SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): JUNE 26 , 1998
ARCH COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
33-72646 31-1236804
(Commission File Number) (I.R.S. Employer Identification No.)
1800 WEST PARK DRIVE, SUITE 250, WESTBOROUGH, MA 01581
(Address of Principal Executive Offices) (Zip Code)
(508) 870-6700
(Registrant's Telephone Number, Including Area Code)
USA MOBILE COMMUNICATIONS, INC. II
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
ACE/USAM MERGER
On June 29, 1998, Arch Communications Group, Inc. ("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. ("ACI") 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.
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, and The Bank of New York (the "Bank"), Royal
Bank of Canada and Toronto Dominion (Texas), Inc., as managing agents, in the
aggregate amount of $400.0 million (collectively, the "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.
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, ACI and the former ACE
operating subsidiaries. Parent's guarantee is secured by a pledge of Parent's
stock and notes in ACI, and the guarantees of the former ACE operating
subsidiaries are secured by a security interest in those assets of such
subsidiaries which were pledged under ACE's previous credit facility. Lenders
representing 40% of the Amended Credit Facility have the right to require ACI
and its subsidiaries to grant security interests in certain additional assets
not currently pledged thereunder, subject to granting a ratable security
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interest to holders of ACI's $125.0 million principal amount of 9 1/2% Senior
Notes due 2004 and ACI's $100.0 million principal amount of 14% Senior Notes due
2004.
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 ACI'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 ACI'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 ACI 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.
ISSUANCE AND SALE OF NOTES
Contemporaneously with the Merger, ACI issued and sold $130.0 million
principal amount of 12 3/4% Senior Notes due 2007 (the "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 ACI) in a private
placement (the "Note Offering") under Rule 144A under the Securities Act of
1933. The Notes were sold at an initial price to investors of 98.049%. The
proceeds of the Note Offering were applied as described below under "Use of
Proceeds". The terms of the Notes are summarized below:
MATURITY
July 1, 2007.
INTEREST
The Notes 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.
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RANKING
The Notes are senior unsecured obligations of ACI and rank pari passu in
right of payment with other existing and future senior indebtedness of ACI. ACI
is an intermediate holding company of Parent with no material assets other than
the stock of its subsidiaries. The Notes are structurally subordinated to all
current or future liabilities of ACI's subsidiaries, including trade payables
and indebtedness. At June 30, 1998, after giving effect to the Note Offering and
application of the estimated net proceeds therefrom as described below under
"Use of Proceeds", borrowings pursuant to the Amended Credit Facility and the
Equity Investment (as defined below) and the application of the proceeds
therefrom, the Notes were structurally subordinated to approximately $343.2
million of liabilities of ACI's subsidiaries. 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).
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the
option of ACI prior to July 1, 2003. Thereafter, the Notes will be subject to
redemption at the option of ACI, in whole or in part, at the redemption prices
set forth herein plus accrued and unpaid interest and Liquidated Damages (as
defined below), if any, to the applicable redemption date. Notwithstanding the
foregoing, at any time prior to July 1, 2001, ACI 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 and Liquidated Damages, if any, to the redemption
date, with the net cash proceeds of an equity offering for cash by ACI or
Parent; provided that at least $84.5 million aggregate principal amount of the
Notes originally issued under the indenture pursuant to which the Notes were
issued (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.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the Indenture)
at any time, ACI 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.
CERTAIN COVENANTS
The Indenture contains certain covenants that, among other things, limit
the ability of ACI to incur additional indebtedness, issue preferred stock, pay
dividends or make other distributions, repurchase Capital Stock (as defined in
the Indenture), repay subordinated indebtedness or make other Restricted
Payments (as defined in the Indenture), create certain liens, enter into certain
transactions with affiliates, sell assets, issue or sell Capital Stock of ACI's
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Restricted Subsidiaries (as defined in the Indenture) or enter into certain
mergers and consolidations.
USE OF PROCEEDS
ACI used the net proceeds of the Note Offering, together with borrowings
under the Amended Credit Facility and the Equity Investment, to repay a portion
of the indebtedness under ACE's previous credit facility and all outstanding
indebtedness under USAM's previous credit facility. Amounts not repaid under
ACE's previous credit facility became outstanding under the Amended Credit
Facility.
EXCHANGE OFFER; REGISTRATION RIGHTS
Pursuant to an Exchange and Registration Rights Agreement among ACI and
the Initial Purchasers, ACI agreed to file a registration statement (the
"Exchange Offer Registration Statement") with respect to an offer to exchange
the Notes (the "Exchange Offer") for new notes of ACI (the "Exchange Notes").
The Exchange Notes will be issued under the Indenture as a separate series but
with terms identical to the Notes. ACI is required to (i) file the Exchange
Offer Registration Statement on or prior to July 29, 1998, (ii) use its best
efforts to have the Exchange Offer Registration Statement declared effective
prior to October 27, 1998 and (iii) 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 is declared effective, Exchange Notes in
exchange for all Notes tendered prior thereto in the Exchange Offer. If (i) the
Exchange Offer is not permitted by applicable law or (ii) any Holder of Transfer
Restricted Securities (as defined in the Indenture) notifies ACI that (a) it is
prohibited by law or Securities and Exchange Commission policy from
participating in the Exchange Offer, (b) it may not resell an Exchange Note
acquired by it in the Exchange Offer to the public without delivering a
prospectus and that the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resale or (c) it is a
broker-dealer and holds Notes acquired directly from ACI or an affiliate of ACI,
ACI will be required to file a shelf registration statement (the "Shelf
Registration Statement") to cover resales of the Notes by the Holders thereof.
If ACI fails to satisfy these registration obligations, it is required to pay
liquidated damages ("Liquidated Damages") to each holder of Notes of up to 100
basis points per annum of the principal amount of Notes held by such holder. ACI
expects to file the Exchange Offer Registration Statement on or prior to July
29, 1998.
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 ACI as an equity investment (the
"Equity Investment") $24.0 million of the net proceeds from the sale of Series C
Preferred Stock, ACI contributed such amount to API as an equity investment and
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API used such amount to repay indebtedness under ACE's existing 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
ACI's option in certain circumstances; (v) in the event of a "Change of Control"
as defined in the Indenture governing Parent's 10 7/8% Senior Discount Notes due
2008 (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.
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 ACI, and such director has the right to be a member of any committee
of such Boards of Directors. Upon the closing of the Series C Preferred Stock
financing, John Kornreich, a Managing Director of Sandler, was elected a
director of Parent and ACI pursuant to these arrangements.
Immediately prior to the Series C Preferred Stock financing,
partnerships managed by Sandler owned 4.1% 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) 21.2% 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).
TOWER SITE SALE
In April 1998, Parent announced an agreement to sell certain of ACI'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
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the Tower Site Sale. In the Tower Site Sale, ACI is selling communications
towers, real estate, site management contracts and/or leasehold interests
involving 134 sites in 22 states and leasing back space on the towers on which
it currently operates communications equipment to service its own paging
network. ACI will use its net proceeds from the Tower Site Sale (estimated to be
$36 million) to repay indebtedness under the Amended Credit Facility. The
agreement for the Tower Site Sale calls for an initial closing to be followed 60
days later by a final closing. ACI held the initial closing of the Tower Site
Sale on June 26, 1998 with gross proceeds to ACI 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.
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. ACI 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). ACI 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.
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. 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.
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.
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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.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: July 22, 1998 ARCH COMMUNICATIONS, INC.
/S/ J. ROY POTTLE
By: J. Roy Pottle
Title: Executive Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
4.1 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. 1
99.1 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. 1
99.2 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. 1
99.3 Asset Purchase and Sale Agreement, dated April 10, 1998, among
OmniAmerica, Inc. and certain subsidiaries of Arch Communications
Group, Inc. 1
99.4! Letter agreement, dated June 10, 1998, between Arch Communications
Group, Inc. and Motorola, Inc. 1
99.5 Press Release, dated June 8, 1998, entitled "Arch Announces Plan to
Strengthen Capital Structure, Increase Financial Flexibility for
Future Growth".1
99.6 Press Release, dated June 25, 1998, entitled "Arch Prices Rule 144A
Offering".1
99.7 Press Release, dated June 30, 1998, entitled "Arch Completes
Restructuring Plan: Closes New Credit Facility, Private Equity
Placement, Senior Note Offering".1
1 Incorporated by reference from the Current Report on Form 8-K of
Parent dated June 29, 1998.
! Confidential treatment requested with respect to portions of this
exhibit.
