162,179 146,542 96,448
<TOTAL-ASSETS> 983,536 1,010,046 1,134,328
<CURRENT-LIABILITIES> 77,258 85,004 55,796
<BONDS> 640,438 623,000 605,513
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 265,840 302,042 451,847
<TOTAL-LIABILITY-AND-EQUITY> 983,536 1,010,046 1,134,328
<SALES> 10,642 44,897 39,971
<TOTAL-REVENUES> 102,039 396,841 331,370
<CGS> 7,366 29,158 27,469
<TOTAL-COSTS> 7,366 29,158 27,469
<OTHER-EXPENSES> 20,189 79,836 64,957
<LOSS-PROVISION> 1,831 7,181 8,198
<INTEREST-EXPENSE> 16,397 63,680 50,330
<INCOME-PRETAX> (36,500) (167,800) (136,328)
<INCOME-TAX> 0 (21,172) (51,207)
<INCOME-CONTINUING> (36,500) (146,628) (85,121)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 (1,904)
<CHANGES> 0 0 0
<NET-INCOME> (36,500) (146,628) (87,025)
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
12 3/4% SENIOR NOTES DUE 2007
ARCH COMMUNICATIONS, INC.
PURSUANT TO THE PROSPECTUS DATED JULY , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER
IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH CASE THE TERM
"EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE
OFFER IS EXTENDED, TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent is:
U.S. BANK TRUST NATIONAL ASSOCIATION
By Registered or Certified Mail, By Facsimile (for Eligible
By Hand or Overnight Courier Institutions Only):
or In Person (612)244-1537
U.S. Bank Trust National Association Confirm Receipt of Notice of
Specialized Finance Department Guaranteed Delivery by Telephone:
180 E. 5th Street (612)244-0721
Minneapolis, Minnesota 55101
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS
VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus dated July , 1998
(the "Prospectus"), of Arch Communications, Inc., a Delaware corporation (the
"Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which
<PAGE>
together with the Prospectus constitutes the Company's offer (the "Exchange
Offer") to exchange $1,000 principal amount principal amount of its 12 3/4%
Senior Notes due 2007 (the "Exchange Notes") for each $1,000 principal amount of
its outstanding 12 3/4% Senior Notes due 2007 (the "Private Notes").
Recipients of the Prospectus should read the requirements described in such
Prospectus with respect to eligibility to participate in the Exchange Offer.
Capitalized terms used but not defined herein have the meaning given to them in
the Prospectus.
The undersigned hereby tenders the Private Notes described in the box
entitled "Description of Private Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Private Notes and the undersigned
represents that it has received from each beneficial owner of Private Notes
("Beneficial Owners") a duly completed and executed form of "Instruction to
Registered Holder from Beneficial Owner" accompanying this Letter of
Transmittal, instructing the undersigned to take the action described in this
Letter of Transmittal.
This Letter of Transmittal is to be used by a holder of Private Notes (i)
if certificates representing Private Notes are to be forwarded herewith, (ii) if
delivery of Private Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer -- Procedures for Tendering," or (iii) if a tender is made pursuant to the
guaranteed delivery procedures in the section of the Prospectus entitled "The
Exchange Offer --Guaranteed Delivery Procedures."
The undersigned hereby represents and warrants that the information
received from the beneficial owners is accurately reflected in the boxes
entitled "Beneficial Owner(s) -- Purchaser Status" and "Beneficial Owner(s) --
Residence."
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Private Notes promptly and
instruct such registered holder of Private Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Private Notes, either maker appropriate
arrangements to register ownership of the private Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder of Private Notes. The transfer of record ownership may take considerable
time.
In order to properly complete this Letter of Transmittal, a holder of
Private Notes must (i) complete the box entitled "Description of Private Notes,"
(ii) complete the boxes entitled "Beneficial Owner(s) -- Purchaser Status" and
"Beneficial
-2-
<PAGE>
Owner(s)--Residence," (iii) if appropriate, check and complete the
boxes relating to book-entry transfer, guaranteed delivery, Special Issuance
Instructions and Special Delivery Instructions, (v) sign the Letter of
Transmittal by completing the box entitled "Sign Here" and (v) complete the
Substitute Form W-9. Each holder of Private Notes should carefully read the
detailed instructions below prior to completing the Letter of Transmittal.
Holders of Private Notes who desire to tender their Private Notes for
exchange and (i) whose Private Notes are not immediately available or (ii) who
cannot deliver their Private Notes, this Letter of Transmittal and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date, must tender the Private Notes pursuant to the guaranteed delivery
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
Holders of Private Notes who wish to tender their Private Notes for
exchange must complete columns (1) through (3) in the box below entitled
"Description of Private Notes," complete the boxes entitled and sign the box
below entitled "Sign Here." If only those columns are completed, such holder of
Private Notes will have tendered for exchange all Private Notes listed in column
(3) below. If the holder of Private Notes wishes to tender for exchange less
than all of such Private Notes, column (4) must be completed in full. In such
case, such holder of Private Notes should refer to Instruction 5.
DESCRIPTION OF PRIVATE NOTES
<TABLE>
<S> <C> <C> <C>
(1) (2) (3) (4)
NAME(S) AND ADDRESS(ES) OF PRINCIPAL AMOUNT
REGISTERED HOLDER(S) OF AGGREGATE TENDERED FOR
PRIVATE NOTE(S), EXACTLY AS PRIVATE NOTE PRINCIPAL EXCHANGE (MUST BE
NAME(S) APPEAR(S) ON PRIVATE NUMBER(S) AMOUNT IN INTEGRAL
NOTE CERTIFICATE(S) (PLEASE (ATTACH SIGNED REPRESENTED BY MULTIPLES
FILL IN, IF BLANK) LIST IF NECESSARY) CERTIFICATE(S) /1/ OF $1,000) /2/
</TABLE>
1. Unless indicated in the column "Principal Amount Tendered for Exchange,"
any tendering Holder of 12 3/4% Senior Notes due 2007 will be deemed to
have
-3-
<PAGE>
tendered the entire aggregate principal amount represented by the
column labeled "Aggregate Principal Amount Represented by Certificate(s)."
2. The minimum permitted tender is $1,000 in principal amount of 12 3/4%
Senior Notes due 2007. All other tenders must be in integral multiples of
$1,000.
[__] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[__] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY:
Name of Tendering Institution:
-------------------------------------------
Account Number:
----------------------------------------------------------
Transaction Code Number:
-------------------------------------------------
[__] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s)
-----------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------
Window Ticket Number (if available):
-------------------------------------
Name of Institution which Guaranteed Delivery:
---------------------------
Account Number (if delivered by book-entry transfer):
--------------------
[__] CHECK HERE IF YOU ARE A BROKER DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
-----------------------------------------------------------------
Address:
--------------------------------------------------------------
- ----------------------------------------------------------------------------
-4-
<PAGE>
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS (SEE
INSTRUCTIONS 1, 6, 7 AND 8) INSTRUCTIONS 1, 6, 7 AND 8)
<S> <C>
To be completed ONLY (i) if the Exchange To be completed ONLY if the Exchange Notes
Notes issued in exchange for Private Notes, issued in exchange for Private Notes, certificates
certificates for Private Notes in a principal for Private Notes in a principal amount not
amount not exchanged for Exchange Notes, or exchanged for Exchange Notes, or Private Notes
Private Notes (if any) not tendered for exchange, (if any) not tendered for exchange, are to be
are to be issued in the name of someone other mailed or delivered (i) to someone other than
than the undersigned or (ii) if Private Notes the undersigned or (ii) to the undersigned at an
tendered by book-entry transfer which are not address other than the address shown below the
exchanged are to be returned by credit to an undersigned's signature.
account maintained at DTC.
Issue to: Issue to:
Name: Name:
--------------------------- ------------------------------------
(PLEASE PRINT) (PLEASE PRINT)
Address Address
---------------------------------- -----------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
- ------------------------------------------ ------------------------------------------
(TAX IDENTIFICATION OR (TAX IDENTIFICATION OR
SOCIAL SECURITY NO.) SOCIAL SECURITY NO.)
Credit Private Notes not exchanged and
delivered by book-entry transfer to DTC
account set forth below:
__________________________________
(ACCOUNT NUMBER)
</TABLE>
BENEFICIAL OWNER(S) -- RESIDENCE
STATE OF DOMICILE/PRINCIPAL PRINCIPAL AMOUNT OF
PLACE OF BUSINESS OF EACH PRIVATE NOTES H
BENEFICIAL OWNER OF ACCOUNT OF BENEFICIAL
PRIVATE NOTES OWNER(S)
-5-
<PAGE>
BENEFICIAL OWNER(S) --PURCHASER STATUS
The beneficial owner of each of the Private Notes described herein is (check the
box that applies):
[__] A "Qualified Institutional Buyer" as (defined in Rule 144A under the
Securities Act)
[__] An "Institutional Accredited Investor" (as defined in Rule 501(a) (l),
(2), (3) or (7) under the Securities Act
[__] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in
accordance with Rule 904 of the Securities Act
[__] Other (describe)
-------------------------------------------------
- ----------------------------------------------------------------------------
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Pursuant to the offer by Arch Communications, a Delaware corporation (the
"Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (the "Prospectus") and this Letter of
Transmittal (the "Letter of Transmittal"), which together with the Prospectus
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 12 3/4% Senior Notes due 2007 (the "Exchange Notes") for
each $1,000 principal amount of its outstanding 12 3/4% Senior Notes due 2007
(the "Private Notes"), the undersigned hereby tenders to the Company for
exchange the Private Notes indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Private Notes tendered for exchange herewith, the
undersigned will have irrevocably sold, assigned, transferred and exchanged, to
the Company, all right, title and interest in, to and under all of the Private
Notes tendered for exchange hereby, and hereby will have appointed the Exchange
Agent as the true and lawful agent and attorney-in-fact (with full knowledge
that the Exchange Agent also acts as agent of the Company) of such holder of
Private Notes with respect to such Private Notes with full power of substitution
to (i) deliver certificates representing such Private Notes, or transfer
ownership of such Private Notes on the account books maintained by DTC
(together, in any such case, with all accompanying evidences of transfer and
authenticity), to the Company, (ii) present
-6-
<PAGE>
and deliver such Private Notes for transfer on the books of the Company (iii)
receive all benefits and otherwise exercise all rights and incidents of
beneficial ownership with respect to such Private Notes, all in accordance with
the terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner; (ii) has a net long position within the meaning of Rule 14e-4 under
the Securities Exchange Act of 1934, as amended ("Rule 14e-4") equal to or
greater than the principal amount of Private Notes tendered hereby; (iii) the
tender of such Private Notes complies with Rule 14e-4 (to the extent that Rule
14e-4 is applicable to such exchange); (iv) the undersigned has full power and
authority to tender, exchange, assign and transfer the Private Notes and (v)
that when such Private Notes are accepted for exchange by the Company, the
Company will acquire good and marketable title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claims. The undersigned will, upon receipt, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Private Notes
tendered for exchange hereby.
By tendering, the undersigned hereby further represents to the Company that
(i) the Exchange Notes to be acquired by the undersigned in exchange for the
Private Notes tendered hereby and any beneficial owner(s) of such Private Notes
in connection with the Exchange Offer will be acquired by the undersigned and
such beneficial owner(s) in the ordinary course of business of the undersigned,
(ii) the undersigned have no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, (iii) the undersigned
and each beneficial owner(s) acknowledge and agree that any person who is a
broker-dealer registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or is participating in the Exchange Offer for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in certain
no-action letters, (iv) the undersigned and each beneficial owner understand
that a secondary resale transaction described in clause (iii) above and any
resales of Exchange Notes obtained by the undersigned in exchange for the
Private Notes acquired by the undersigned directly from the Company should be
covered by an effective registration statement containing the selling security
holder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (v) neither the undersigned or any
beneficial owner is an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for the Private Notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will
-7-
<PAGE>
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned does not and will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Private Notes,
if, as and when the Company gives oral or written notice thereof to the Exchange
Agent. Tenders of Private Notes for exchange may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange
Offer --Withdrawal of Tenders" in the Prospectus. Any Private Notes tendered by
the undersigned and not accepted for exchange will be returned to the
undersigned at the address set forth above unless otherwise indicated in the box
above entitled "Special Delivery Instructions as promptly as practicable after
the Expiration Date.
The undersigned acknowledges that the Company's acceptance of Private Notes
validly tendered for exchange pursuant to any one of the procedures described in
the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Private Notes not tendered for exchange in the
name(s) of the undersigned. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions," please mail any certificates for
Private Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Private Notes
accepted for exchange in the name(s) of, and return any Private Notes not
tendered for exchange or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Private Notes from the name of the holder of Private Note(s) thereof if the
Company does not accept for exchange any of the Private Notes so tendered for
exchange or if such transfer would not be in compliance with any transfer
restrictions applicable to such Private Note(s)
IN ORDER TO VALIDLY TENDER PRIVATE NOTES FOR EXCHANGE, HOLDERS OF PRIVATE
NOTES MUST COMPLETE, EXECUTE AND DELIVER THIS LETTER OF TRANSMITTAL.
Except as stated in the Prospectus, all authority herein conferred or
agreed to be conferred shall survive the death, incapacity, or dissolution of
the undersigned,
-8-
<PAGE>
and any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
otherwise stated in the Prospectus, this tender for exchange of Private Notes is
irrevocable.
SIGN HERE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF OWNER(S)
Date: , 1998
-------------------
Must be signed by the registered holder(s) of Private Notes exactly as
name(s) appear(s) on certificate(s) representing the Private Notes or on a
security position listing or by person(s) authorized to become registered
Private Note holder(s) by certificates and documents transmitted herewith. If
signature is by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or representative
capacity, please provide the following information. (See Instruction 6).
Name(s)
---------------------------------------------------------------------
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
--------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Address:
---------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone No. ( )
--- --------------------------------------------
Tax identification or Social Security Nos.
------------------------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9
GUARANTEE OF SIGNATURE(S)
(SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1)
-9-
<PAGE>
Authorized Signature:
--------------------------------------------------------
Date:
------------------------------------------------------------------------
Name and Title:
--------------------------------------------------------------
(PLEASE PRINT)
Name of Firm:
----------------------------------------------------------------
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is (1) a member firm of a registered national securities exchange or of
the National Associate of Securities Dealers, Inc., (2) a commercial bank or
trust company having an office or correspondent in the United States, or (3) an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, which is a member of one of the
following recognized Signature Guarantee Programs (an "Eligible Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b. New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Private Notes
tendered herewith and such registered holder(s) have not completed the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) if such Private Notes are
tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. Delivery of this Letter of Transmittal and Private Notes; Guaranteed
Delivery Procedures. Holders who tender their Private Notes through DTC's ATOP
procedures need not submit a Letter of Transmittal. This Letter of Transmittal
is to be completed by holders of Private Notes (i) if certificates are to be
forwarded herewith or (ii) if tenders are to be made pursuant to the procedures
for tender by book-entry transfer or guaranteed delivery set forth in the
section of the Prospectus entitled "The Exchange Offer." Certificates for all
physically tendered Private Notes or by any timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation"), as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile hereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth on the cover of this Letter of
Transmittal prior to 5:00 p.m., New York City time, on the Expiration Date.
Holders of Private Notes who elect to tender Private Notes and (i) whose Private
Notes are not immediately available or (ii) who cannot deliver the Private
Notes, this Letter of Transmittal or other required documents to the Exchange
Agent
-10-
<PAGE>
prior to 5:00 p.m., New York City time, on the Expiration Date, must tender
their Private Notes according to the guaranteed delivery procedures set forth in
the Prospectus. Holders may have such tender effected if: (a) such tender is
made through an Eligible Institution; (b) prior to 5:00 p.m., New York City
time, on the Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery, setting forth the name and address of the holder of such Private
Notes, the certificate number(s) of such Private Notes and the principal amount
of Private Notes tendered for exchange, stating that tender is being made
thereby and guaranteeing that, within five New York Stock Exchange trading days
after the Expiration Date, this Letter of Transmittal (or a facsimile thereof),
together with the certificate(s) representing such Private Notes (or a Book-
Entry Confirmation), in proper form for transfer, and any other documents
required by this Letter of Transmittal, will be deposited by such Eligible
Institution with the Exchange Agent; and (c) a properly executed Letter of
Transmittal (or a facsimile hereof), as well as the certificate(s) for all
tendered Private Notes in proper form for transfer or a Book-Entry confirmation,
together with any other documents required by this Letter of Transmittal, are
received by the Exchange Agent within five New York Stock Exchange trading days
after the Expiration Date.
THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NEITHER THIS LETTER OF TRANSMITTAL NOR ANY PRIVATE NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Private Notes, by execution of this Letter of Transmittal
(or facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Private Notes for exchange.
3. Inadequate Space. If the space provided in the box entitled
"Description of Private Notes" above is inadequate, the certificate numbers and
principal amounts of the Private Notes being tendered should be listed on a
separate signed schedule affixed hereto.
-11-
<PAGE>
4. Withdrawals. A tender of Private Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written or facsimile notice of withdrawal to the Exchange Agent at the address
set forth on the cover of this Letter of Transmittal. To be effective, a notice
of withdrawal of Private Notes must (i) specify the name of the person who
tendered the Private Notes to be withdrawn (the "Depositor"), (ii) identify the
Private Notes to be withdrawn (including the certificate number of numbers and
aggregate principal amount of such Private Notes), and (iii) be signed by the
holder of Private Notes were tendered (including any required signature
guarantees) . All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, whose determination shall be final and binding on all parties. Any
Private Notes so withdrawn will thereafter be deemed not validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with respect
thereto unless the Private Notes so withdrawn are validly retendered. Properly
withdrawn Private Notes may be retendered by following one of the procedures
described in the section of the Prospectus entitled "The Exchange Offer--
Procedures for Tendering" at any time prior to 5:00 p.m., New York City time, on
the Expiration Date.
5. Partial Tenders. Tenders of Private Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to
be made with respect to less than the entire principal amount of any Private
Notes, fill in the principal amount of Private Notes which are tendered for
exchange in column (4) of the box entitled "Description of Private Notes," as
more fully described in the footnotes thereto. In case of a partial tender for
exchange, a new certificate, in fully registered form, for the remainder of the
principal amount of the Private Notes, will be sent to the holders of Private
Notes unless otherwise indicated in the appropriate box on this Letter of
Transmittal as promptly as practicable after the expiration or termination of
the Exchange Offer.
6. Signatures on this Letter of Transmittal, Assignment and Endorsements.
(a) The signature(s) of the holder of Private Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
Private Notes without alternation, enlargement or any change whatsoever.
(b) If tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Private Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
-12-
<PAGE>
separate copies of this Letter of Transmittal and any necessary or required
documents was there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Private
Notes listed and transmitted hereby, no endorsements of Private Notes or bond
powers are required. If, however, Private Notes not tendered or not accepted,
are to be issued or returned in the name of a person other than the holder of
Private Notes, then the Private Notes transmitted hereby must be endorsed or
accompanied by a properly completed bond power, in a form satisfactory to the
Company, in either case signed exactly as the name(s) of the holder of Private
Notes appear(s) on the Private Notes. Signatures on such Private Notes or bond
powers must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution).
(e) If this Letter of Transmittal or Private Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
this Company, evidence satisfactory to the Company of their authority to so act
must be submitted with this Letter of Transmittal.
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Private Notes listed, the Private Notes must be endorsed or
accompanied by a properly completed bond power, in either case signed by such
registered holder exactly as the name(s) of the registered holder of Private
Notes appear(s) on the certificates. Signatures on such Private Notes or bond
powers must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution)
7. Transfer Taxes. Except as set forth in this Instruction 7, the
Company will pay all transfer taxes, if any, applicable to the exchange of
Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemptions
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
8. Special Issuance and Delivery Instructions. If the Exchange Notes are
to be issued, or if any Private Notes not tendered for exchange are to be issued
or sent to someone other than the holder of Private Notes or to an address other
than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed. Holders of Private Notes tendering Private Notes by book-
entry transfer may request that Private Notes not accepted be credited to such
account maintained at DTC as such holder of Private Notes may designate.
-13-
<PAGE>
9. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Private Notes will be determined by the Company in its
sole discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular Private Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured with such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Private Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. Waiver of Conditions. The Company reserves the absolute right to
waive, amend or modify certain of the specified conditions as described under
"The Exchange Offer--Conditions" in the Prospectus in the case of any Private
Notes tendered (except as otherwise provided in the Prospectus).
11. Mutilated, Lost, Stolen or Destroyed Private Notes. Any tendering
Holder whose Private Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address listed below for further instructions:
U.S. Bank Trust National Association
Specialized Finance Department
180 E. 5th Street
Minneapolis, Minnesota 55101
phone: (612) 244-0721
fax: (612) 244-1537
12. Requests for Information or Additional Copies. Requests for
information or for additional copies of the Prospectus and this Letter of
Transmittal may be directed to the Exchange Agent at the address or telephone
number set forth on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR
-14-
<PAGE>
CONFIRMATION OF BOOK-ENTRY OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Private Notes whose
tendered Private Notes are accepted for exchange may be subject to backup
withholding unless the holder provides the Company (as payor), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Private Notes
is awaiting a TIN) and that (A) the holder of Private Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or (B)
the Internal Revenue Service has notified the holder of Private Notes that he or
she is no longer subject to backup withholding; or (ii) an adequate basis for
exemption from backup withholding. If such holder of Private Notes is an
individual, the TIN is such holder's social security number. If the Exchange
Agent is not provided with the correct taxpayer identification number, the
holder of Private Notes may be subject to certain penalties imposed by the
Internal Revenue Service.
Certain holders of Private Notes (including, among others, all corporations
and certain foreign Individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Private Notes should indicate their
exempt status on Substitute Form W-9. A foreign individual may qualify as an
exempt recipient by submitting to the exchange Agent a properly completed
Internal Revenue Service Form W-8 (which the Exchange Agent will provide upon
request) signed under penalty of perjury, attesting to the holder's exempt
status. See the enclosed Guidelines of Certification of Taxpayer Identification
Number on Substitute Form W-9 (the "Guidelines") for additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of Private notes or other Payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
The holder of Private Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) or the record
owner of the Private Notes. If the Private Notes are held in more than one name
or are note held in the name of the actual owner, consult the enclosed
Guidelines for additional guidance regarding which number to report.
-15-
<PAGE>
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
12 3/4% SENIOR NOTES DUE 2007
OF
ARCH COMMUNICATIONS, INC.
The undersigned hereby acknowledges receipt of the Prospectus dated ______,
1998 (the "Prospectus") of Arch Communications, Inc., a Delaware corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used by not defined herein have the meanings ascribed
to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the 12 3/4% Senior Notes
due 2007 (the "Private Notes") held by you for the account of the undersigned.
The aggregate face amount of the Private Notes held by you for the account
of the undersigned is (fill in amount)
$ of the Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box)
[__] To TENDER the following Private Notes held by you for the account of
the undersigned (insert principal amount of Private Notes to be tendered,
if any):
$ of the Private Notes
[__] NOT to TENDER any Private Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Private Notes held by you
for the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner
-16-
<PAGE>
of the Private Notes, including but not limited to the representations that (i)
the undersigned's principal residence is in the state of (fill in state) (ii)
the undersigned is acquiring the Exchange Notes in the ordinary course of
business of the undersigned, (iii) the undersigned has no arrangement or
understanding with any person to participate in the distribution of Exchange
Notes, (iv) the undersigned acknowledges that any person who is a broker-dealer
registered under the Exchange Act or is participating in the Exchange Offer for
the purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act of 1933, as amended,
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the Staff of the Securities
and Exchange Commission set forth in certain no-action letters (See the section
of the Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes"),
(v) the undersigned understands that a secondary resale transaction described in
clause (iv) above and any resales of Exchange Notes obtained by the undersigned
in exchange for the Private Notes acquired by the undersigned directly from the
Company should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, if
applicable, of Regulation S-K of the Commission, (vi) the undersigned is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company,
and (vii) if the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Private Notes that were acquired as a result
of market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any sale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act; (b) to agree,
on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c)
to take such other action as necessary under the Prospectus or the Letter of
Transmittal to effect the valid tender of Private Notes.
The purchaser status of the undersigned is (check the box that applies)
[__] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[__] An "Institutional Accredited Investor" (as defined in Rule 501(a)(l),
(2), (3) or (7) under the Securities Act)
[__] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in accordance
with Rule 904 of the Securities Act.
[__] Other (describe)
-17-
<PAGE>
SIGN HERE
Name of Beneficial Owner(s)
-------------------------------------------------
- -----------------------------------------------------------------------------
Signature(s)
----------------------------------------------------------------
- -----------------------------------------------------------------------------
Address:
--------------------------------------------------------------------
- -----------------------------------------------------------------------------
Principal place of business (if different from address listed above)
- -----------------------------------------------------------------------------
Telephone Numbers.
-----------------------------------------------------------
- -----------------------------------------------------------------------------
Taxpayer Identification of Social Security Number(s)
- -----------------------------------------------------------------------------
Date:
-----------------------------------------------------------------------
-18-
<PAGE>
PAYER'S NAME:
PART 1--PLEASE PROVIDE
YOUR TIN IN THE BOX AT
RIGHT AND CERTIFY BY
SIGNING AND DATING
BELOW. --------------------------
Social Security Number
OR
--------------------------
Employer Identification
Number
SUBSTITUTE FORM W-9
DEPARTMENT OF
THE TREASURY
INTERNAL PART 2-CERTIFICATION-Under Penalties of Perjury, I
REVENUE Certify that:
SERVICE (1) The number shown on this form is my current
taxpayer identification number (or I am waiting
for a number to be issued to me) and
PAYER'S REQUEST
FOR TAXPAYER (2) I am not subject to backup withholding either
IDENTIFICATION because I have not been notified by the Internal
NUMBER (TIN) Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends or the IRS has
notified me that I am no longer subject to
backup withholding.
PART 3-Awaiting TIN [__]
CERTIFICATION INSTRUCTIONS- You must cross out item
(2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS
that you are subject to backup withholding you receive
another notification from the IRS stating from the IRS
stating that you are no longer subject to backup
withholding, do not cross out item(2).
Signature Date
------------------- ----------------
Name
---------------------------------------------
Address
------------------------------------------
City States Zip Code
------- --------- --------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
-19-
<PAGE>
PAYOR'S NAME: BANK OF NEW YORK TRUST COMPANY OF FLORIDA
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number within sixty (60)
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide such number.
SIGNATURE _______________________________________ DATE: , 1997
LETTER TO CLIENTS
REGARDING THE OFFER TO EXCHANGE
$3,000,000 PRINCIPAL AMOUNT OF 12 3/4% SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
$300,000,000 PRINCIPAL AMOUNT OF 12 3/4% SENIOR NOTES DUE 2007
OF
ARCH COMMUNICATIONS, INC.
To Our Clients:
We are enclosing herewith a Prospectus, dated , 1998, of Arch
Communications, Inc. (the "Company") and a related Letter of Transmittal (which
together constitute the "Exchange Offer") relating to the offer by the Company
to exchange its new 12 3/4% Senior Notes due 2007 (the "Exchange Notes"),
pursuant to an offering registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 12 3/4% Senior Notes due 2007 (the "Private Notes") upon the terms
and subject to the conditions set forth in the Prospectus and the Letter of
Transmittal.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Private
Notes being tendered.
We are the Registered Holder or DTC participant through which you hold an
interest in the Private Notes. A tender of such Private Notes can be made only
by us
-20-
<PAGE>
pursuant to your instructions. The Letter of Transmittal is furnished to
you for your information only and cannot be used by you to tender your
beneficial ownership of Private Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of your
Private Notes held by us for your account pursuant to the terms and subject to
the conditions of the Exchange Offer. We also request that you confirm that we
may on your behalf make the representations contained in the Letter of
Transmittal that are to be made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each holder of Private Notes must
make certain representations and warranties that are set forth in the Letter of
Transmittal and in the attached form that we have provided to you for your
instructions regarding what action we should take in the Exchange Offer with
respect to your interest in the Private Notes.
LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS
REGARDING THE OFFER TO EXCHANGE
$130,000,000 PRINCIPAL AMOUNT OF 12 3/4% SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
$130,000,000 PRINCIPAL AMOUNT OF 12 3/4% SENIOR NOTES DUE 2007
OF
ARCH COMMUNICATIONS, INC.
To Registered Holders and The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating the offer by
Arch Communications, Inc. (the "Company") to exchange its new 12 3/4% Senior
Notes due 2007 (the "Exchange Notes"), pursuant to an offering registered under
the Securities Act of 1933, as amended (the "Securities Act'), for a like
principal amount of its issued and outstanding 12 3/4% Senior Notes due 2007
(the "Private Notes") upon the terms and subject to the conditions set forth in
the Company's Prospectus, dated , 1998, and the related Letter of
Transmittal (which together constitute the "Exchange Offer")
Enclosed herewith are copies of the following documents:
1. Prospectus dated;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder or DTC Participant from Beneficial
Owner; and
-21-
<PAGE>
5. Letter which may be sent to your clients for whose account you hold
Definitive Registered Notes or Book-Entry Interests representing
Private Notes in your name or in the name of your nominee, to
accompany the instruction form referred to above, for obtaining such
client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1998, unless extended.
The Exchange Offer is not conditioned upon any minimum number of Private
Notes being tendered.
To participate in the Exchange Offer, a beneficial holder must either (i)
cause to be delivered to The Bank of New York (the "Exchange Agent"), at the
address set forth in the Letter of Transmittal, Definitive Registered Notes in
proper form for transfer together with a properly executed Letter of Transmittal
or (ii) cause a DTC Participant to tender such holder's Private Notes to the
Exchange Agent's account maintained at the Depository Trust Company ("DTC") for
the benefit of the Exchange Agent through DTC's Automated Tender Offer Program
("ATOP"), including transmission of a computer-generated message that
acknowledges and agrees to be bound by the terms of the Letter of Transmittal.
By complying with DTC's ATOP procedures with respect to the Exchange Offer, the
DTC Participant confirms on behalf of itself and the beneficial owners of
tendered Private Notes all provisions of the Letter of Transmittal applicable to
it and such beneficial owners as fully as if it completed, executed and returned
the Letter of Transmittal to the Exchange Agent.
Pursuant to the Letter of Transmittal, each holder of Private Notes will
represent to the Company that: (i) the Exchange Notes or Book-Entry Interests
therein to be acquired by the undersigned (the "Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by the undersigned in the
ordinary course of business of the undersigned, (ii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) the undersigned acknowledges and agrees that any person
who is a broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or is participating in the Exchange Offer for the
purpose of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes or interests therein acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the undersigned understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes or interests therein obtained by such holder in exchange for
Private Notes or interests therein originally acquired by such holder
-22-
<PAGE>
directly from the Company should be covered by an effective registration
statement containing the selling security holder information required by Item
507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company. Upon a request by the Company, a holder or beneficial owner
will deliver to the Company a legal opinion confirming its representation made
in clause (v) above. If the undersigned is a broker-dealer (whether or not it is
also an "affiliate") that will receive Exchange Notes for its own account
pursuant to the Exchange Offer, the undersigned represents that the Private
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned does not and will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The enclosed "Instruction to Registered Holder or DTC Participant from
Beneficial owner" form contains an authorization by the beneficial owners of
Private Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Private Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Private Notes to it, except as otherwise provided in Instruction 7 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material are obtained from The Bank of
New York, 101 Barclay Street--Floor 7E, New York, New York 10286, Attention:
Corporate Trust Operations.
Very truly yours,
ARCH COMMUNICATIONS, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU, THE
AGENT OF ARCH COMMUNICATIONS, INC. OR U.S. BANK TRUST NATIONAL ASSOCIATION OR
AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN
CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
-23-
<PAGE>
INSTRUCTION TO REGISTERED HOLDER OR DTC PARTICIPANT
FROM BENEFICIAL OWNER
FOR
12 3/4 SENIOR NOTES DUE 2007
OF
ARCH COMMUNICATIONS, INC.
The undersigned hereby acknowledges receipt of the Prospectus dated ______,
1998 (the "Prospectus"), of Arch Communications, Inc., a company incorporated
under the laws of Delaware (the "Company"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal") that together constitute the Company's
offer (the "Exchange Offer"). Capitalized terms used but not defined herein have
the meanings assigned to them in the Prospectus and the Letter of Transmittal.
This will instruct you as to the action to be taken by you relating to the
Exchange Offer with respect to the 12 3/4% Senior Notes due 2007 (the "Private
Notes") held by you for the account of the undersigned.
The principal amount of the Private Notes held by you for the account of
the undersigned is (fill in amount): $ principal amount of Private
Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[__] To TENDER the following principal amount of Private Notes held by you
for the account of the undersigned (insert amount of Private Notes to
be tendered, if any): $ __________ principal amount of Private Notes,
[__] NOT to TENDER any Private Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Private Notes held by you
for the account of the undersigned, it is understood that you are authorized:
(a) to make, on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as a beneficial owner, including but not limited to the
representations that (i) the Exchange Notes or Book-Entry Interests therein to
be acquired by the undersigned (the "Beneficial Owner(s)") in connection with
the Exchange Offer are being acquired by the undersigned in the ordinary course
of business of the undersigned, (ii) the undersigned is not participating, does
not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes, (iii) the
undersigned acknowledges and agrees that any person
-24-
<PAGE>
who is a broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or is participating in the Exchange Offer for the
purpose of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes or interests therein acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the undersigned understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes or interests therein obtained by such holder in exchange for
Private Notes or interests therein originally acquired by such holder directly
from the Company should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the Commission and (v) the undersigned
is not an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company. Upon a request by the Company, a holder or beneficial owner will
deliver to the Company a legal opinion confirming its representation made in
clause (v) above. If the undersigned is a broker- dealer (whether or not it is
also an "affiliate") that will receive Exchange Notes for its own account
pursuant to the Exchange Offer, the undersigned represents that the Private
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned does not and will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act;
(b) to agree, on behalf of the undersigned, as set forth in the Letter of
Transmittal; and
(c) to take such other action as necessary under the Prospectus or the
Letter of Transmittal to effect the valid tender of such Private Notes.
SIGN HERE
Name of Beneficial Owner(s):
------------------------------------------------
Signature(s):
----------------------------------------------------------------
Name(s) (please print)
------------------------------------------------------
Address:
---------------------------------------------------------------------
- -----------------------------------------------------------------------------
Telephone Number:
------------------------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------------
Date:
------------------------------------------------------------------------
-25-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
12 3/4% SENIOR NOTES DUE 2007
THIS FORM, OR 0NE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY HOLDER OF
12 3/4% SENIOR NOTES DUE 2007 (THE "PRIVATE NOTES") OF TUBOSCOPE INC., A
DELAWARE CORPORATION (THE "COMPANY"), WHO WISHES TO TENDER PRIVATE NOTES
PURSUANT TO THE COMPANY'S EXCHANGE OFFER, AS DEFINED IN THE PROSPECTUS DATED
__________, 1998 (THE "PROSPECTUS") AND (i) WHOSE PRIVATE NOTES ARE NOT
IMMEDIATELY AVAILABLE OR (ii) WHO CANNOT DELIVER SUCH PRIVATE NOTES OR ANY OTHER
DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE
(AS DEFINED IN THE PROSPECTUS) OR (iii) WHO CANNOT COMPLY WITH THE BOOK-ENTRY
TRANSFER PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE
TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE
OFFER--GUARANTEED DELIVERY PROCEDURES" IN THE PROSPECTUS.
ARCH COMMUNICATIONS, INC.
NOTICE OF GUARANTEED DELIVERY
To: U.S. Bank Trust National Association, the Exchange Agent
By Registered or Certified Mail, By Facsimile (for Eligible Institution)
By Hand or Overnight Courier (612)244-1537
or In Person
U.S. Bank Trust National Association
Specialized Finance Department Confirm Receipt of Notice of
180 E. 5th Street Guaranteed Delivery by Telephone
Minneapolis, Minnesota 55101 (612)244-0721
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
-1-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Private Notes specified below pursuant to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer--Guaranteed Delivery Procedures" in
the Prospectus. By so tendering, the undersigned does hereby make, at and as of
the date hereof, the representations and warranties of a tendering Holder of
Private Notes set forth in the Letter of Transmittal. The undersigned hereby
tenders the Private Notes listed below:
- --------------------------------------------------------------------------------
CERTIFICATE NUMBERS
(IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
-2-
<PAGE>
If Private Notes will be tendered SIGN HERE
by book-entry transfer
-----------------------------
Signature(s)
Name of Tendering Institution:
-----------------------------
- ---------------------------------
-----------------------------
The Depository Trust Company Name(s) (Please Print)
Account No.:
-----------------------------
- ---------------------------------
Address
-----------------------------
Zip Code
-----------------------------
Area Code and Telephone No.
Date:
-----------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee
Medallion Program, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Private Notes tendered
hereby in proper form for transfer, or confirmation of the book-entry transfer
of such Private Notes into the Exchange Agent's account at the Depository Trust
Company, pursuant to the procedure for book-entry transfer set forth in the
prospectus, and any other required documents, all by 5:00 p.m., New York City
time, on the third New York Stock Exchange trading day following the Expiration
Date (as defined in the Prospectus).
SIGN HERE
- -----------------------------
Name of Firm
- -----------------------------
Authorized Signature
- -----------------------------
Name(s) (Please Print)
-3-
<PAGE>
- -----------------------------
- -----------------------------
- -----------------------------
Address
- -----------------------------
Zip Code
- -----------------------------
Area Code and Telephone No.
Date:
------------------------
DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. ACTUAL SURRENDER
OF CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at one of its addresses set forth on the cover hereof prior to
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the Holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
Instead of delivery by mail, it is recommended that holders use an overnight or
hand delivery service, properly insured. If such delivery is by mail, it is
recommended that the Holder use properly insured, registered mail with return
receipt requested. For a full description of the guaranteed delivery
procedures, see the Prospectus under the caption "The Exchange Offer --
Guaranteed Delivery Procedures." In all cases, sufficient time should be allowed
to assure timely delivery. No Notice of Guaranteed Delivery should be sent to
the Company.
2. Signature on this Notice of Guaranteed Delivery; Guarantee of
Signatures. If this Notice of Guaranteed Delivery is signed by the registered
Holder(s) of the Private Notes referred to herein, then the signature must
correspond with the name(s) as written on the face of the Private Notes without
alteration, enlargement or any change whatsoever.
-4-
<PAGE>
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Private Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered Holder(s) appear(s) on the face of the Private Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, evidence satisfactory
to the Company of their authority so to act must be submitted with this Notice
of Guaranteed Delivery.
3. Requests for Assistance or Additional Copies. Questions relating to
the Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
-5-
