<PAGE>
As filed with the Securities and Exchange Commission on October 22, 1998
Registration No. 333-59807
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 organization) Classification Code Number) Identification
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)
COPIES TO:
EDWARD YOUNG, ESQ.
DAVID A. WESTENBERG, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 526-6000
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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. [_]
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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.
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<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 22, 1998
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 NOVEMBER
, 1998 UNLESS EXTENDED.
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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 $344.3 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 $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". Parent has agreed to enter into a business
combination which, if consummated, will result in material increases in the
outstanding indebtedness of Arch and its subsidiaries. See "Prospectus
Summary--Recent Developments--Anticipated MobileMedia Transaction".
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.
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SEE "RISK FACTORS", BEGINNING ON PAGE 15, 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.
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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 NOVEMBER , 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".
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The date of this Prospectus is October , 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
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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 JANUARY , 1999 (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".
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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.
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<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 following regional offices of the
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and Seven 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.
COPIES OF ARCH'S FILINGS WITH THE COMMISSION MAY BE OBTAINED UPON WRITTEN OR
ORAL REQUEST WITHOUT CHARGE FROM ARCH, 1800 WEST PARK DRIVE, SUITE 250,
WESTBOROUGH, MASSACHUSETTS 01581, ATTENTION: INVESTOR RELATIONS, TELEPHONE
(508) 870-6700.
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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
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
Subsidiary Restructuring (as defined herein), its predecessors on a combined
basis, together with their wholly-owned direct and indirect subsidiaries, (ii)
the term "Parent" refers to Arch Communications Group, Inc. and does not
include its subsidiaries, (iii) "MobileMedia" refers to MobileMedia
Communications, Inc., a Delaware corporation, together with its subsidiaries,
and (iv) the "MobileMedia Transaction" refers to (A) the proposed merger
pursuant to which MobileMedia would become a wholly owned subsidiary of API (as
defined herein) and (B) associated financings, as described under "--Recent
Developments--Anticipated MobileMedia Transaction".
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 4.1 million pagers in service at June 30, 1998. Arch operates in 41
states and more than 180 of the 200 largest markets in the United States. Arch
offers local, regional and nationwide paging services employing digital
networks covering approximately 85% of the United States population. Arch
offers four types of paging services through its networks: digital display,
alphanumeric display, tone-only and tone-plus-voice. Arch also offers enhanced
and complementary services, including voice mail, personalized greeting,
message storage and retrieval, pager loss protection and pager maintenance.
Arch has achieved significant growth in pagers in service and EBITDA through
a combination of internal growth and acquisitions. From January 1, 1995 through
June 30, 1998, Arch's total number of subscribers grew at a compound rate on an
annualized basis of 79.0%. For the same period on an annualized basis, Arch's
compound rate of internal subscriber growth (excluding pagers added through
acquisitions) was 56.1%. From commencement of operations in September 1986,
Arch has completed 33 acquisitions representing an aggregate of 1.7 million
pagers in service at the time of purchase. For the twelve months ended June 30,
1998, Arch's total revenues were $408.2 million, representing a compound growth
rate on an annualized basis of 61.7% since January 1, 1995. For the same
period, Arch's EBITDA was $136.2 million, representing a compound growth rate
on an annualized basis of 78.4% since January 1, 1995. 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--Anticipated 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
1
<PAGE>
reducing capital requirements and increasing EBITDA; (iii) has focused its
capital and marketing resources on one-way paging and enhanced services while
taking steps to position itself to participate in new and emerging services and
applications in narrowband wireless personal communications; and (iv) is
pursuing new revenue opportunities associated with its 4.1 million pagers in
service.
RECENT DEVELOPMENTS
JUNE 1998 SUBSIDIARY RESTRUCTURING AND DEBT FINANCING
On June 29, 1998, Parent effected a number of restructuring transactions
involving certain of its direct and indirect wholly owned subsidiaries (the
"Subsidiary Restructuring"). As a result, Arch, a wholly owned subsidiary of
Parent, is now an intermediate holding company which owns directly or
indirectly all of the stock of its principal operating subsidiary, Arch Paging,
Inc. ("API") and other operating subsidiaries. See "--Corporate Structure",
"Risk Factors--Holding Company Structure and Structural Subordination of Notes"
and "Business--General".
Contemporaneously with the Subsidiary Restructuring, an 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 "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--Credit Facility".
Contemporaneously with the Subsidiary Restructuring, 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".
Contemporaneously with the Subsidiary Restructuring, Parent contributed $24.0
million of the net proceeds from a private placement of Series C Convertible
Preferred Stock of Parent ("Series C Preferred Stock") to Arch as an equity
investment (the "Equity Investment"), Arch contributed such amount to API as an
equity investment and API used such amount to repay indebtedness under a former
credit facility as part of the establishment of the Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Equity Investment".
TOWER SITE SALE
In April 1998, Parent announced an agreement to sell certain of Arch's tower
site assets (the "Arch Tower Site Sale") for approximately $38.0 million in
cash (subject to adjustment). In the Arch Tower Site Sale, Arch is selling
communications towers, real estate, site management contracts and/or leasehold
interests involving 134 sites in 22 states and is renting space on the towers
on which it currently operates communications equipment to service its own
paging network. Arch is using its net proceeds from the Arch Tower Site Sale
(estimated to be $36.0 million) to repay indebtedness. Arch held the initial
closing of the Arch Tower Site Sale on June 26, 1998 with gross proceeds to
Arch of approximately $12.0 million (excluding $1.3 million which was paid to
Benbow for certain assets which Benbow sold as part of the initial closing),
held a second closing on September 29, 1998 with gross proceeds to Arch of
$20.4 million and currently expects to hold the final closing for the balance
of the transaction in the fourth quarter of 1998, although no assurance can be
given that the final closing will be held as expected. The final closing of the
Arch Tower Site Sale is subject to receipt of customary regulatory
2
<PAGE>
approvals and other conditions. See "Capitalization", "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Shift in
Operating Focus" and "Business--Properties".
ANTICIPATED MOBILEMEDIA TRANSACTION
Parent has agreed to acquire MobileMedia Communications, Inc. ("MMC";
together with its subsidiaries, "MobileMedia"), one of the largest paging
companies in the United States, as part of the MobileMedia Transaction, in
which, among other things, Parent would issue certain stock, warrants and stock
purchase rights, pay $479.0 million in cash to certain creditors of
MobileMedia, pay approximately $85.0 million of administrative, transactional
and related costs, raise $217.0 million in cash through a rights offering of
its stock, and cause Arch and API to borrow an estimated total of $350.0
million. After consummation of the MobileMedia Transaction, MMC would become a
wholly owned subsidiary of API. See the chart set forth under "--
Corporate Structure". Following consummation of the MobileMedia Transaction,
Parent, through its Arch subsidiaries (collectively, Arch, Parent, the Arch
subsidiaries and MobileMedia are referred to as the "Combined Company"), would
be the second largest paging operator in the United States as measured by
pagers in service, net revenues (total revenues less cost of products sold) and
EBITDA. See "Business--The Combined Company". Parent believes that the
MobileMedia Transaction, if effected, would result in a reduction in the
overall financial leverage of Parent and Arch, on a consolidated basis, as well
as certain anticipated operating synergies and cost savings.
MobileMedia, together with its parent company MobileMedia Corporation, are
operating as debtors-in-possession in connection with their pending insolvency
proceedings under Chapter 11 of the U.S. Bankruptcy Code. Consummation of the
MobileMedia Transaction is subject to Bankruptcy Court approval, approval by
Parent's stockholders and MobileMedia's creditors, approval by the Federal
Communications Commission ("FCC"), performance by third parties of their
contractual obligations, the availability of sufficient financing and other
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 will increase Arch's and API's
indebtedness and will involve significant operational and financial risks. See
"Risk Factors--Possible Acquisition Transactions". If Parent does not acquire
MobileMedia, Parent will in most circumstances be solely responsible for its
own fees and expenses, estimated at between $15.0 million and $30.0 million
(depending on the date of termination) and in certain specified circumstances
Parent will also be obligated to pay MobileMedia's creditors $32.5 million in
cash. See "Risk Factors--Possible Non-Consummation of the MobileMedia
Transaction".
Parent expects to issue securities constituting a majority of Parent's equity
to MobileMedia's creditors in connection with the MobileMedia Transaction.
However, Parent does not intend to issue equity securities in a manner that
would constitute a "change of control" under any of its or Arch's financing
arrangements. Parent's present management and Board of Directors would continue
to control Parent if Parent acquires MobileMedia.
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. Once fully implemented,
the Divisional Reorganization is expected to result in annual cost savings of
approximately $15.0 million. Arch expects to reinvest a portion of these cost
savings to expand its sales activities. In connection with the Divisional
Reorganization, 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) recorded a restructuring charge of $16.1 million
during the second quarter of 1998. The restructuring charge consisted of
approximately (i) $9.7 million for employee severance and benefits, (ii) $3.5
million for lease obligations and terminations and (iii) $2.9 million for the
writedown of related assets. There can be no assurance that the desired cost
savings will
3
<PAGE>
be achieved or that the Divisional Reorganization of Arch's business will be
accomplished smoothly, expeditiously or successfully. The difficulties of such
Divisional Reorganization may be increased by the need to integrate
MobileMedia's operations in multiple locations and to combine two corporate
cultures. The inability to successfully integrate the operations of MobileMedia
could have a material adverse effect on Arch following the MobileMedia
Transaction. See Note 9 to Arch's Consolidated Financial Statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Divisional Reorganization" and "Business".
--------------------
Arch was incorporated in Delaware in 1988 as USA Mobile Communications, Inc.
II and changed its name to Arch Communications, Inc. in June 1998. See
"Business--General". 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 November , 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
PRIVATE NOTES............... 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 "The Exchange
Offer--Interest on the Exchange Notes".
CONDITIONS TO THE EXCHANGE
OFFER....................... Arch reserves the right in its sole and absolute
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
PROCEDURES.................. Holders of Private Notes who wish to tender their
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
EXCHANGE NOTES ............. Subject to the satisfaction or waiver of the
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 $344.3 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
$364.0 million of liabilities (excluding
liabilities of its subsidiaries and Parent's
guarantees thereof). The MobileMedia Transaction,
if consummated, is expected to increase Arch's
indebtedness by approximately $200.0 million and
API's indebtedness by approximately $150.0
million, although the debt-to-equity ratio and
ratio of total debt to annualized EBITDA for
Parent and Arch, each on a consolidated basis,
are expected to decrease (and the ratio of EBITDA
to interest expense is expected to increase). 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".
9
<PAGE>
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".
RISK FACTORS
See "Risk Factors" beginning on page 15 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 Subsidiary Restructuring, Arch Communications
Enterprises, Inc. ("ACE") and USA Mobile Communications, Inc. II ("USAM"),
Arch's predecessors by merger, were wholly-owned subsidiaries of Parent. The
Subsidiary Restructuring has been 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 June 30, 1998 and for the six-month periods ended June 30, 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------------
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 $ 171,978 $ 184,280
Product sales.......... 14,374 24,132 39,971 44,897 22,290 21,305
-------- --------- --------- --------- --------- ---------
Total revenues......... 75,903 162,598 331,370 396,841 194,268 205,585
Cost of products sold.. (12,787) (20,789) (27,469) (29,158) (14,291) (14,690)
-------- --------- --------- --------- --------- ---------
63,116 141,809 303,901 367,683 179,977 190,895
Depreciation and
amortization.......... 18,321 60,037 191,101 231,376 119,681 107,915
Operating income
(loss)................ (352) (12,851) (85,300) (101,044) (55,792) (54,289)
Interest and non-
operating expenses,
net................... (4,973) (20,397) (49,060) (62,884) (31,013) (32,703)
Equity in loss of
affiliate (2)......... -- -- (1,968) (3,872) (1,812) (2,219)
Net income (loss)...... (6,462) (30,332) (87,025) (146,628) (78,017) (90,931)
OTHER OPERATING DATA:
EBITDA (3)............. $ 17,969 $ 47,186 $ 105,801 $ 130,332 $ 63,889 $ 69,726
EBITDA margin (4)...... 28% 33% 35% 35% 35% 37%
Capital expenditures,
excluding
acquisitions.......... $ 33,450 $ 60,468 $ 155,575 $ 102,767 $ 56,444 $ 59,937
Pagers in service at
end of period......... 538,000 2,006,000 3,295,000 3,890,000 3,666,000 4,131,000
Ratio of EBITDA to
interest expense...... 2.1x
Ratio of total debt to
annualized EBITDA
(5)................... 4.6x
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Current assets.......................................... $52,238
Total assets............................................ 960,783
Current maturities of long-term debt.................... --
Long-term debt, less current maturities................. 639,464
Stockholder's equity.................................... 235,773
</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.
USAM was a wholly owned subsidiary of USA Mobile and subsequently a wholly
owned subsidiary 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 the losses of Benbow PCS Ventures, Inc., in
which Arch holds a 49.9% equity interest ("Benbow"), since Arch's
acquisition of Westlink Holdings, Inc. in May 1996. See "Business--General"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resourses--Acquisitions".
(3) EBITDA is a commonly used measure of financial performance in the paging
industry and is also one of the financial measures used to calculate
whether Arch and its subsidiaries are in compliance with covenants under
their respective 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
("GAAP"). EBITDA, as determined by Arch, may not necessarily be comparable
to similarly titled data of other paging companies. EBITDA does not reflect
restructuring charge, equity in loss of affiliate, income tax benefit,
interest and non-operating expenses, net and extraordinary items.
(4) Calculated by dividing EBITDA by total revenues less cost of products sold.
EBITDA margin is a measure commonly used in the paging industry to evaluate
a company's EBITDA relative to net revenues as an indicator of the
efficiency of a company's operations.
(5) Calculated by dividing total debt by annualized EBITDA for the six months
ended June 30, 1998.
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CORPORATE STRUCTURE
CURRENT STRUCTURE
The following chart summarizes (i) the current 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. The chart which
appears on page 14 illustrates the organizational structure of Parent and its
subsidiaries following consummation of the MobileMedia Transaction, if effected
as currently contemplated.
ARCH COMMUNICATIONS GROUP, INC.
10 7/8% Senior Discount Notes due 2008
6 3/4% Convertible Subordinated Debentures due 2003
Guarantee of 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)
(1) This obligation is secured by Parent's pledge of the capital stock and
notes of Arch.
14% Senior Notes due 2004(2)
(2) The Notes rank pari passu in right of payment with this obligation.
Guarantee of Credit Facility
(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
Arch.
ARCH PAGING, INC.
(4) Consists of the former ACE operating subsidiaries and Benbow Investments.
Arch is considering the consolidation of certain of ACE's former operating
subsidiaries into a single subsidiary prior to January 1, 1999.
Credit Facility(3)
(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.
FORMER ACE OPERATING SUBSIDIARIES(4)
Guarantee of Credit Facility(5)
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ANTICIPATED STRUCTURE
The following chart summarizes (i) the organizational structure of Parent,
Arch and their respective operating subsidiaries and (ii) their respective debt
obligations and guarantees thereof, as in effect if the MobileMedia Transaction
is consummated in the manner currently contemplated. See "--Recent
Developments", "Capitalization", "Description of Notes" and Arch's Consolidated
Financial Statements and Notes thereto. The chart on the previous page
illustrates the current organizational structure and debt obligations of Parent
and its subsidiaries.
ARCH COMMUNICATIONS GROUP, INC.
10 7/8% Senior Discount Notes due 2008
6 3/4% Convertible Subordinated Debentures due 2003
Guarantee of 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)
Planned Arch Notes(3)
Guarantee of Credit Facility
ARCH PAGING, INC.
Credit Facility, reflecting the
Credit Facility Increase(4)
FORMER ACE OPERATING SUBSIDIARIES(5) MOBILEMEDIA COMMUNICATIONS, INC.
Guarantee of Credit Facility(6) Guarantee of Credit Facility
MOBILEMEDIA OPERATING SUBSIDIARIES
Guarantee of Credit Facility
- --------------------
(1) This obligation is secured by Parent's pledge of the capital stock and
notes of Arch.
(2) The Notes rank pari passu in right of payment with this obligation.
(3) Expected to rank pari passu in right of payment with the Notes; may be
replaced by the Bridge Facility.
(4) 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 Arch operating subsidiaries.
(5) Consists of the former ACE operating subsidiaries and Benbow Investments.
Arch is considering the consolidation of certain of ACE's former operating
subsidiaries into a single subsidiary prior to January 1, 1999.
(6) 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 Arch's former credit facility.
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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 Subsidiary Restructuring, borrowings
pursuant to the 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 Credit Facility. Arch's high degree of
leverage may have adverse 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 acceptable terms, if at
all; (ii) a substantial portion of the cash flow of Arch and its subsidiaries
will be required to pay interest expense, which will reduce the funds which
would otherwise be available for operations and future business opportunities;
(iii) the 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"). The anticipated effects of the MobileMedia Transaction on
Arch's indebtedness and financial leverage are discussed under "--Anticipated
Effects of the MobileMedia Transaction". EBITDA is not a measure defined in
GAAP and should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with GAAP. EBITDA, as determined by
Arch, may not necessarily be comparable to similarly titled data of other
paging companies. See "Use of Proceeds", "Capitalization", "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.
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 Private Note Offering and
application of the net proceeds
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therefrom as described herein under "Use of Proceeds", borrowings pursuant to
the Credit Facility and the Equity Investment, the Notes were structurally
subordinated to $344.3 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 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 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 $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 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 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.
ANTICIPATED EFFECTS OF THE MOBILEMEDIA TRANSACTION
The MobileMedia Transaction, if consummated, is expected to increase Arch's
indebtedness by approximately $200.0 million and API's indebtedness by
approximately $150.0 million and will cause API to own additional subsidiaries
having liabilities of their own. The debt-to-equity ratio for Arch (without
regard to its subsidiaries) is expected to increase, although the debt-to-
equity ratio and the ratio of the total debt to annualized EBITDA for Parent
and for Arch, each on a consolidated basis, is expected to decrease (and the
ratio of EBITDA to interest expense is expected to increase). The Notes will
not be guaranteed by API's new
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MobileMedia subsidiaries following consummation of the MobileMedia
Transaction. For the reasons described under "--Holding Company Structure and
Structural Subordination of the Notes", the assets and EBITDA of API's new
MobileMedia subsidiaries will primarily benefit the creditors of API and only
indirectly benefit the holders of the Notes or other creditors of Arch. See
the chart which appears on page 14.
To fund the estimated cash payments required by the MobileMedia Transaction
of approximately $347.0 million (net of the expected proceeds of Parent's
proposed rights offering), API and The Bank of New York, Toronto Dominion
(Texas), Inc., Royal Bank of Canada and Barclays Bank, PLC have executed a
commitment letter for a $200.0 million increase to the Credit Facility (the
"Credit Facility Increase"), API intends to borrow an additional $150.0
million under the Credit Facility and Arch intends to issue $200.0 million of
new senior notes (the "Planned Arch Notes"). The Credit Facility Increase is
subject to approval by all lenders under the Credit Facility, and there can be
no assurance such approval will be granted. In addition, there can be no
assurance that Arch will complete an offering of the Planned Arch Notes on
terms satisfactory to it, or at all. As a result, Arch and The Bear Stearns
Companies, Inc., TD Securities (USA), Inc., the Bank and Royal Bank of Canada
(the "Bridge Lenders") have executed a commitment letter for a $120.0 million
bridge facility (the "Bridge Facility") which would be available to Arch in
the absence of an offering of the Planned Arch Notes. The Planned Arch Notes,
the Bridge Facility and the MobileMedia Transaction each require approval by
the Required Lenders (as defined in the Credit Facility), and there can be no
assurance such approval will be granted. See "Description of Certain
Indebtedness--Bridge Facility". If API's lenders do not grant the foregoing
approvals, and Parent is not able to arrange alternative financing to make the
cash payments required by the MobileMedia Transaction and therefore cannot
consummate the MobileMedia Transaction, and Parent's failure to perform its
obligation to do so is not otherwise excused, Parent will be liable to pay a
fee of $32.5 million to MMC. See "--Possible Non-Consummation of the
MobileMedia Transaction".
CREDIT FACILITY AND INDENTURE RESTRICTIONS
The Credit Facility and the Indenture impose certain operating and financial
restrictions on Arch. The Credit Facility requires API, and in certain cases
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 Credit Facility. In addition, the Credit Facility
limits or restricts, among other things, API's ability to: (i) declare
dividends or redeem or repurchase capital stock; (ii) prepay, redeem or
purchase debt; (iii) incur liens and engage in sale/leaseback transactions;
(iv) make loans and investments; (v) incur indebtedness and contingent
obligations; (vi) amend or otherwise alter debt 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 Credit Facility and/or Indenture. Upon the occurrence of an
event of default under the Credit Facility or the Indenture, the lenders under
the Credit Facility could elect to declare all amounts outstanding under the
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 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 Credit Facility and the Indenture limit the
ability of Arch to engage in certain transactions except under certain
circumstances, Arch may be prohibited from entering into transactions that
could be beneficial to Arch. See "Description of Certain Indebtedness" and
"Description of Notes".
The Bridge Facility contains restrictions that are substantially similar to
those contained in the Credit Facility, including without limitation
restrictions that, among other things, limit additional indebtedness and
encumbrances on assets, cash dividends and other distributions; mergers and
sales of assets; the repurchase or
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redemption of capital stock; investments; acquisitions and mergers; and
transactions with affiliates or between Parent and its subsidiaries. In
addition, the Bridge Facility requires Arch and its subsidiaries to meet
certain financial covenants, including covenants with respect to ratios of
EBITDA to fixed charges, EBITDA to debt service, EBITDA to interest expense
and total indebtedness to EBITDA.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
The Credit Facility limits the ability of Arch to purchase any of the Notes,
and also provides 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 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. Arch believes that consummation of the
MobileMedia transaction will not constitute such a Change in Control; however,
there can be no assurance that creditors will not allege that the MobileMedia
Transaction constitutes a Change in 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 narrowband personal communications
services ("N-PCS") strategy, acquisition strategies and opportunities. No
assurance can be given that additional equity or debt financing will be
available to Arch when needed on acceptable terms, if at all. The
unavailability of sufficient financing when needed would 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". For a
discussion of the anticipated effects of the MobileMedia Transaction on Arch's
capital needs and capital resources, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources".
HISTORY OF LOSSES
Arch has not reported any net income since its inception. Arch reported net
losses of $30.3 million, $87.0 million, $146.6 million and $90.9 million in
the years ended December 31, 1995, 1996 and 1997 and the six months ended June
30, 1998, respectively. These net losses resulted principally from substantial
depreciation and amortization expense, primarily related to intangible assets
and pager depreciation, interest expense 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 continued industry consolidation. Arch
has evaluated and expects to continue to evaluate possible
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acquisition transactions on an ongoing basis and at any given time may be
engaged in discussions with respect to possible acquisitions or other business
combinations. The process of integrating acquired paging businesses may
involve unforeseen difficulties and may require a disproportionate amount of
the time and attention of Arch's management and of Arch's financial and other
resources. No assurance can be given that suitable acquisition transactions
can be identified, financed and completed on acceptable terms, that Arch's
future acquisitions will be successful, or that Arch will participate in any
future consolidation of the paging industry. See "Business".
An acquisition of MobileMedia by Parent will increase the indebtedness of
Arch and its subsidiaries and will 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--Recent Developments--Anticipated MobileMedia
Transaction".
There can be no assurance that Parent's expectations regarding future
operations following the MobileMedia Transaction will be fulfilled. The
success of the MobileMedia Transaction will depend in part on the ability of
Parent to effectively integrate the businesses of Arch and MobileMedia. The
process of integrating the businesses of Arch and MobileMedia may involve
unforeseen difficulties and may require a disproportionate amount of time and
attention of Arch's management and financial and other resources of Arch
following the MobileMedia Transaction. Although it is anticipated that the
MobileMedia Transaction will provide the opportunity for synergies and
efficiencies, there can be no assurance as to the timing or amount of
synergies or efficiencies that may ultimately be attained. Certain of the
anticipated benefits of the MobileMedia Transaction may not be achieved if
Arch's and MobileMedia's existing operations are not successfully integrated
in a timely manner. The difficulties of such integration may initially be
increased by the necessity of coordinating geographically separate
organizations and integrating personnel with disparate business backgrounds
and corporate cultures. There can be no assurance that Arch will be able to
successfully integrate MobileMedia's operations or, even if successfully
integrated, that Arch's operating performance after the MobileMedia
Transaction will be successful. If Arch is not successful in integrating
MobileMedia's operations or if the integrated operations fail to achieve
market acceptance, Arch would be materially adversely affected. In addition,
following the MobileMedia Transaction, the implementation of Arch's business
strategy will be subject to numerous other contingencies beyond the control of
Arch, including general and regional economic conditions, interest rates,
competition, changes in regulation and the ability to attract and maintain
skilled employees. As a result, no assurance can be given that the MobileMedia
Transaction will be successful or that Arch's business strategies will prove
effective or that Arch will achieve its goals after the MobileMedia
Transaction.
POSSIBLE NON-CONSUMMATION OF THE MOBILEMEDIA TRANSACTION
Consummation of the MobileMedia Transaction is subject to Bankruptcy Court
approval, approval by Parent's stockholders and MobileMedia's creditors, FCC
approval, performance by third parties of their contractual obligations, the
availability of sufficient financing and other 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.
If MobileMedia terminates the MobileMedia Transaction as the result of
Parent being in material breach of its representations, warranties and
covenants, the failure of Parent's Board of Directors to recommend the
MobileMedia Transaction for stockholder approval or the failure of the
MobileMedia Transaction to be approved by Parent's stockholders, or Parent or
MobileMedia terminates the MobileMedia Transaction as a result of Parent's
failure to obtain the financing necessary to effect the MobileMedia
Transaction (when all other conditions to Parent's obligations to close have
been satisfied), and at the time of such termination MobileMedia is not in
material breach of any material covenant or obligation required to be
performed by MobileMedia thereunder at or before such time and is not in
breach of its representations and warranties (except where the matters in
respect of which such representations and warranties are in breach would not
in the aggregate have a material adverse effect on MobileMedia), then Parent
must pay to MobileMedia as promptly as practicable after
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demand therefor (but in no event later than the third business day thereafter)
the amount of $32.5 million in cash (the "MobileMedia Breakup Fee"). Parent
would also be solely responsible for its own fees and expenses in connection
with the MobileMedia Transaction, which are estimated at between $15.0 million
and $30.0 million (depending on the date of termination). If the MobileMedia
Transaction is terminated for reasons that do not require payment of a
MobileMedia Breakup Fee by Parent, Parent would be responsible for its own
fees and expenses, subject in certain specified circumstances to payment by
MobileMedia of a breakup fee to Parent in the amount of $25.0 million.
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 key man life insurance
on, 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".
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. Monthly fees for basic paging services have, in general, declined in
recent years, due in part to competitive conditions, and Arch may face
significant price-based competition in the future which could have a material
adverse effect on Arch. Certain 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.
Competitors are currently using and developing a variety of two-way paging
technologies. Arch does not presently provide such two-way services, other
than as a reseller. Although such services generally are higher priced than
traditional one-way paging services, technological improvements could result
in increased capacity and efficiency for such two-way paging technologies and,
accordingly, could result in increased competition for Arch. 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 FCC are aimed at encouraging such
technological advances and new services. Other forms of wireless two-way
communications technology, including cellular and broadband personal
communications services ("PCS"), and specialized mobile radio services, also
compete with the paging services that Arch provides. While such services are
primarily focused on two-way voice communications, service providers are, in
many cases, electing to provide paging services as an adjunct to their primary
services. Technological change also may affect the value of the pagers owned
by Arch and 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. Such additional investment or capital expenditures 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".
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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 EBITDA. 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 THIRD PARTIES
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 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 automatic
renewal for successive one year terms unless either party gives notice of
cancellation by May 20 of any year. There can be no assurance that Arch's
agreement with Motorola will be automatically renewed or, if renewed, that
such agreement will be on terms and conditions as favorable to Arch as those
under the current agreement. Although Arch believes that sufficient
alternative sources of pagers, terminals and transmitters exist, there can be
no assurance that Arch would not be materially adversely affected if it were
unable to obtain these items from current supply sources or on terms
comparable to existing terms. See "Business--Sources of Equipment". Arch also
relies on third parties to provide satellite transmission for some aspects of
its paging services. To the extent there are satellite outages or if satellite
coverage is otherwise impaired, Arch may experience a loss of service until
such time as satellite coverage is restored, which could have an adverse
material effect on Arch. See also "--Impact of the Year 2000 Issue".
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
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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, 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
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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 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".
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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 "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A. 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.
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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
November , 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.
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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").
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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, that it
is not a broker-dealer that owns Private Notes acquired directly from the
Issuer or an affiliate of the Issuer, that it is acquiring the Exchange Notes
in the ordinary course of the undersigned's business and that the undersigned
has no defined arrangement with any person to participate in the distribution
of the Exchange Notes. 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.
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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
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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 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
29
<PAGE>
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.
30
<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) 244-5011
Attn: Flora Gomez
U.S. Bank Trust National
Association
180 E. 5th Street
St. Paul, Minnesota 55101 Confirm by Telephone:
(612) 244-8161
Attn: Specialized Finance
Department
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.
31
<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 Private Note Offering expenses paid by Arch)
were $122.6 million. Arch has used such net proceeds, together with borrowings
under the 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 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 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 Credit Facility upon
consummation of the Private Note Offering. As of June 30, 1998, $287.0 million
of indebtedness was outstanding under the 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 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 Credit Facility, see "Description of
Certain Indebtedness--Credit Facility".
32
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Arch at June 30, 1998
reflecting, among other things, (a) the Private Note Offering and application
of the estimated net proceeds therefrom, (b) the Subsidiary Restructuring, (c)
borrowings pursuant to the 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 JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Current maturities of long-term debt..................... $ --
========
Long-term debt, less current maturities:
Credit Facility(1)(2).................................. $287,000(3)
12 3/4% Senior Notes due 2007.......................... 127,464
9 1/2% Senior Notes due 2004(4) ....................... 125,000
14% Senior Notes due 2004(4) .......................... 100,000
--------
Total long-term debt................................. 639,464(3)
Stockholder's equity:
Common stock--$.01 par value,
authorized 1,000 shares, issued and
outstanding: 849 shares............................... --
Additional paid-in capital............................. 642,225
Accumulated deficit.................................... (406,452)
--------
235,773
--------
Total capitalization................................. $875,237
========
</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 Arch Tower Site
Sale. Arch will use such net proceeds (estimated to be $36.0 million) to
temporarily repay indebtedness under the Credit Facility until such
amounts are used to purchase assets for use in Arch's business.
(3) If the MobileMedia Transaction is consummated, Arch expects to increase
its total borrowings by approximately $350.0 to $355.0 million, consisting
of either (a) approximately $150.0 million under the Credit Facility and
approximately $200.0 million of Planned Arch Notes or (b) approximately
$235.0 million under the Credit Facility and approximately $120.0 million
under the Bridge Facility.
(4) The Notes rank pari passu in right of payment with this obligation.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
Prior to the Subsidiary Restructuring, ACE and USAM were wholly-owned
subsidiaries of Parent. The Subsidiary Restructuring has been 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--Anticipated
MobileMedia Transaction".
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 June 30,
1998 and for the six-month periods ended June 30, 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 SIX MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, (1) DECEMBER 31, (1) YEAR ENDED DECEMBER 31, JUNE 30,
----------------- ------------------ ---------------------------------------- ------------------
1993 1994 1993 1994 1994 (1) 1995 (1) 1996 1997 1997 1998
------- -------- -------- -------- -------- -------- --------- --------- -------- --------
(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 $171,978 $184,280
Product sales..... 5,698 12,108 2,912 5,178 14,374 24,132 39,971 44,897 22,290 21,305
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Total revenues.... 45,308 67,247 19,369 28,025 75,903 162,598 331,370 396,841 194,268 205,585
Cost of products
sold............. (4,031) (10,124) (2,027) (4,690) (12,787) (20,789) (27,469) (29,158) (14,291) (14,690)
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
41,277 57,123 17,342 23,335 63,116 141,809 303,901 367,683 179,977 190,895
Operating
expenses:
Service, rental
and maintenance.. 9,532 13,123 3,959 5,231 14,395 29,673 64,957 79,836 38,111 40,409
Selling........... 7,307 10,243 3,058 4,338 11,523 24,502 46,962 51,474 26,632 24,244
General and
administrative... 13,123 17,717 5,510 7,022 19,229 40,448 86,181 106,041 51,345 56,516
Depreciation and
amortization..... 13,764 16,997 5,549 6,873 18,321 60,037 191,101 231,376 119,681 107,915
Restructuring
Charge........... -- -- -- -- -- -- -- -- -- 16,100
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Operating income
(loss)........... (2,449) (957) (734) (129) (352) (12,851) (85,300) (101,044) (55,792) (54,289)
Interest and non-
operating
expenses, net.... (2,861) (4,112) (1,132) (1,993) (4,973) (20,397) (49,060) (62,884) (31,013) (32,703)
Equity in loss of
affiliate (2).... -- -- -- -- -- -- (1,968) (3,872) (1,812) (2,219)
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Income (loss)
before income tax
benefit and
extraordinary
item............. (5,310) (5,069) (1,866) (2,122) (5,325) (33,248) (136,328) (167,800) (88,617) (89,211)
Income tax
benefit.......... -- -- -- -- -- 4,600 51,207 21,172 10,600 --
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Income (loss)
before
extraordinary
item............. (5,310) (5,069) (1,866) (2,122) (5,325) (28,648) (85,121) (146,628) (78,017) (89,211)
Extraordinary item
(3).............. (415) -- -- (1,137) (1,137) (1,684) (1,904) -- -- (1,720)
------- -------- -------- -------- ------- -------- --------- --------- -------- --------
Net income
(loss)........... $(5,725) $ (5,069) $ (1,866) $ (3,259) $(6,462) $(30,332) $ (87,025) $(146,628) $(78,017) $(90,931)
======= ======== ======== ======== ======= ======== ========= ========= ======== ========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, (1) DECEMBER 31, (1) YEAR ENDED DECEMBER 31, JUNE 30,
---------------- ------------------ ----------------------------------------- --------------------
1993 1994 1993 1994 1994 (1) 1995 (1) 1996 1997 1997 1998
------- ------- -------- -------- -------- --------- --------- --------- --------- ---------
(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 $63,889 $69,726
EBITDA margin (5)...... 27% 28% 28% 29% 28% 33% 35% 35% 35% 37%
Capital expenditures,
excluding
acquisitions.......... $20,853 $25,657 $7,486 $15,279 $33,450 $60,468 $155,575 $102,767 $56,444 $59,937
Cash flows provided by
operating activities.. 8,721 14,781 5,306 4,680 14,155 16,874 40,476 64,606 36,010 44,332
Cash flows used in
investing activities.. (30,998) (28,982) (7,486) (34,364) (55,860) (192,549) (480,995) (102,767) (56,444) (59,937)
Cash flows provided by
financing activities.. 11,268 14,636 11,290 26,108 29,454 176,966 438,163 38,777 22,080 16,613
Pagers in service at
end of period......... 254,000 410,000 288,000 538,000 538,000 2,006,000 3,295,000 3,890,000 3,666,000 4,131,000
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 JUNE 30, 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 $52,238
Total assets........... 62,209 76,255 117,858 784,019 1,134,328 1,010,046 960,783
Long-term debt, less
current maturities.... 49,748 67,328 93,420 429,559 605,513 623,000 639,464
Stockholder's equity... 1,563 (3,304) 9,368 276,543 451,847 302,042 235,773
</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 commonly used measure of financial performance in the paging
industry and is also one of the financial measures used to calculate
whether Arch and its subsidiaries are in compliance with covenants under
their respective indebtedness, but should not be construed as an
alternative to operating income or cash flows from operating activities as
determined in accordance with GAAP. EBITDA, as determined by Arch, may not
necessarily be comparable to similarly titled data of other paging
companies. EBITDA does not reflect restructuring charge, equity in loss of
affiliate, income tax benefit, interest and non-operating expenses, net
and extraordinary items.
(5) Calculated by dividing EBITDA by total revenues less cost of products
sold. EBITDA margin is a measure commonly used in the paging industry to
evaluate a company's EBITDA relative to net revenues as an indicator of
the efficiency of a company's operations.
(6) For the purpose of this calculation, "earnings" consist of net income
(loss) before income taxes, restructuring charges 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 six
months ended June 30, 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, $88.6 million and $90.9 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:
35
<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>
36
<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 4.1 million pagers in service at June 30, 1998. From
January 1, 1995 through June 30, 1998, Arch's total number of subscribers grew
at a compound rate on an annualized basis of 79.0%. For the same period on an
annualized basis, Arch's compound rate of internal subscriber growth
(excluding pagers added through acquisitions) was 56.1%.
Arch derives the majority of its revenues from fixed periodic (usually
monthly) fees, not dependent on usage, charged to subscribers for paging
services. As long as a subscriber remains on service, operating results
benefit from the recurring payments of the fixed periodic fees without
incurrence of additional selling expenses by Arch. Arch's service, rental and
maintenance revenues and the related expenses exhibit substantially similar
growth trends. Arch's average revenue per subscriber has declined over the
last three years for two principal reasons: (i) an increase in the number of
subscriber owned and reseller owned pagers for which Arch receives no
recurring equipment revenue and (ii) an increase in the number of reseller
customers whose airtime is purchased at wholesale rates. The reduction in
average paging revenue per subscriber resulting from these trends has been
more than offset by the elimination of associated expenses so that Arch's
margins have improved over such period. Furthermore, recent data indicates
such rate of decline has slowed.
Arch has achieved significant growth in pagers in service and operating cash
flow through a combination of internal growth and acquisitions, including USA
Mobile in September 1995 and Westlink Holdings, Inc. ("Westlink") in May 1996.
Arch's total revenues have increased from $162.6 million in the year ended
December 31, 1995 to $331.4 million in the year ended December 31, 1996 and to
$396.8 million in the year ended December 31, 1997. Over the same periods,
through operating efficiencies and economies of scale, Arch has been able to
reduce its per pager operating costs to enhance its competitive position in
its markets. Due to the rapid growth in its subscriber base, Arch has incurred
significant selling expenses, which are charged to operations in the period
incurred. Arch had net losses of $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 commonly used measure of financial performance in the paging
industry and also is one of the financial measures used to calculate whether
Arch and its subsidiaries are in compliance with the covenants under their
respective debt agreements, but should not be construed as an alternative to
operating income or cash flows from operating activities as determined in
accordance with 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
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slowed during the second half of 1997 and is expected to remain below the
rates of internal growth previously achieved by Arch. Parent is also reviewing
the possible sale of non-strategic assets. In April 1998, Parent announced an
agreement to sell certain of Arch's tower site assets in the Arch Tower Site
Sale for approximately $38.0 million in cash (subject to adjustment). In the
Arch Tower Site Sale, Arch is selling communications towers, real estate, site
management contracts and/or leasehold interests involving 134 sites in 22
states and is renting space on the towers on which it currently operates
communications equipment to service its own paging network. Arch is using its
net proceeds from the Arch Tower Site Sale (estimated to be $36.0 million) to
repay indebtedness. Arch held the initial closing of the Arch Tower Site Sale
on June 26, 1998 with gross proceeds to Arch of approximately $12.0 million
(excluding $1.3 million which was paid to Benbow for certain assets which
Benbow sold as part of the initial closing), held a second closing on
September 29, 1998 with gross proceeds to Arch of $20.4 million and currently
expects to hold the final closing for the balance of the transaction in the
fourth quarter of 1998, although no assurance can be given that the final
closing will be held as expected. The closing of the Arch Tower Site Sale is
subject to receipt of customary regulatory approvals and other conditions. See
"Business--Arch--Investments in Narrowband PCS Licenses".
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 and consolidate
certain regional administrative support functions, resulting in various
operating efficiencies. Once fully implemented, the Divisional Reorganization
is expected to result in annual cost savings of approximately $15.0 million
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)
recorded a restructuring charge of $16.1 million during the second quarter of
1998. The restructuring charge consisted of approximately (i) $9.7 million for
employee severance and benefits, (ii) $3.5 million for lease obligations and
terminations and (iii) $2.9 million for the writedown of related assets. There
can be no assurance that the desired cost savings will be achieved or that the
anticipated reorganization of Arch's business will be accomplished smoothly,
expeditiously or successfully. The difficulties of such reorganization may be
increased by the need to integrate MobileMedia's operations in multiple
locations and to combine two corporate cultures. The inability to successfully
integrate the operations of MobileMedia could have a material adverse effect
on Arch following the MobileMedia Transaction. See Note 9 to Arch's
Consolidated Financial Statements.
The Subsidiary Restructuring is described under "Business--General".
38
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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>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------
1995 1996 1997 1997 1998
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues.................. 114.7 % 109.0 % 107.9 % 107.9 % 107.7 %
Cost of products sold........... (14.7) (9.0) (7.9) (7.9) (7.7)
------- ------- ------- ----- -----
Net revenues.................... 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Service, rental and
maintenance.................. 20.9 21.4 21.7 21.2 21.2
Selling....................... 17.3 15.4 14.0 14.8 12.7
General and administrative.... 28.5 28.4 28.9 28.5 29.6
Depreciation and
amortization................. 42.4 62.9 62.9 66.5 56.5
Restructuring charge.......... -- -- -- -- 8.4
------- ------- ------- ----- -----
Operating income (loss)......... (9.1)% (28.1)% (27.5)% (31.0)% (28.4)%
======= ======= ======= ===== =====
Net income (loss)............... (21.4)% (28.6)% (39.9)% (43.3)% (47.6)%
======= ======= ======= ===== =====
EBITDA.......................... 33.3 % 34.8 % 35.4 % 35.5 % 36.5 %
======= ======= ======= ===== =====
Annual service, rental and
maintenance expenses per
pager.......................... $ 28 $ 25 $ 22 $ 22 $ 20
</TABLE>
Six Months Ended June 30, 1998 Compared with Six Months Ended June 30, 1997
Total revenues increased $11.3 million, or 5.8% , to $205.6 million in the
six months ended June 30, 1998 from $194.3 million in the six months ended
June 30, 1997, and net revenues (total revenues less cost of products sold)
increased $10.9 million, or 6.1%, from $180.0 million to $190.9 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 $12.3 million, or 7.2%, to $184.3 million in the six months ended
June 30, 1998 from $172.0 million in the six months ended June 30, 1997. These
increases in revenues were due primarily to an increase through internal
growth in the number of pagers in service from 3.7 million at June 30, 1997 to
4.1 million at June 30, 1998. Maintenance revenues represented less than 10%
of total service, rental and maintenance revenues in the six months ended June
30, 1998 and 1997. Arch does not differentiate between service and rental
revenues. Product sales, less cost of products sold, decreased 17.3% to $6.6
million in the six months ended June 30, 1998 from $8.0 million in the six
months ended June 30, 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 $40.4 million (21.2% of
net revenues) in the six months ended June 30, 1998 from $38.1 million (21.2%
of net revenues) in the six months ended June 30, 1997. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of subscribers. As existing
paging systems become more populated through the addition of new subscribers,
the fixed costs of operating these paging systems are spread over a greater
subscriber base. Annualized service, rental and maintenance expenses per
subscriber decreased to $20 in the six months ended June 30, 1998 from $22 in
the six months ended June 30, 1997.
Selling expenses decreased to $24.2 million (12.7% of net revenues) in the
six months ended June 30, 1998 from $26.6 million (14.8% of net revenues) in
the six months ended June 30, 1997. The decrease was due primarily to a
decrease in the number of net new subscriber additions and nonrecurring
marketing costs incurred in 1997 to promote Arch's new Arch Paging brand
identity. The number of net new pagers in service resulting from internal
growth decreased by 35.0% in the six months ended June 30, 1998 compared to
the six months ended June 30, 1997. Most selling expenses are directly related
to the number of net new subscribers added.
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General and administrative expenses increased to $56.5 million (29.6% of net
revenues) in the six months ended June 30, 1998 from $51.3 million (28.5% of
net revenues) in the six months ended June 30, 1997. The increase was due
primarily to administrative and facility costs associated with supporting more
pagers in service.
Depreciation and amortization expenses decreased to $107.9 million in the
six months ended June 30, 1998 from $119.7 million in the six months ended
June 30, 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 $54.3 million in the six months ended June 30,
1998 from $55.8 million in the six months ended June 30, 1997 as a result of
the factors outlined above, including the $16.1 million restructuring charge
recorded in the second quarter of 1998.
Net interest expense increased to $32.7 million in the six months ended June
30, 1998 from $31.0 million in the six months ended June 30, 1997. The
increase was attributable to an increase in Arch's average outstanding debt.
Arch recognized an income tax benefit of $10.6 million in the six months
ended June 30, 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, in the
foreseeable future, its deferred tax asset and will continue to increase its
valuation reserve accordingly.
In June 1998, Arch recognized an extraordinary charge of $1.7 million
representing the write-off of unamortized deferred financing costs associated
with the prepayment of indebtedness under prior credit facilities.
Net loss increased to $90.9 million in the six months ended June 30, 1998
from $78.0 million in the six months ended June 30, 1997 as a result of the
factors outlined above.
EBITDA increased 9.1% to $69.7 million (36.5% of net revenues) in the six
months ended June 30, 1998 from $63.9 million (35.5% of net revenues) in the
six months ended June 30, 1997 as a result of the factors outlined above.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Total revenues increased $65.5 million, or 19.8%, to $396.8 million in the
year ended December 31, 1997 from $331.4 million in the year ended December
31, 1996 and net revenues increased $63.8 million, or 21.0%, from $303.9
million to $367.7 million over the same period. Service, rental and
maintenance revenues increased $60.5 million, or 20.8%, to $351.9 million in
the year ended December 31, 1997 from $291.4 million in the year ended
December 31, 1996. These increases in revenues were due primarily to the
increase in the number of pagers in service from 3.3 million at December 31,
1996 to 3.9 million at December 31, 1997 and the full year impact of the
Westlink acquisition which was completed in May 1996. Maintenance revenues
represented less than 10% of total service, rental and maintenance revenues in
the years ended December 31, 1996 and 1997. 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
40
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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.
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.
41
<PAGE>
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.
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 $56.4 million in the six months ended June 30, 1998. To date, Arch
has funded its capital expenditures with net cash provided by operating
activities, the incurrence of debt and advances from Parent.
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Arch currently anticipates capital expenditures of approximately $85 million
to $90 million for the year ending December 31, 1998, primarily for the
purchase of pagers, paging system equipment and transmission equipment, as
well as expenditures for information systems and advances to Benbow (as
described below). Such amounts are subject to change based on Arch's internal
growth rate and acquisition activity, if any, during 1998. Included in Arch's
anticipated capital expenditures for 1998 is funding to upgrade hardware and
internally develop software for a centralized billing and management
information system which is expected to offer the back office capability to
support significant future growth and to address year 2000 issues. See "Risk
Factors--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, Inc. ("Page Call")) will be approximately $100.0
million over the next five years. Arch currently anticipates that
approximately $40.0 million (approximately $10.0 million in each of the next
four years) of such amount will be funded by Arch and the balance will be
funded through vendor financing and other sources. Arch is also funding
ongoing obligations in connection with Benbow's recent acquisition of Page
Call. See "Business--Investments in Narrowband PCS Licenses".
The amount of capital required by Parent following the MobileMedia
Transaction will depend on 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 Parent's N-PCS strategy,
acquisition strategies and opportunities.
Other Commitments and Contingencies
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 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 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
43
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assurance can be given that, if necessary, Arch would be able to modify the
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".
If the MobileMedia Transaction is consummated, Parent will be obligated to
pay $479.0 million to creditors of MobileMedia, pay approximately $85.0
million of administrative, transactional and related costs, raise $217.0
million through a rights offering of its stock, cause Arch and API to borrow
an estimated total of $350.0 to $355.0 million, and issue certain stock,
warrants and stock purchase rights.
If MobileMedia terminates the MobileMedia Transaction as the result of
Parent being in material breach of its representations, warranties and
covenants, the failure of Parent's Board of Directors to recommend the
MobileMedia Transaction for stockholder approval or the failure of the
MobileMedia Transaction to be approved by Parent's stockholders, or Parent or
MobileMedia terminates the MobileMedia Transaction as a result of Parent's
failure to obtain the financing necessary to effect the MobileMedia
Transaction (when all other conditions to Parent's obligations to close have
been satisfied), and at the time of such termination MobileMedia is not in
material breach of any material covenant or obligation required to be
performed by MobileMedia thereunder at or before such time and is not in
breach of its representations and warranties (except where the matters in
respect of which such representations and warranties are in breach would not
in the aggregate have a material adverse effect on MobileMedia), then Parent
will be required to pay to MobileMedia as promptly as practicable after demand
therefor (but in no event later than the third business day thereafter) the
$32.5 million MobileMedia Breakup Fee. Parent would also be solely responsible
for its own fees and expenses in connection with the MobileMedia Transaction,
which are estimated at between $15.0 million and $30.0 million (depending on
the date of termination). If the MobileMedia Transaction is terminated for
reasons that do not require payment of a MobileMedia Breakup Fee by Parent,
Parent would be responsible for its own fees and expenses, subject in certain
specified circumstances to payment by MobileMedia of a breakup fee to Parent
in the amount of $25.0 million.
Credit Facility
On June 29, 1998, the Credit Facility was amended and restated to establish
a $400.0 million 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--Credit Facility".
Effective as of August 18, 1998, API, in contemplation of the MobileMedia
Transaction, The Bank of New York, Royal Bank of Canada, Barclay's Bank, PLC
and Toronto Dominion (Texas), Inc. executed a commitment letter for the Credit
Facility Increase, which, subject to approval by each of API's lenders, would
result in up to a $25.0 million increase in the Tranche A Facility, up to a
$25.0 million increase in the Tranche B Facility and up to a $200.0 million
increase in the Tranche C Facility. See "Description of Certain Indebtedness--
Credit Facility" and "Risk Factors--Credit Facility and Indenture
Restrictions".
Planned Arch Notes
Arch intends to seek to issue approximately $200.0 million of unsecured
Planned Arch Notes to institutional investors in one or more private
placements to be effected prior to consummation of the MobileMedia
44
<PAGE>
Transaction during the first quarter of 1999. The interest rate, maturity,
redemption rights (if any) and other financial terms of such Notes would be
negotiated with prospective investors prior to issuance in light of then
prevailing market conditions. No assurance can be given that Arch will be able
to issue such Notes on satisfactory terms, or at all.
Bridge Facility
Effective as of August 8, 1998, ACI and the Bridge Lenders executed a
commitment letter for the Bridge Facility pursuant to which a $120.0 million
term loan will be available for a single drawing on the closing date of the
MobileMedia transaction. See "Description of Certain Arch Indebtedness--Bridge
Facility" and "Risk Factors--Credit Facility and Indenture Restrictions".
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 $44.3 million in the six months ended June 30, 1998.
Arch believes that its capital needs for the foreseeable future will be
funded with borrowings under current and future credit facilities, net cash
provided by operations and, depending on Arch's needs and market conditions,
possible sales of equity or debt securities. For additional information, see
Note 3 of Notes to Arch's Consolidated Financial Statements. Arch's ability to
access future borrowings will be dependent, in part, on its ability to
continue to grow its EBITDA. After giving effect to the Private Note Offering
and application of the net proceeds therefrom as described under "Use of
Proceeds", borrowings pursuant to the Credit Facility and the completion of
the Equity Investment and application of the proceeds therefrom, Arch had
$287.0 million outstanding, and approximately $67.3 million in immediately
available borrowing capacity, under the $400.0 million Credit Facility. See
"Risk Factors--Indebtedness and High Degree of Leverage".
After giving pro forma effect to the MobileMedia Transaction and assuming an
offering of the Planned Arch Notes, Arch estimates it will have $415.0 million
outstanding under the Credit Facility, and approximately $185.0 million in
available borrowing capacity under the Credit Facility. If Arch is unable to
complete the Planned Arch Notes offering and therefore borrows under the
Bridge Facility, Arch estimates that the principal amount outstanding under
the Credit Facility would increase to $495.0 million and available borrowing
capacity would be reduced to approximately $105.0 million.
Equity Investment
On June 29, 1998, two partnerships managed by Sandler Capital Management
Company, an investment management firm ("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 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 ACE's former
credit facility as part of the establishment of the 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
45
<PAGE>
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 Consolidated 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--Recent Developments--Anticipated MobileMedia Transaction" and "Risk
Factors--Possible Acquisition Transactions".
For a description of the proposed MobileMedia Transaction and certain of its
anticipated effects on Parent and Arch, see "--Other Commitments and
Consequences", "Prospectus Summary--Anticipated MobileMedia Transaction" and
"Risk Factors--Possible Acquisition Transactions" and "--Possible Non-
Consummation of the MobileMedia Transaction".
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.
46
<PAGE>
RECENT AND PENDING ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a set of general-purpose financial statements. The Company adopted SFAS No.
130 in 1998. The adoption of this standard did not have an effect on its
reporting of income.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Arch intends to adopt SFAS No. 131 for
its year ending December 31, 1998. The adoption of this standard is not
expected to have a significant impact on its reporting.
In April 1998, the Accounting Standards Executive Committee of the Financial
Accounting Standards Board issued Statement of Position 98-5 ("SOP 98-5")
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. Initial
application of SOP 98-5 will be reported as the cumulative effect of a change
in accounting principle. Arch intends to adopt SOP 98-5 effective January 1,
1999. The adoption of SOP 98-5 is not expected to have a material effect on
Arch's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value and that changes in
the derivative's fair value be recognized currently in earnings. Arch intends
to adopt this standard effective January 1, 2000. Arch has not yet quantified
the impact of adopting SFAS No. 133 on its financial statements, however,
adopting SFAS No. 133 could increase volatility in earnings and other
comprehensive income.
47
<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 4.1 million pagers in service at June 30, 1998. Arch
operates in 41 states and more than 180 of the 200 largest markets in the
United States. Arch offers local, regional and nationwide paging services
employing digital networks covering approximately 85% of the United States
population. Arch offers four types of paging services through its networks:
digital display, alphanumeric display, tone-only and tone-plus-voice. Arch
also offers enhanced and complementary services, including voice mail,
personalized greeting, message storage and retrieval, pager loss protection
and pager maintenance.
Arch has achieved significant growth in pagers in service and operating cash
flow through a combination of internal growth and acquisitions. From January
1, 1995 through June 30, 1998, Arch's total number of subscribers grew at a
compound rate on an annualized basis of 79.0%. For the same period on an
annualized basis, Arch's compound rate of internal subscriber growth
(excluding pagers added through acquisitions) was 56.1%. From commencement of
operations in September 1986, Arch has completed 33 acquisitions representing
an aggregate of 1.7 million pagers in service at the time of purchase.
The following table sets forth certain information regarding the approximate
number of pagers in service with 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>
SIX MONTHS ENDED JUNE
30,
- ---------------------
<S> <C> <C> <C> <C>
1998.................... 3,890,000 241,000 -- 4,131,000
</TABLE>
- ---------------------
(1) Includes internal growth in acquired paging businesses after their
acquisition by Arch. Increases in pagers through internal growth are net
of subscriber cancellations during each applicable period.
(2) Based on pagers in service of acquired paging businesses at the time of
their acquisition by Arch.
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.
48
<PAGE>
On June 29, 1998, Arch effected the Subsidiary Restructuring involving
certain of its direct and indirect wholly owned subsidiaries. In the ACE/USAM
Merger, ACE was merged with API, which was then a subsidiary of USAM. In
connection with the ACE/USAM 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 ACE/USAM Merger, (i) USAM
contributed its operating assets and liabilities to an existing subsidiary of
USAM, (ii) The Westlink Company, which held ACE's 49.9% equity interest in
Benbow, distributed its Benbow assets and liabilities to a new subsidiary of
ACE, The Westlink Company II, (iii) ACE contributed its operating assets and
liabilities to an existing subsidiary of ACE, (iv) all of USAM's subsidiaries
were merged into API, and (v) The Westlink Company II was merged into a new
API subsidiary, Benbow Investments, Inc.
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.
The paging industry has been in existence since 1969 when the FCC allocated
a group of radio frequencies for use in providing one-way and two-way types of
mobile communications services. Throughout its history, the paging industry
has been characterized by consolidation, substantial growth and technological
change. Historically, the paging industry has been highly fragmented, with a
large number of small, local operators. Since the 1980s, concentration in the
paging industry has increased as paging companies continue to grow rapidly
either internally or through acquisitions.
Arch believes that paging is the most cost-effective form of mobile wireless
communications. Paging has an advantage over conventional telephone service
because a pager's reception is not restricted to a single location, and over a
cellular telephone or broadband PCS handset because a pager is smaller, has a
longer battery life and, most importantly, because pagers and air time
required to transmit an average message cost less than equipment and air time
for cellular telephones or broadband PCS handsets. Paging subscribers
generally pay a flat monthly service fee for pager services, regardless of the
number of messages, unlike cellular telephone or broadband PCS subscribers,
whose bills typically have a significant variable usage component. For these
reasons, some cellular subscribers use a pager in conjunction with their
cellular telephone to screen incoming calls and thus lower the expense of
cellular telephone service, and to a lesser extent, some broadband PCS
subscribers use a pager in conjunction with their broadband PCS handsets,
which often incorporate messaging functions, but have a much shorter battery
life.
Industry sources estimate that, since 1992, the number of pagers in service
in the United States has grown at an annual rate of approximately 25% and will
continue to grow at an annual rate of approximately 8% through the year 2001.
Based on industry sources, Arch believes that there were in excess of 49
million pagers in service in the United States at December 31, 1997. Factors
contributing to this growth include: (i) a continuing shift towards a service-
based economy; (ii) increasing mobility of workers and the population at
large; (iii) increasing awareness of the benefits of mobile communications
among the population at large; (iv) the relatively high cost of two-way mobile
communications, such as cellular telephone services; (v) introduction of new
or enhanced paging services, including nationwide paging capability; (vi)
continuing improvements in the performance of paging equipment; and (vii)
significant price/performance improvements in paging services. The paging
industry has undergone substantial consolidation over the past ten years, and
Arch believes that the top five paging carriers represent approximately 50% of
the pagers in service. Nonetheless, Arch believes that the paging industry
remains fragmented, with more than 300 licensed carriers in the United States,
and will continue to undergo consolidation.
49
<PAGE>
The paging industry has benefited from technological advances resulting from
research and development conducted by vendors of pagers and transmission
equipment. Such advances include microcircuitry, liquid crystal display
technology and standard digital encoding formats, which have enhanced the
capability and capacity of paging services while lowering equipment and air
time costs. Technological improvements have enabled Arch to provide better
quality services at lower prices to its subscribers and have generally
contributed to strong growth in the market for paging services.
The paging industry has traditionally distributed its services through
direct marketing and sales activities. In recent years, additional channels of
distribution have evolved, including: (i) carrier-operated stores; (ii)
resellers, who purchase paging services on a wholesale basis from carriers and
resell those services on a retail basis to their own customers; (iii) agents
who solicit customers for carriers and are compensated on a commission basis;
(iv) retail outlets that often sell a variety of merchandise, including pagers
and other telecommunications equipment; and (v) most recently, the Internet.
While most paging subscribers traditionally have been business users, industry
observers believe that pager use among consumers has increased significantly
in recent years. In addition, paging subscribers have increasingly chosen to
purchase rather than lease their pagers. These trends are expected to
continue.
BUSINESS STRATEGY
Arch's strategic objective is to strengthen its position as one of the
leading nationwide paging companies in the United States. Arch believes that
larger, multi-market paging companies enjoy a number of competitive
advantages, including: (i) operating efficiencies resulting from more
intensive utilization of existing paging systems; (ii) economies of scale in
purchasing and administration; (iii) broader geographic coverage of paging
systems; (iv) greater access to capital markets and lower costs of capital;
(v) the ability to obtain additional radio spectrum; (vi) the ability to offer
high-quality services at competitive prices; and (vii) enhanced ability to
attract and retain management personnel. Arch believes that the current size
and scope of its operations afford it many of these advantages, 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. See
"Prospectus Summary--Recent Developments--Anticipated MobileMedia Transaction"
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 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 EBITDA. To reduce capital
expenditures, Arch has implemented a company-wide focus on the sale,
50
<PAGE>
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 56.6% in the six months ended June 30, 1997
to 78.8% in the six months ended June 30, 1998. In addition, Arch has modified
its incentive compensation programs for line managers so that bonuses are
based, in part, on capital efficiency.
Fast Follower on N-PCS Opportunities
Consistent with its low-cost provider competitive tactic, Arch has focused
its capital and marketing resources on one-way paging and other enhanced
services rather than N-PCS services. However, Arch recognizes the potential
benefits to current and prospective customers and the associated market
opportunities from certain N-PCS applications, such as two-way text and voice
messaging services. Arch has taken steps to position itself to participate in
new and emerging N-PCS services and applications, including marketing N-PCS
services as a reseller and its 49.9% equity interest in Benbow. See"--
Investments in Narrowband PCS Licenses".
Exploit Revenue Enhancement Opportunities
Arch believes there are a number of new revenue opportunities associated
with its 4.1 million pagers in service, including increasing the proportion of
subscribers utilizing alphanumeric display services, which generate higher
revenue, and selling value-added, non-facilities based enhanced services such
as voicemail, resale of long-distance service and fax storage and retrieval.
See "--Paging 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 tone-plus-voice service in only a few markets.
Digital display paging service, which was introduced by the paging industry
nearly 20 years ago, has in recent years grown at a faster rate than tone-only
or tone-plus-voice service and currently represents a majority of all pagers
in service. The growth of alphanumeric display service, which was introduced
in the mid-1980s, has been constrained by its difficult data-input and
specialized equipment requirements and its relatively high use of system
capacity during transmission. The following table summarizes the types of
Arch's pagers in service at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1995 1996 1997 1998
------------- ------------- ------------- -------------
UNITS % UNITS % UNITS % UNITS %
--------- --- --------- --- --------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Digital display......... 1,755,000 87% 2,796,000 85% 3,284,000 85% 3,478,000 84%
Alphanumeric display.... 171,000 9 395,000 12 524,000 13 580,000 14
Tone-only............... 37,000 2 54,000 2 43,000 1 38,000 1
Tone-plus-voice......... 43,000 2 50,000 1 39,000 1 35,000 1
--------- --- --------- --- --------- --- --------- ---
Total.................. 2,006,000 100% 3,295,000 100% 3,890,000 100% 4,131,000 100%
========= === ========= === ========= === ========= ===
</TABLE>
51
<PAGE>
Arch provides paging service to subscribers for a monthly fee. Subscribers
either lease the pager from Arch for an additional fixed monthly fee or they
own the pager, having purchased it either from Arch or from another vendor.
The monthly service fee is generally based upon the type of service provided,
the geographic area covered, the number of pagers provided to the customer and
the period of the subscriber's commitment. Subscriber-owned pagers provide a
more rapid recovery of Arch's capital investment than pagers owned and
maintained by Arch, but may generate less recurring revenue. Arch also sells
pagers to third-party resellers who lease or resell pagers to their own
subscribers and resell Arch's paging services under marketing agreements. The
following table summarizes the number of Arch-owned and leased, subscriber-
owned and reseller-owned pagers in service at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1995 1996 1997 1998
------------- ------------- ------------- -------------
UNITS % UNITS % UNITS % UNITS %
--------- --- --------- --- --------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arch-owned and leased... 902,000 45% 1,533,000 47% 1,740,000 45% 1,791,000 43%
Subscriber-owned........ 596,000 30 914,000 28 1,087,000 28 1,205,000 29
Reseller-owned.......... 508,000 25 848,000 25 1,063,000 27 1,135,000 28
--------- --- --------- --- --------- --- --------- ---
Total.................. 2,006,000 100% 3,295,000 100% 3,890,000 100% 4,131,000 100%
========= === ========= === ========= === ========= ===
</TABLE>
Arch provides enhancements and ancillary services such as voice mail,
personalized greetings, message storage and retrieval, pager loss protection
and pager maintenance services. Voice mail allows a caller to leave a recorded
message that is stored in Arch's computerized message retrieval center. When a
message is left, the subscriber can be automatically alerted through the
subscriber's pager and can retrieve the stored message by calling Arch's
paging terminal. Personalized greetings allow the subscriber to record a
message to greet callers who reach the subscriber's pager or voice mail box.
Message storage and retrieval allows a subscriber who leaves Arch's service
area to retrieve calls that arrived during the subscriber's absence from the
service area. Pager loss protection allows subscribers who lease pagers to
limit their costs of replacement upon loss or destruction of a pager. Pager
maintenance services are offered to subscribers who own their own equipment.
Arch is also in the process of test marketing various non-facilities-based
value-added services that can be integrated with existing paging services.
These include, among other services, voicemail, resale of long distance
service and fax storage and retrieval.
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 exclusive rights
to a 50 KHz outbound/12.5 KHz inbound N-PCS license in each of the five
regions of the United States directly or through Page Call, which Benbow
acquired on June 29, 1998 for certain preferred stock and a promissory note in
the aggregate principal amount of $17.2 million with a 12% annual return.
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'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
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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
June 30, 1998, Arch had advanced $18.0 million to Benbow.
Pursuant to a five-year management agreement expiring on October 1, 2000,
Arch is responsible, subject to Benbow's ultimate control, for Benbow's day-
to-day operations and is paid a management fee and is reimbursed for its
expenses. Arch also has a right of first refusal to provide Benbow with
design, engineering and construction services for its N-PCS system as well as
to lease certain equipment to Benbow for use in connection with such system.
Arch has a right of first refusal with respect to any transfer of shares held
by 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.
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.
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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.
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, announced 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
The paging industry is highly competitive with price being the primary means
of differentiation among providers of numeric display paging services.
Companies in the industry also compete on the basis of coverage area offered
to subscribers, available services offered in addition to basic numeric or
tone paging, transmission quality, system reliability and customer service.
Arch competes by maintaining competitive pricing of its products and service
offerings, by providing high-quality, reliable transmission networks and by
furnishing subscribers a superior level of customer service. Several hundred
licensed paging companies provide only local basic numeric or tone paging
service. Compared to these companies, Arch offers wireless messaging services
on a local, regional and nationwide basis. In addition, Arch offers enhanced
services such as alphanumeric paging, voice mail and voice mail notifications,
news, sports, weather reports and stock quotes.
Arch competes with one or more competitors in all markets in which it
operates. Although some of Arch's competitors are small, privately owned
companies serving one market area, others are large diversified
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telecommunications companies serving numerous markets. 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 MobileMedia, Paging Network, Inc., Metrocall, Inc., and
AirTouch Communications, Inc.
As paging services become increasingly interactive, and as two-way services
become increasingly competitive, the scope of competition for communications
service customers in Arch's markets may broaden. For example, the FCC has
created potential sources of competition by auctioning new spectrum for
Wireless Communications Services and Local Multipoint Distribution Service and
holding an auction in the 220-222 MHZ service. Further, the FCC has announced
plans to auction licenses in the General Wireless Communications Services, a
service created from spectrum reallocated from federal government use in 1995.
Moreover, entities offering service on wireless two-way communications
technology, including cellular, broadband PCS and specialized mobile radio
services, as well as mobile satellite service providers, also compete with the
paging services that Arch provides. See "Risk Factors--Competition and
Technological Change."
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 Third
Parties".
Because of the high degree of compatibility among different models of
transmitters, computers and other paging equipment manufactured by suppliers,
Arch is able to design its systems without being dependent upon any single
source of such equipment. Arch routinely evaluates new developments in paging
technology in connection with the design and enhancement of its paging systems
and selection of products to be offered to subscribers. Arch believes that its
paging system equipment is among the most technologically sophisticated in the
paging industry.
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
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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.
Moreover, in a rulemaking proceeding pertaining to interconnection between
LECs and CMRS providers such as MobileMedia and Arch, the FCC has concluded
that LECs are required to compensate CMRS providers for the reasonable costs
incurred by such providers in terminating traffic that originates on LEC
facilities, and vice versa. Consistent with this ruling, the FCC has
determined that LECs may not charge a CMRS provider or other carrier for
terminating LEC-originated traffic or for dedicated facilities used to deliver
LEC-originated traffic to one-way paging networks. Nor may LECs charge CMRS
providers for number activation and use fees. These interconnection issues are
still in dispute, and it is unclear whether the FCC will maintain its current
position.
Depending on further FCC disposition of these issues, Arch may or may not be
successful in securing refunds, future relief or both, with respect to charges
for termination of LEC-originated local traffic. If the FCC ultimately reaches
an unfavorable resolution, then Arch believes that it would pursue relief
through settlement negotiations, administrative complaint procedures or both.
If these issues are ultimately decided in favor of the LECs, Arch likely would
be required to pay all past due contested charges and may also be assessed
interest and late charges for amounts withheld.
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
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.
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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 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.
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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 June 30, 1998, Arch owned five office buildings and leased office space
(including its executive offices) in over 200 localities in 35 states for use
in conjunction with its paging operations. Arch leases transmitter sites
and/or owns transmitters on commercial broadcast towers, buildings and other
fixed structures in approximately 3,200 locations in 45 states. Arch's leases
are for various terms and provide for monthly lease payments at various rates.
Arch believes that it will be able to obtain additional space as needed at
acceptable cost. In April 1998, Parent announced an agreement for the Arch
Tower Site Sale for approximately $38.0 million in cash (subject to
adjustment). In the Arch Tower Site Sale, Arch is selling communications
towers, real estate, site management contracts and/or leasehold interests
involving 134 sites in 22 states, and renting space on the towers on which it
currently operates communications equipment to service its own paging network.
Arch is using its net proceeds from the Arch Tower Site Sale (estimated to be
$36.0 million) to repay indebtedness. Arch held the initial closing of the
Arch Tower Site Sale on June 26, 1998 with gross proceeds to Arch of
approximately $12.0 million (excluding $1.3 million which was paid to Benbow
for certain assets which Benbow sold as part of the initial closing), held a
second closing on September 29, 1998 with gross proceeds to Arch of $20.4
million and currently expects to hold the final closing for the balance of the
transaction in the fourth quarter of 1998, although no assurance can be given
that the final closing will be held as expected. The final closing of the Arch
Tower Site Sale is subject to receipt of customary regulatory approvals and
other conditions. As part of the Divisional Reorganization, Arch will close
certain office locations and redeploy other real estate assets. See
"Prospectus Summary--Recent Developments--Arch Tower Site Sale" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Divisional Reorganization".
EMPLOYEES
At June 30, 1998, Arch employed approximately 2,800 persons. None of Arch's
employees is represented by a labor union. Arch believes that its employee
relations are good. As part of the Divisional Reorganization, Arch anticipates
a net reduction of approximately 10% of its workforce. See "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.
THE COMBINED COMPANY
After giving effect to the MobileMedia Transaction, the Combined Company
would be the second largest paging operator in the United States as measured
by pagers in service, net revenues (total revenues less cost of products sold)
and EBITDA. On a pro forma basis (but excluding the impact of expected
operational cost synergies), at and for the six months ended June 30, 1998,
the Combined Company would have approximately
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7.2 million pagers in service, net revenues of $403.5 million and EBITDA
(before reorganization expenses and restructuring charges) of $125.5 million.
Arch believes that the Combined Company will be well positioned to compete
effectively in the highly competitive paging industry for the following
reasons. The combination of MobileMedia's market presence in major
metropolitan markets with Arch's historical emphasis on middle and small
markets will significantly broaden the geographic scope of Arch's marketing
presence and should position the Combined Company to compete more effectively
for large corporate customers with diverse geographic operations. With a
significantly larger subscriber base, the Combined Company should be better
able to serve strategic distribution arrangements, as well as amortize
marketing investments over a larger revenue base. In addition, MobileMedia's
third party retail distribution agreements, which serve the more rapidly
growing consumer market, should complement Arch's over 200 company-owned
retail outlets. Similarly, MobileMedia's two nationwide paging networks (and
the potential for higher revenue nationwide services) should enhance Arch's
local coverage and provide the opportunity to take advantage of Arch's
distribution platforms. MobileMedia's plan to deploy its nationwide N-PCS
spectrum over its existing network infrastructure should permit Arch to market
enhanced N-PCS services (primarily multi-market alphanumeric and text
messaging services) sooner than it would otherwise be able to, and these
services are expected to provide higher revenue and more growth potential than
basic paging services. Finally, MobileMedia's investments to date in two
national call centers should supplement Arch's own call center and complement
Arch's strategy of evolving to "scalable" regional customer service centers.
See "The Combined Company."
Each of Parent, MobileMedia and Arch is, and after giving the consummation
of the MobileMedia Transaction Parent expects the Combined Company will
continue to be, highly leveraged. At June 30, 1998, Parent's total debt was
$1.0 billion compared with total assets of $971.5 million and latest six-month
annualized EBITDA of $139.5 million. MobileMedia's total debt was $1.1 billion
compared with total assets of $596.4 million and latest six-month annualized
EBITDA of $123.8 million at June 30, 1998. After giving effect to the
MobileMedia Transaction, the contemplated elimination of indebtedness of
MobileMedia and the incurrence of additional indebtedness by Arch and API on a
pro forma basis (but excluding the impact of expected operational cost
synergies), the Combined Company would have had long-term debt of $1.3 billion
compared with total assets of $1.8 billion and latest six-month annualized
EBITDA at June 30, 1998 of $250.9 million, and Arch and its subsidiaries, on a
consolidated basis, would have had long-term debt of $1.0 billion, total
assets of $1.8 billion and such EBITDA of $250.9 million (compared with long-
term debt of $0.6 billion, total assets of $1.0 billion and such EBITDA of
$139.5 million on a historical basis). Arch itself would continue to have no
assets or EBITDA of its own, apart from the assets and EBITDA of its
subsidiaries, and its long term debt (exclusive of the long-term debt of its
subsidiaries) would increase from $0.4 billion to $0.6 billion as a result of
the MobileMedia Transaction.
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. SEE "RISK
FACTORS--POSSIBLE ACQUISITION TRANSACTIONS".
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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..... 48 Chairman of the Board, Chief Executive Officer and Director
Lyndon R. Daniels....... 45 President and Chief Operating Officer
John B. Saynor.......... 58 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)................. 50 Director
James S. Hughes (1)..... 56 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.
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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 Capital Management Co.,
Inc. 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.
In connection with the MobileMedia Transaction, designees of W.R. Huff
Management Co., L.L.C. and Whippoorwill Associates, Inc. are expected to be
elected to Parent's Board and the Board of Directors of Arch at the Effective
Time. The expected nominees are:
EDWIN M. BANKS, age 35, has been employed by W.R. Huff since 1988 and
currently serves as a portfolio manager. From 1985 until he joined W.R. Huff,
Mr. Banks was employed by Merrill Lynch & Company. Mr. Banks received his B.A.
degree from Rutgers College and his MBA degree from Rutgers University. Mr.
Banks also serves as a director of Magellan Health Services (formerly Charter
Medical Corporation) and e.SPIRE Corporation (formerly American Communications
Services, Inc.)
H. SEAN MATHIS, age 51, has been Chairman of the Board and Chief Executive
Officer of Allis Chalmers, Inc. since January 1996 and previously served as a
Vice President of such company since 1989. From July 1996 to September 1997,
Mr. Mathis was Chairman of the Board of Universal Gym Equipment Inc., a
privately owned company which filed for protection under the Bankruptcy Code
in July 1997. From 1991 to 1993, Mr. Mathis was President of RCL Acquisition
Corp., and from 1993 to 1995 he was President and a director of RCL Capital
Corporation, which was merged into DISC Graphics in November 1995. Previously,
Mr. Mathis was a director and Chief Operating Officer of Ameriscribe
Corporation. Mr. Mathis was the President of a predecessor to, and currently
is a director of, Allied Digital Technologies. He is also a director of
Thousand Trails, Inc.
61
<PAGE>
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.
CERTAIN TRANSACTIONS
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 13.3% of its
equity.
On August 6, 1998 the Parent Board approved a full recourse, unsecured
demand loan in the amount of $125,000 from the Parent to C. Edward Baker, Jr.,
Chief Executive Officer and director of the Parent and of Arch. The loan bears
interest at approximately 5% annually.
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 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.
62
<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.
63
<PAGE>
Executive Retention Agreements
In January 1998, Parent's Board of Directors approved Executive Retention
Agreements (the "Agreements") for a total of 16 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.
64
<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.
65
<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.
The following table does not reflect a maximum of 108,500,000 shares (plus
rights and warrants to acquire an undetermined number of additional shares)
that are expected to be issued in connection with the MobileMedia Transaction.
After giving pro forma effect to the issuance of such shares and assuming that
all shares sold in the proposed rights offering are purchased by W.R. Huff
Management Co., L.L.C., Whipporwill Associates, Inc., The Northwestern Mutual
Life Insurance Company and Credit Suisse First Boston Corporation (the
"Standby Purchasers"), the shares received by the Standby Purchasers in
connection with the MobileMedia Transaction would represent an aggregate of
approximately 61.0% of the total number of shares of Common Stock outstanding
immediately after the MobileMedia Transaction on an as-converted basis.
However, the Standby Purchasers would not hold, in the aggregate, shares
representing more than 49.0% of securities of Parent generally entitled to
vote in the election of directors or 49.0% of the total voting power of the
outstanding securities of Parent outstanding at such time.
<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 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.
66
<PAGE>
(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.
(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.
STOCKHOLDINGS BEFORE AND AFTER THE MOBILEMEDIA TRANSACTION
The amount of securities to be issued in connection with the MobileMedia
Transaction will be determined by reference to trading prices of Parent's
common stock later in 1998 or in 1999. Based upon the capitalization of Parent
as of June 30, 1998, if the MobileMedia Transaction is approved and becomes
effective, stockholders of Parent who collectively own, on an as-converted
basis, 100% of Parent's outstanding common stock immediately prior to
consummation of the MobileMedia Transaction will own, on an as-converted
basis, approximately 17.3% to 30.7% of the outstanding common stock at such
time (approximately 32.2% to 34.0% on a fully diluted basis), and the
unsecured creditors of MobileMedia (including the Standby Purchasers), their
successors and/or their assigns will collectively own, on an as-converted
basis, approximately 69.3% to 82.7% of such outstanding common stock at such
time (approximately 66.0% to 67.8% on a fully diluted basis).
67
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
Contemporaneously with the Subsidiary Restructuring, ACE's former credit
facility was amended and restated to establish the $400.0 million Credit
Facility with API, as borrower, and the Bank, Royal Bank of Canada and Toronto
Dominion (Texas), Inc., as managing agents, consisting of (i) the Tranche A
Facility, a $175.0 million reducing revolving credit facility (ii) the Tranche
B Facility, 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) the Tranche C Facility, a $125.0 million term
loan which was available in a single drawing on the closing date.
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 Credit Facility are secured by its pledge of the
capital stock of the former ACE operating subsidiaries. The 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 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 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 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 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 Credit Facility. In addition,
the 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--Credit Facility and Indenture Restrictions".
Effective as of August 18, 1998, in contemplation of the MobileMedia
Transaction, API, the Bank, Toronto Dominion (Texas), Inc., Royal Bank of
Canada and Barclays Bank, PLC executed a commitment letter for the Credit
Facility Increase which, subject to the approval of all lenders under the
Credit Facility, will increase the Credit Facility from $400.0 million to
$600.0 million. The $200.0 million increase will be allocated among the senior
credit facilities as follows: (i) the Tranche A Facility will increase by up
to $25.0 million to a maximum of $200.0 million, (ii) the Tranche B Facility
will increase by up to $25.0 million to a maximum of $125.0 million and (iii)
the Tranche C Facility will increase by up to $200.0 million to a maximum of
$325.0 million. API's new MobileMedia subsidiaries will guarantee API's
obligations under the Credit Facility. All other terms and conditions of the
Credit Facility will remain unchanged except for minor changes to Arch's
permitted ratio of total debt to annualized EBITDA and the margins on which
the interest rates on borrowings are based. See "Risk Factors--Anticipated
Effects of the MobileMedia Transaction".
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BRIDGE FACILITY
Arch and the Bridge Lenders (consisting of The Bear Stearns Companies, Inc.,
the Bank, TD Securities (USA) Inc. and Royal Bank of Canada) have executed a
commitment letter for the Bridge Facility on the following terms. Under the
Bridge Facility, a $120.0 million term loan will be available to Arch in a
single drawing upon the closing of the MobileMedia Transaction (the "Bridge
Loan"). The Bridge Loan will bear interest equal to the LIBOR rate plus 500
basis points, increasing by 50 basis points each quarter after funding to a
maximum rate of 18%. If not paid on or before maturity 180 days after the
closing of the MobileMedia Transaction, the Bridge Loan will convert into a
term loan (the "Term Loan") due in December 2006. The Term Loan will bear
interest at the interest rate under the Bridge Facility at the maturity of the
Bridge Loan plus 50 basis points increasing by 50 basis points each quarter
after funding to a maximum rate of 18%. Parent will be required to grant
warrants (the "Bridge Warrants") to the Bridge Lenders for the purchase of
5.0% of Parent's common stock on a fully diluted basis if the Bridge Loan has
not been repaid prior to the Bridge Loan maturity date. Upon notice from the
Bridge Lenders given (a) prior to the MobileMedia Transaction but subsequent
to the earlier to occur of (i) January 29, 1999 and (ii) the 30th day prior to
the targeted date of the MobileMedia Transaction or (b) at any time after the
funding of the Bridge Loan and prior to the Bridge Loan maturity date, Arch
must issue and sell Planned Arch Notes in an amount at least sufficient to
substitute for or refinance the Bridge Loans on such terms and conditions as
may be specified by the Bridge Lenders, provided however that the interest
rate on the Planned Arch Notes shall be determined by the Bridge Lenders in
light of the then prevailing market conditions, but in no event shall the
yield on the Planned Arch Notes exceed a rate equal to an agreed upon margin
over the yield to worst on the Arch 12 3/4% Notes. In the event that Planned
Arch Notes are issued after the MobileMedia Transaction, the Bridge Lenders
may direct Arch to issue all or a portion of the Bridge Warrants to the
purchasers of the Planned Arch Notes rather than the Bridge Lenders. The
Bridge Facility requires payment of certain fees to the Bridge Lenders. The
fees will vary based on the amount and timing of the Bridge Facility and the
Bridge Loan. The Bridge Lenders have agreed to refund a portion of the fees if
the Bridge Loan is repaid prior to maturity. In addition, Arch has agreed to
permit the Bridge Lenders to act as placement agents for the conversion of the
Bridge Loan into the Term Loan or the issuance of the Planned Arch Notes for a
fee equal to 3.0% of the principal amount so converted or issued.
The Bridge Facility contains restrictions that are substantially similar to
those contained in the Credit Facility, including without limitation
restrictions that, among other things limit additional indebtedness and
encumbrances on assets, cash dividends and other distributions; mergers and
sales of assets; the repurchase or redemption of capital stock; investments;
acquisitions and mergers; and transactions with affiliates or between Arch and
its subsidiaries. In addition, the Bridge Facility requires Arch and its
subsidiaries to meet certain financial covenants, including covenants with
respect to ratios of EBITDA to fixed charges, EBITDA to debt service, EBITDA
to interest expense and total indebtedness to EBITDA.
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>
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<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 Subsidiary Restructuring did not
constitute a Change of Control under the 9 1/2% Notes Indenture. Parent
expects to issue securities constituting a majority of Parent's equity to
MobileMedia's creditors in connection with the MobileMedia Transaction.
However, Parent does not intend to issue equity securities in a manner that
would constitute a Change in Control. Parent's present management and Board of
Directors would continue to control Parent if Parent acquires MobileMedia.
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
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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).
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 Subsidiary Restructuring did not constitute a Change of Control
under the 14% Notes Indenture. Parent expects to issue securities constituting
a majority of Parent's equity to MobileMedia's creditors in connection with
the MobileMedia Transaction. However, Parent does not intend to issue equity
securities in a manner that would constitute a Change in Control. Parent's
present management and Board of Directors would continue to control Parent if
Parent acquires MobileMedia.
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
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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
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>
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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
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 Subsidiary Restructuring did not constitute a
Change of Control under the Parent Discount Notes Indenture. Parent expects to
issue securities constituting a majority of Parent's equity to MobileMedia's
creditors in connection with the MobileMedia Transaction. However, Parent does
not intend to issue equity securities in a manner that would constitute a
Change in Control. Parent's present management and Board of Directors would
continue to control Parent if Parent acquires MobileMedia.
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
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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.
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 Subsidiary Restructuring did not, and the
MobileMedia Transaction will 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
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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.
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<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
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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, the Notes were structurally subordinated to $344.3 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 $364.0 million of
liabilities (excluding liabilities of its Subsidiaries and Parent's guarantees
thereof). The MobileMedia Transaction, if consummated, is expected to increase
Arch's indebtedness by approximately $200.0 million and API's indebtedness by
approximately $150.0 million and will cause API to own additional subsidiaries
having liabilities of their own. The debt-to-equity ratio and the ratio of
total debt to EBITDA for Arch (without regard to its subsidiaries) is expected
to increase (and the ratio of EBITDA to interest is expected to decrease),
although the debt-to-equity ratio and ratio of total debt to annualized EBITDA
for Parent and for Arch, each on a consolidated basis, are expected to
decrease (and the ratio of EBITDA to interest expense is expected
to increase).
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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>
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
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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 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". Parent
expects to issue securities constituting a majority of Parent's equity to
MobileMedia's creditors in connection with the MobileMedia Transaction.
However, Parent does not intend to issue equity securities in a manner that
would constitute a Change in Control. Parent's present management and Board of
Directors would continue to control Parent if Parent acquires MobileMedia.
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
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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".
(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;
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(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 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
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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;
(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.
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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.
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;
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(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;
(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
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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.
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.
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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 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
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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 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
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dealt with elsewhere in "Events of Default") and continuance of such
default or breach for a 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.
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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").
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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.
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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.
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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 QIBs as defined in 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).
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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.
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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.
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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
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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 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
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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.
"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
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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 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
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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 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
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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.
"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
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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.
"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
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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;
(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;
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(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.
"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
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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 (renamed Arch
Communications, Inc. upon consummation of the USA Mobile 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.
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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.
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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 January , 1999 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.
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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.
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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 June 30,
1998 (unaudited).......................................................... F-3
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 1997 and for the Six Months Ended June 30, 1997
and 1998 (unaudited)...................................................... F-4
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 Six Months Ended June
30, 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 Six Months Ended June 30, 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.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
February 9, 1998 (except
with respect to the matters
discussed in Notes 3, 7 and
8, as to which the date is
June 29, 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,
---------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 1,271 $ 1,887 $ 2,895
Accounts receivable (less reserves of
$4,111, $5,744 and $6,182 in 1996, 1997
and 1998, respectively)................. 25,344 30,147 32,483
Inventories.............................. 10,239 12,633 13,278
Prepaid expenses and other............... 4,531 4,917 3,582
---------- ---------- --------
Total current assets................... 41,385 49,584 52,238
---------- ---------- --------
Property and equipment, at cost:
Land, buildings and improvements......... 8,780 10,089 10,297
Paging and computer equipment............ 339,391 361,713 382,053
Furniture, fixtures and vehicles......... 9,921 16,233 16,990
---------- ---------- --------
358,092 388,035 409,340
Less accumulated depreciation and
amortization............................ 96,448 146,542 179,478
---------- ---------- --------
Property and equipment, net.............. 261,644 241,493 229,862
---------- ---------- --------
Intangible and other assets (less
accumulated amortization of $140,605,
$258,856 and $308,599 in 1996, 1997 and
1998, respectively)....................... 831,299 718,969 678,683
---------- ---------- --------
$1,134,328 $1,010,046 $960,783
========== ========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt..... $ 46 $ 24,513 $ --
Accounts payable......................... 17,395 22,486 22,951
Accrued restructuring.................... -- -- 15,846
Accrued expenses......................... 14,287 11,894 12,850
Accrued interest......................... 10,189 11,174 7,378
Customer deposits........................ 6,698 6,150 5,585
Deferred revenue......................... 7,181 8,787 10,696
---------- ---------- --------
Total current liabilities.............. 55,796 85,004 75,306
---------- ---------- --------
Long-term debt, less current maturities.... 605,513 623,000 639,464
---------- ---------- --------
Other long-term liabilities................ 21,172 -- 10,240
---------- ---------- --------
Commitments and contingencies
Stockholder's equity:
Common Stock - $.01 par value, authorized
1,000 shares, issued and outstanding:
849 shares.............................. -- -- --
Additional paid-in capital............... 620,740 617,563 642,225
Accumulated deficit...................... (168,893) (315,521) (406,452)
---------- ---------- --------
Total stockholder's equity............. 451,847 302,042 235,773
---------- ---------- --------
$1,134,328 $1,010,046 $960,783
========== ========== ========
</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>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1995 1996 1997 1997 1998
-------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service, rental and
maintenance revenues..... $138,466 $ 291,399 $ 351,944 $171,978 $184,280
Product sales............. 24,132 39,971 44,897 22,290 21,305
-------- --------- --------- -------- --------
Total revenues........ 162,598 331,370 396,841 194,268 205,585
Cost of products sold..... (20,789) (27,469) (29,158) (14,291) (14,690)
-------- --------- --------- -------- --------
141,809 303,901 367,683 179,977 190,895
-------- --------- --------- -------- --------
Operating expenses:
Service, rental and
maintenance............ 29,673 64,957 79,836 38,111 40,409
Selling................. 24,502 46,962 51,474 26,632 24,244
General and
administrative......... 40,448 86,181 106,041 51,345 56,516
Depreciation and
amortization........... 60,037 191,101 231,376 119,681 107,915
Restructuring charge.... -- -- -- -- 16,100
-------- --------- --------- -------- --------
Total operating
expenses............. 154,660 389,201 468,727 235,769 245,184
-------- --------- --------- -------- --------
Operating income (loss)... (12,851) (85,300) (101,044) (55,792) (54,289)
Interest expense.......... (20,435) (50,330) (63,680) (31,424) (33,445)
Interest income........... 38 1,270 796 411 742
Equity in loss of
affiliate................ -- (1,968) (3,872) (1,812) (2,219)
-------- --------- --------- -------- --------
Income (loss) before
income tax benefit and
extraordinary item....... (33,248) (136,328) (167,800) (88,617) (89,211)
Benefit from income
taxes.................... 4,600 51,207 21,172 10,600 --
-------- --------- --------- -------- --------
Income (loss) before
extraordinary item....... (28,648) (85,121) (146,628) (78,017) 89,211
Extraordinary charge from
early extinguishment of
debt..................... (1,684) (1,904) -- -- (1,720)
-------- --------- --------- -------- --------
Net income (loss)......... $(30,332) $ (87,025) $(146,628) $(78,017) $(90,931)
======== ========= ========= ======== ========
</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)...................... -- 24,662 -- 24,662
Net loss (unaudited).............. -- -- (90,931) (90,931)
---- -------- --------- ---------
BALANCE, JUNE 30, 1998
(UNAUDITED)...................... $-- $642,225 $(406,452) $ 235,773
==== ======== ========= =========
</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>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------
1995 1996 1997 1997 1998
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)....... $ (30,332) $ (87,025) $(146,628) $(78,017) $(90,931)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization........... 60,037 191,101 231,376 119,681 107,915
Deferred income tax
benefit................ (4,600) (51,207) (21,172) (10,600) --
Extraordinary charge
from early
extinguishment of
debt................... 1,684 1,904 -- -- 1,720
Equity in loss of
affiliate.............. -- 1,968 3,872 1,812 2,219
Accounts receivable loss
provision.............. 3,915 8,198 7,181 3,783 3,873
Changes in assets and
liabilities, net of
effect from
acquisitions of paging
companies:
Accounts receivable... (9,582) (15,513) (11,984) (7,390) (6,209)
Inventories........... (3,176) 1,845 (2,394) (3,674) (645)
Prepaid expenses and
other................ (511) 89 (386) 817 1,335
Accounts payable and
accrued expenses..... (551) (12,440) 3,683 7,155 13,471
Customer deposits and
deferred revenue..... (10) 1,556 1,058 2,443 1,344
Other long-term
liabilities.......... -- -- -- -- 10,240
--------- --------- --------- -------- --------
Net cash provided by
operating activities..... 16,874 40,476 64,606 36,010 44,332
--------- --------- --------- -------- --------
Cash flows from investing
activities:
Additions to property
and equipment, net..... (45,331) (138,899) (87,868) (48,720) (38,353)
Additions to intangible
and other assets....... (15,137) (16,676) (14,899) (7,724) (21,584)
Acquisition of paging
companies, net of cash
acquired............... (132,081) (325,420) -- -- --
--------- --------- --------- -------- --------
Net cash used for
investing activities..... (192,549) (480,995) (102,767) (56,444) (59,937)
--------- --------- --------- -------- --------
Cash flows from financing
activities:
Issuance of long-term
debt................... 191,617 401,000 91,000 82,000 450,964
Repayment of long-term
debt................... (63,705) (225,166) (49,046) (56,024) (459,013)
Capital contribution
from (distribution to)
Arch Communications
Group, Inc............. 49,054 262,329 (3,177) (3,896) 24,662
--------- --------- --------- -------- --------
Net cash provided by
financing activities..... 176,966 438,163 38,777 22,080 16,613
--------- --------- --------- -------- --------
Net increase (decrease) in
cash and cash
equivalents.............. 1,291 (2,356) 616 1,646 1,008
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 $ 2,917 $ 2,895
========= ========= ========= ======== ========
Supplemental disclosure:
Interest paid........... $ 18,769 $ 46,448 $ 61,322 $ 29,668 $ 35,920
========= ========= ========= ======== ========
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 4.1 million pagers in service at June
30, 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 Consolidated Financial Statements--The consolidated
balance sheet as of June 30, 1998, the consolidated statements of operations
and cash flows for the six months ended June 30, 1997 and 1998 and the
consolidated statements of stockholder's equity for the six months ended June
30, 1998 are unaudited and, in the opinion of the Company's management,
include all adjustments and accruals, consisting only of normal recurring
accrual adjustments, which are necessary for a fair presentation of the
Company's consolidated financial position, results of operations and cash
flows. The results of operations for the six months ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the full
year.
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company, and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
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,
----------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill......................................... $351,969 $312,017 $291,898
Purchased FCC licenses........................... 330,483 293,922 275,224
Purchased subscriber lists....................... 120,981 87,281 71,933
Investment in CONXUS Communications, Inc......... 6,500 6,500 6,500
Investment in Benbow PCS Ventures, Inc........... 3,642 6,189 9,942
Non-competition agreements....................... 3,594 2,783 2,268
Deferred financing costs......................... 3,420 526 12,065
Other............................................ 10,710 9,751 8,853
-------- -------- --------
$831,299 $718,969 $678,683
======== ======== ========
</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,
----------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ACE Credit Facility........................... $327,500 $359,500 $ --
USAM Credit Facility.......................... 53,000 63,000 --
Amended Credit Facility....................... -- -- 287,000
9 1/2% Senior Notes due 2004.................. 125,000 125,000 125,000
14% Senior Notes due 2004..................... 100,000 100,000 100,000
12 3/4% Senior Notes due 2007................. -- -- 127,464
Other......................................... 59 13 --
-------- -------- --------
605,559 647,513 639,464
Less-current maturities....................... 46 24,513 $ --
-------- -------- --------
Long-term debt................................ $605,513 $623,000 $639,464
======== ======== ========
</TABLE>
Senior Bank Debt--The Company, through its operating subsidiaries, 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 was 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%.
On June 29, 1998, ACE was merged (the "ACI Merger") into a subsidiary of
USAM named Arch Paging, Inc. ("API") to form the Company. In connection with
the Merger, USAM changed its name to Arch Communications, Inc.
Contemporaneously with the ACI Merger, ACE's existing credit facility was
amended and restated to establish senior secured revolving credit and term
loan facilities with API, as borrower, in the aggregate amount of $400.0
million (collectively, the "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
F-14
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 Arch, Parent and the former ACE
operating subsidiaries. Arch'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 previous credit facility.
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 EBITDA.
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 EBITDA.
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 API and its subsidiaries to
meet certain financial covenants, including covenants with respect to ratios
of EBITDA to fixed charges, EBITDA to debt service, EBITDA to interest service
and total indebtedness to EBITDA.
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.
On June 29, 1998, Arch issued and sold $130.0 million principal amount of 12
3/4% Senior Notes due 2007 (the "Notes") for net proceeds of $122.6 million
(after deducting the discount to the initial purchasers of such Notes and
estimated offering expenses payable by Arch) in a private placement (the "Note
Offering") under Rule 144A under the Securities Act of 1933. The Notes were
sold at an initial price to investors of 98.049%. The Notes mature on July 1,
2007 and bear interest at a rate of 12 3/4% per annum, payable semi-annually
in arrears on January 1 and July 1 of each year, commencing January 1, 1999.
The covenants in the indenture under which the 12 3/4% Notes were issued
("the Indenture") contain certain covenants that, among other things, limit
the ability of Arch 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 Arch's Restricted Subsidiaries (as defined in the Indenture) or enter
into certain mergers and consolidations.
F-15
<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
and at June 30, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, JUNE 30,
DECEMBER 31, 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C>
1998........................ $ 24,513 $ --
1999........................ 37,750 1,250
2000........................ 83,000 5,750
2001........................ 74,750 53,750
2002........................ 122,500 53,750
Thereafter.................. 305,000 524,964
-------- --------
$647,513 $639,464
======== ========
</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-16
<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-17
<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-18
<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-19
<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. 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.
8. TOWER SITE SALE
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 rent space on the towers on which it
currently operates communications equipment to service its own paging network.
Arch will use its net proceeds from the Tower Site Sale (estimated to be $36.0
million) to repay indebtedness under the Amended Credit Facility. Arch held
the initial closing of the Tower Site Sale on June 26, 1998 with gross
proceeds to Arch of approximately $12.0 (excluding the $1.3 million which was
paid to a subsidiary of Benbow for the assets it sold). The final closing for
the balance of the transaction is expected to be completed in the fourth
quarter of 1998 although no assurance can be given that the final closing will
be held as expected.
9. DIVISIONAL REORGANIZATION (UNAUDITED)
In June 1998, Parent's Board of Directors approved a reorganization of
Parent's operations (the "Divisional Reorganization"). As part of the
Divisional Reorganization, which is being 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. 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) has recorded a
restructuring charge of $16.1 million during the second quarter of 1998. The
restructuring charge consisted of approximately (i) $9.7 million for employee
severance and benefits, (ii) $3.5 million for lease obligations and
terminations and (iii) $2.9 million for the writedown of related assets.
The write-down of fixed assets relates to a non-cash charge which will
reduce the carrying amount of certain leasehold improvements and other fixed
assets that the Company will not continue to utilize following the Divisional
Reorganization to their estimated net realizable value as of the date such
assets are projected to be disposed of or abandoned by the Company. The net
realizable value of these assets was determined based on management's
estimates, which considered such factors as the nature and age of the assets
to be disposed of, the
F-20
<PAGE>
ARCH COMMUNICATIONS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
timing of the assets' disposal and the method and potential costs of disposal.
Such estimates are subject to change.
The provision for lease obligations and terminations relates primarily to
future lease commitments on local, regional and divisional office facilities
that will be closed as part of the Divisional Reorganization. The charge
represents future lease obligations on such leases past the dates the offices
will be closed by the Company, or for certain leases, the cost of terminating
the leases prior to their scheduled expiration. Cash payments on the leases
and lease terminations will occur over the remaining lease terms, the majority
of which expire prior to 2001.
Through the elimination of certain local and regional administrative
operations and the consolidation of certain support functions, the Company
will eliminate approximately 280 net positions. As a result of eliminating
these positions, the Company will terminate up to 900 personnel. The majority
of the positions to be eliminated are in local and regional offices which will
be closed as a result of the Divisional Reorganization. The majority of the
severance and benefits costs to be paid by the Company will be paid during the
remainder of 1998 and in 1999.
The Company's restructuring activity as of June 30, 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
RESERVE
INITIALLY UTILIZATION OF RESERVE REMAINING
ESTABLISHED CASH NON-CASH RESERVE
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Severance costs........... $ 9,700 $ 205 $ -- $ 9,495
Lease obligation costs.... 3,500 20 -- 3,480
Write-down of related
assets................... 2,900 29 -- 2,871
-------- ----------- ----------- --------
Total................... $ 16,100 $ 254 $ -- $ 15,846
======== =========== =========== ========
</TABLE>
10. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial information for the years ended December 31, 1996 and
1997 is summarized below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Revenues........................... $ 67,171 $ 78,983 $ 90,886 $ 94,330
Operating income (loss)............ (12,907) (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-21
<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............................................................. 15
The Exchange Offer....................................................... 24
Use of Proceeds.......................................................... 32
Capitalization........................................................... 33
Selected Consolidated Financial and Operating Data....................... 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 48
Management............................................................... 60
Principal Stockholders................................................... 66
Description of Certain Indebtedness...................................... 68
Description of Notes..................................................... 76
Certain Federal Income Tax Considerations................................ 105
Plan of Distribution..................................................... 106
Legal Matters............................................................ 107
Experts.................................................................. 107
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$130,000,000
[LOGO OF ARCH APPEARS HERE]
ARCH COMMUNICATIONS, INC.
OFFER TO EXCHANGE
12 3/4% SENIOR NOTES DUE 2007
FOR ALL OUTSTANDING 12 3/4%
SENIOR NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
OCTOBER 21, 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 DGCL, indemnify all persons whom it has the
power to indemnify against all costs, expenses and liabilities incurred by
them by reason of having been officers or directors of Arch, any subsidiary of
Arch or any other corporation for which such persons acted as an officer or
director at the request of Arch.
Arch's Restated Certificate of Incorporation also provides that the
directors of Arch will not be personally liable for monetary damages to Arch
or its stockholders for any act or omission, provided that the foregoing shall
not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to Arch or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
illegal dividends or stock redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. If the DGCL is amended to
permit further elimination or limitation of the personal liability of
directors, then the liability of a director of Arch shall be eliminated or
limited to the fullest extent permitted by the DGCL as so amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 18, 1998, by and
among Arch Communications Group, Inc., Farm Team Corp., MobileMedia
Corporation and MobileMedia Communications, Inc. (1)
2.2 First Amendment to Agreement and Plan of Merger, dated as of
September 3, 1998, by and among Arch Communications Group, Inc.,
Farm Team Corp., MobileMedia Corporation and MobileMedia
Communications, Inc. (1)
3.1 Restated Certificate of Incorporation. (2)
3.2 By-laws, as amended. (2)
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. (2)
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. (3)
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.
(4)(5)
5.1** Opinion of Hale and Dorr LLP.
10.1** Exchange and Registration Rights Agreement, dated June 24, 1998,
among Arch Communications Group, Inc. and the Initial Purchasers.
10.2 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. (4)(5)
10.3 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. (4)(5)
10.4 Asset Purchase and Sale Agreement, dated April 10, 1998, among
OmniAmerica, Inc. and certain subsidiaries of Arch Communications
Group, Inc. (4)(5)
10.5 Letter agreement, dated June 10, 1998, between Arch Communications
Group, Inc. and Motorola, Inc. (4)(6)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.6 Commitment Letter, dated as of August 18, 1998, by and among Arch
Paging, Inc. and the Bank of New York, BNY Capital Markets, Inc.,
Toronto Dominion (Texas) Inc., TD Securities (USA) Inc., Royal Bank
of Canada and Barclays Bank PLC amending the Second and Amended
Restated Credit Agreements, dated June 29, 1998 (Tranche A, B and C
Facilities). (1)
10.7 Bridge Commitment Letter, dated as of August 20, 1998, among Arch
Communications, Inc., Arch Communications Group, Inc., The Bear
Stearns Companies, Inc., The Bank of New York, TD Securities (USA)
Inc., and the Royal Bank of Canada. (1)
10.8** Purchase Agreement, dated June 24, 1998, among Arch Communications
Group, Inc. and the Initial Purchasers.
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 of the 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>
- --------
** Filed herewith.
(1) Incorporated by reference from the Registration Statement on Form S-4
(File No. 333-62211) of Arch Communications Group, Inc.
(2) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-72646) of Arch Communications, Inc.
(3) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-85580) of Arch Communications, Inc.
(4) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated June 26, 1998.
(5) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications, Inc. dated June 26, 1998.
(6) Portions of this exhibit so incorporated by reference have been accorded
confidential treatment.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
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
II-2
<PAGE>
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 (a)(1)(i) and (a)(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.
(4) If the registration is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial statements
and information otherwise required by Section 10(a)(3) of the Securities
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to the paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a post-
effective amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Securities Act or Rule 3-19
of this chapter if such financial statements and information are contained
in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that
are incorporated by reference in the Form F-3.
(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
II-3
<PAGE>
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-4
<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 October 22, 1998.
ARCH COMMUNICATIONS, INC.
/s/ C. Edward Baker, Jr.
By: _________________________________
C. Edward Baker, Jr.
Chairman of the Board and
Chief Executive Officer
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 October 22, 1998
- ------------------------- Chief Executive Officer
Director (principal executive officer)
/s/ J. Roy Pottle Executive Vice President and October 22, 1998
- ------------------------- Chief Financial Officer
(principal financial officer and
principal accounting officer)
/s/ * John B. Saynor Director October 22, 1998
- -------------------------
/s/ * R. Schorr Berman Director October 22, 1998
- -------------------------
/s/ * James S. Hughes Director October 22, 1998
- -------------------------
/s/ * Allan L. Rayfield Director October 22, 1998
- -------------------------
/s/ * John A. Shane Director October 22, 1998
- -------------------------
/s/ * John Kornreich Director October 22, 1998
- -------------------------
/s/ Gerald J. Cimmino
*By:
- -------------------------
Gerald J. Cimmino
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
SCHEDULE II
ARCH COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT OTHER BALANCE
ALLOWANCE FOR DOUBTFUL BEGINNING CHARGED ADDITIONS TO AT END
ACCOUNTS OF PERIOD TO EXPENSE ALLOWANCE(1) WRITE-OFFS OF PERIOD
---------------------- ---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997................... $ 4,111 $ 7,181 $ -- $ (5,548) $ 5,744
======= ======= ======= ======== =======
Year ended December 31,
1996................... $ 2,125 $ 8,198 $ 1,757 $ (7,969) $ 4,111
======= ======= ======= ======== =======
Year ended December 31,
1995................... $ 707 $ 3,915 $ 1,251 $ (3,748) $ 2,125
======= ======= ======= ======== =======
</TABLE>
(1)Additions arising through acquisitions of paging companies
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 18, 1998, by and
among Arch Communications Group, Inc., Farm Team Corp., MobileMedia
Corporation and MobileMedia Communications, Inc. (1)
2.2 First Amendment to Agreement and Plan of Merger, dated as of
September 3, 1998, by and among Arch Communications Group, Inc.,
Farm Team Corp., MobileMedia Corporation and MobileMedia
Communications, Inc. (1)
3.1 Restated Certificate of Incorporation. (2)
3.2 By-laws, as amended. (2)
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. (2)
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. (3)
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.
(4)(5)
5.1** Opinion of Hale and Dorr LLP.
10.1** Exchange and Registration Rights Agreement, dated June 24, 1998,
among Arch Communications Group, Inc. and the Initial Purchasers.
10.2 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. (4)(5)
10.3 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. (4)(5)
10.4 Asset Purchase and Sale Agreement, dated April 10, 1998, among
OmniAmerica, Inc. and certain subsidiaries of Arch Communications
Group, Inc. (4)(5)
10.5 Letter agreement, dated June 10, 1998, between Arch Communications
Group, Inc. and Motorola, Inc. (4)(6)
10.6 Commitment Letter, dated as of August 18, 1998, by and among Arch
Paging, Inc. and the Bank of New York, BNY Capital Markets, Inc.,
Toronto Dominion (Texas) Inc., TD Securities (USA) Inc., Royal Bank
of Canada and Barclays Bank PLC amending the Second and Amended
Restated Credit Agreements, dated June 29, 1998 (Tranche A, B and C
Facilities). (1)
10.7 Bridge Commitment Letter, dated as of August 20, 1998, among Arch
Communications, Inc., Arch Communications Group, Inc., The Bear
Stearns Companies, Inc., The Bank of New York, TD Securities (USA)
Inc., and the Royal Bank of Canada. (1)
10.8** Purchase Agreement, dated June 24, 1998, among Arch Communications
Group, Inc. and the Initial Purchasers.
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 of the 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.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
27.1 Financial Data Schedule.
99.1** Form of Letter of Transmittal and related documents.
99.2** Forms of Notices of Guaranteed Delivery.
</TABLE>
- --------
** Filed herewith.
(1) Incorporated by reference from the Registration Statement on Form S-4
(File No. 333-62211) of Arch Communications Group, Inc.
(2) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-72646) of Arch Communications, Inc.
(3) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-85580) of Arch Communications, Inc.
(4) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated June 26, 1998.
(5) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications, Inc. dated June 26, 1998.
(6) Portions of this exhibit so incorporated by reference have been accorded
confidential treatment.
<PAGE>
EXHIBIT 5.1
HALE AND DORR LLP
60 State Street
Boston, MA 02109
October 21, 1998
Arch Communications, Inc.
1800 West Park Drive, Suite 250
Westborough, MA 01581
Ladies and Gentlemen:
We have assisted in the preparation of the Registration Statement on Form S-
4 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the
registration of $130,000,000 in the aggregate principal amount of 12 3/4%
Senior Notes due 2007 (the "Notes") of Arch Communications, Inc., a Delaware
corporation (the "Company").
We have examined the form of the Notes, the Certificate of Incorporation and
By-Laws of the Company and all amendments thereto and have examined and relied
on the originals, or copies certified to our satisfaction, of such records of
meetings, written actions in lieu of meetings, or resolutions adopted at
meetings, of the directors of the Company and such other documents and
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below.
We have not made an independent review of the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts,
the federal laws of the United States and the General Corporation Law statute
of the State of Delaware. Accordingly, we express no opinion herein with
respect to the laws of any state or jurisdiction other than the state laws of
the Commonwealth of Massachusetts, the federal laws of the United States and
General Corporation Law statute of the State of Delaware. To the extent that
the laws of any other jurisdiction govern the transactions as to which we are
opining herein, we have assumed, with your permission, that such laws are
identical to state laws of the Commonwealth of Massachusetts, and we are
expressing no opinion herein as to whether such assumption is reasonable or
correct. For the purposes of this opinion, we have assumed that the facts and
law governing the performance by the respective parties of their respective
obligations under the Notes will be identical to the facts and law governing
such performance as of the date of this opinion.
The opinion hereinafter expressed is qualified to the extent that it may be
subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
the rights of creditors generally, (ii) statutory or decisional law concerning
recourse by creditors to security in the absence of notice or hearing and
(iii) duties and standards imposed on creditors and parties to contracts,
including, without limitation, requirements of good faith, reasonableness and
fair dealing. Furthermore, we express no opinion as to the availability of any
equitable or specific remedy, or as to the successful assertion of any
equitable defense, upon any breach of the documents as to which we are opining
herein or any of the documents or obligations referred to therein, inasmuch as
the availability of such remedies or defenses may be subject to the discretion
of a court.
We are expressing no opinion as to compliance by the Company with the so-
called "blue sky" or state securities laws (other than those of the
Commonwealth of Massachusetts) or as to any state or federal anti-fraud laws,
in connection with the issuance and sale of the Notes.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that the
Notes, when issued against tender of the consideration therefor as
contemplated in the prospectus which forms part of the Registration Statement
(the "Prospectus"), will be valid and binding obligations of the Company and
enforceable against the Company in accordance with their terms.
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions and is rendered as of the date hereof, and we disclaim
any obligation to advise you of any change in any of the foregoing sources of
law or subsequent developments in law or changes in facts or circumstances
which might affect any matters or opinions set forth herein. Please note that
we are opining only as to the matters expressly set forth herein, and no
opinions should be inferred as to any other matters.
This opinion is delivered to the Company solely for the benefit of the
Company, and may not be relied upon for any other purpose, or furnished to,
quoted to or relied upon by any other party without prior written consent.
We hereby consent to the use of our name in the Registration Statement and
in the Prospectus under the caption "Legal Matters" and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Exchange and Registration Rights Agreement (this "Agreement") dated as of
---------
June 29, 1998 among ARCH COMMUNICATIONS, INC., a Delaware corporation (the
"Company"), Bear, Stearns & Co. Inc., Barclays Capital Inc., RBC Dominion
- --------
Securities Corporation, BNY Capital Markets, Inc. and TD Securities (USA) Inc.
(with Bear, Stearns & Co. Inc., Barclays Capital Inc., RBC Dominion Securities
Corporation and TD Securities (USA) Inc. being referred to collectively as, the
"Initial Purchasers").
------------------
This Agreement is made pursuant to the Purchase Agreement, dated as of June
24, 1998 (the "Purchase Agreement"), among the Company and the Initial
------------------
Purchasers, pursuant to which the Initial Purchasers have agreed, severally and
not jointly, to purchase from the Company $130,000,000 aggregate principal
amount of the Company's 12 3/4% Senior Notes due 2007 (the "Notes"). The Notes
-----
will be issued pursuant to an Indenture (the "Indenture") to be dated as of the
---------
date hereof between the Company and U.S. Bank Trust National Association, as
trustee (the "Trustee"). As an inducement to the Initial Purchasers to purchase
-------
the Notes, the Company agrees with the Initial Purchasers, for the benefit of
the holders of the Notes and the Registered Notes (as defined), as follows:
Section 1. Certain Defined Terms.
---------------------
(a) As used in this Agreement, the following capitalized terms shall
have the following meanings:
"Broker-Dealer" means any broker or dealer registered under the
-------------
Exchange Act.
"Business Day" means any day other than a Saturday, a Sunday or a day
------------
on which the banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Commission" means the United States Securities and Exchange
----------
Commission.
"Consummate" means, with respect to a Registered Exchange Offer: (i)
----------
the filing and declaration of effectiveness under the Securities Act of the
Exchange Offer Registration Statement relating to the Registered Notes to be
issued in the Registered Exchange Offer; (ii) maintaining the continuous
effectiveness of such Exchange Offer Registration Statement and keeping the
Registered Exchange Offer open for a period of not less than 20 Business Days
after the date of the mailing of
<PAGE>
the Prospectus pursuant to Section 2(d)(i) hereof; and (iii) the delivery by the
Company to the Registrar under the Indenture of the Registered Notes in the same
aggregate principal amount as the aggregate principal amount of the Notes that
were duly tendered by Holders thereof pursuant to the Registered Exchange Offer,
and "Consummated" or "Consummation" shall have a correlative meaning.
----------- ------------
"Exchange Act" means the United States Securities Exchange Act of
------------
1934, as amended, and the rules and regulations promulgated thereunder.
"Exchange Offer Registration Statement" means a registration statement
-------------------------------------
(together with the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and materials
incorporated by reference therein) with respect to the Registered Exchange
Offer.
"Holder" means any Person who is the registered or beneficial owner of
------
the Notes or the Registered Notes, as the case may be.
"Person" means an individual, partnership, corporation, joint stock
------
company, joint venture, trust, unincorporated organization or a government,
agency or political subdivision thereof, firm or other entity.
"Prospectus" means the prospectus included in any Registration
----------
Statement, as amended or supplemented, including, without limitation, by any
post-effective amendments thereto, and all material incorporated by reference
into such prospectus.
"Registration Statement" means the Exchange Offer Registration
----------------------
Statement or the Shelf Registration Statement, as the context requires.
"Securities Act" means the United States Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder.
"Shelf Registration Statement" means a registration statement filed
----------------------------
for a delayed or continuous period pursuant to Rule 415 or any similar rule that
may be adopted by the Commission under the Securities Act (together with the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and materials incorporated by
reference therein) with respect to a Shelf Registration.
"TIA" means the United States Trust Indenture Act of 1939, as amended,
---
in effect on the date of the Indenture.
"Transfer Restricted Securities" means each Note and each Registered
------------------------------
Note, the Holder of which is subject to prospectus delivery requirements of the
-2-
<PAGE>
Securities Act in order to sell such Note or Registered Note, until the
occurrence of any of the following events:
(i) the first date on which such Note may be exchanged for a
Registered Note in the Registered Exchange Offer, if following such exchange
such Holder would be entitled to resell such Registered Note to the public
without complying with the prospectus delivery requirements of the Securities
Act;
(ii) the date on which such Note has been registered pursuant to
an effective Shelf Registration Statement under the Securities Act and disposed
of in accordance with the "Plan of Distribution" section of the Prospectus
contained in such Shelf Registration Statement;
(iii) the date on which such Note is sold to the public pursuant
to Rule 144 under the Securities Act or by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein); or
(iv) such Note or Registered Note, as the case may be, shall have
ceased to be outstanding.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
Agreement Preamble
Company Preamble
Indemnified Holder 7(a)
Indenture Preamble
Initial Purchasers Preamble
Issue Date 2(a)(i)
Liquidated Damages 8
Losses 7(a)
Notes Preamble
Participating Broker-Dealer 4(a)
Purchase Agreement Preamble
Registered Exchange Offer 2(a)
Registered Notes 2(a)
Registration Default 8
Shelf Registration 3(a)
Trustee Preamble
-3-
<PAGE>
Section 2. Registered Exchange Offer.
-------------------------
(a) The Company shall:
(i) prepare and, not later than 30 calendar days after the Issue
Date (as defined in the Indenture), file with the Commission an Exchange Offer
Registration Statement on an appropriate form under the Securities Act with
respect to a proposed offer to exchange (the "Registered Exchange Offer") any
-------------------------
and all of the outstanding Notes (including, if permitted by the then prevailing
interpretations of the staff of the Commission, any Notes held by the Initial
Purchasers having the status of an unsold allotment in the initial distribution)
for a like aggregate principal amount of the Company's 12 3/4% Senior Notes due
2007 (the "Registered Notes");
----------------
(ii) use its best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act as soon as
practicable thereafter, but in no event later than 120 calendar days after the
Issue Date;
(iii) in connection with the foregoing, to file (A) all pre-
effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Exchange Offer Registration Statement to become
effective and (B) cause all necessary filings, if any, in connection with the
registration and qualification of the Registered Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Registered Exchange Offer except that in no event shall the Company be obligated
in connection therewith to qualify as a foreign corporation or to execute a
general consent to service of process or to take any other action that would
subject it to service of process in suits in any jurisdiction other than those
arising out of the offering or sale of the Notes in such jurisdiction pursuant
to such Exchange Offer Registration Statement; and
(iv) upon the effectiveness of the Exchange Offer Registration
Statement, unless it would not be permitted by applicable law or Commission
policy, promptly commence the Registered Exchange Offer to enable each Holder of
the Notes (other than Holders who are affiliates (within the meaning of the
Securities Act) of the Company or underwriters (as defined in the Securities
Act) with respect to the Registered Notes) to exchange the Notes for Registered
Notes.
The Company shall cause the Exchange Offer Registration Statement and the
related Prospectus, as of the effective date of such Exchange Offer
Registration Statement, (i) to comply with the applicable requirements of
the Securities Act and (ii) not to contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
-4-
<PAGE>
(b) The Company shall cause the Registered Exchange Offer to be
Consummated in compliance with the Securities Act, the Exchange Act and all
other applicable laws and regulations. No securities other than the Registered
Notes shall be included in the Exchange Offer Registration Statement. The
Company shall use its best efforts to cause the Registered Exchange Offer to be
Consummated within 20 Business Days, but in any event not later than 30 Business
Days, after the effective date of the Exchange Offer Registration Statement.
The Registered Exchange Offer shall be on an appropriate form under the
Securities Act as to permit resales of Registered Notes by delivering the
Prospectus contained in the Exchange Offer Registration Statement.
(c) To the extent necessary to ensure that the Exchange Offer
Registration Statement is available for sales of Registered Notes by Broker-
Dealers, the Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all persons subject to the prospectus delivery requirements of the
Securities Act for a period of up to one year after the Consummation of the
Registered Exchange Offer (or such longer period if extended pursuant to Section
4(c)(ix)).
(d) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail, or cause to be mailed, to each Holder of the Notes a
copy of the Prospectus forming a part of the Exchange Offer Registration
Statement, together with an appropriate letter of transmittal and related
documents;
(ii) keep the Registered Exchange Offer open for a period of not
less than 20 Business Days after the date notice thereof is mailed to the
Holders of the Notes (or longer if required by applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) permit Holders of the Notes to withdraw tendered Notes at
any time prior to the close of business, New York time, on the last Business Day
on which the Registered Exchange Offer shall remain open (the "Exchange Date").
-------------
(e) As soon as practicable after the Exchange Date, the Company shall:
(i) accept for exchange all Notes duly tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
-5-
<PAGE>
(ii) deliver or cause to be delivered to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by the
Company;
(iii) execute and deliver to, or cause to be delivered to, the
Trustee for authentication and delivery, Registered Notes in an aggregate
principal amount equal to the aggregate principal amount of the Notes so
accepted for exchange; and
(iv) cause the Trustee to authenticate and deliver promptly to
each Holder of the Notes accepted for exchange, Registered Notes having an
aggregate principal amount at maturity equal to the aggregate principal amount
at maturity of the Notes surrendered by such Holder and accepted for exchange.
Section 3. Shelf Registration.
------------------
(a) If:
(i) the Company is not required to file the Exchange Offer
Registration Statement or permitted to Consummate the Registered Exchange Offer
because the Registered Exchange Offer is not permitted by applicable law or
Commission policy; or
(ii) any Holder of Transfer Restricted Securities notifies the
Company prior to the 20th day following commencement of the Exchange Offer that
(a) it is prohibited by law or Commission policy from participating in the
Registered Exchange Offer or (b) that it may not resell the Registered Notes
acquired by it in the Registered 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 the Company or an affiliate
of the Company,
then the Company shall take the following actions:
(A) After the occurrence of one of the events described in 3(a)(i)
or (ii), the Company shall prepare and file with the Commission as promptly as
practicable but in no event later than 30 days after the occurrence of one of
the events described in 3(a)(i) or (ii) and in any event within 60 days of the
Issue Date, a Shelf Registration Statement on an appropriate form under the
Securities Act relating to the offer and sale by the Holders of the Notes in
accordance with the methods of distribution set forth in the Shelf Registration
Statement and Rule 415 under the Securities Act (a "Shelf Registration") and use
------------------
its best efforts to cause such Shelf Registration Statement to be declared
effective as promptly as practicable after such filing but in no event later
than 90 calendar days after the occurrence of one of the events described in
3(a)(i) or (ii); and
-6-
<PAGE>
(B) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective, and agrees to amend or supplement
the prospectus contained therein (and use its best efforts to cause any such
amendment to become and remain effective) in order to permit the prospectus
included therein to be available for resales of, and lawfully delivered by the
Holders of, the Notes covered thereby, until the earlier of (x) the second
anniversary of the Issue Date (or for such longer period if extended pursuant to
Section 4(i)(ix)), (y) such time as all the Notes covered by such Shelf
Registration Statement have been sold pursuant thereto or (z) the date on which
all persons that are not affiliates may resell the Notes pursuant to Rule 144(k)
under the Securities Act or the date on which the Notes otherwise cease to be
Transfer Restricted Securities.
(b) The Company shall cause any Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the effective
date of such Shelf Registration Statement, amendment or supplement, (i) to
comply in all materials respects with the applicable requirements of the
Securities Act and (ii) not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4. Registration Procedures.
-----------------------
(a) Registered Exchange Offer. In connection with the Registered
-------------------------
Exchange Offer:
(i) the Company shall comply with all of the provisions of
Section 4(c) below (other than those that are not applicable);
(ii) prior to effectiveness of the Exchange Offer Registration
Statement, if the Commission so requests, the Company shall make the following
representations (in substantially the form set forth below) to the staff of the
Commission:
(A) that the Company is registering the Registered Notes
and the Registered Exchange Offer in reliance on the position of the staff of
the Commission enunciated in the Exxon Capital Holdings Corporation Commission
----------------------------------
no-action letter (available May 13, 1988) and the Morgan Stanley and Co., Inc.
---------------------------
Commission no-action letter (available June 5, 1991), as interpreted in the
Shearman & Sterling Commission no-action letter (available July 2, 1993); and
- -------------------
(B) that the Company has not entered into any arrangement or
understanding with any person to distribute the Registered Notes to be received
in the Registered Exchange Offer and that, to the best of the Company's
information and belief, each Person participating in the Registered Exchange
Offer is
-7-
<PAGE>
acquiring the Registered Notes in its ordinary course of business and has no
arrangement or understanding with any person to participate in the distribution
of the Registered Notes to be received in the Registered Exchange Offer. In this
regard, the Company will make each person participating in the Registered
Exchange Offer aware (through the Prospectus included in the Exchange Offer
Registration Statement or otherwise) that, if the Registered Notes and the
Registered Exchange Offer are being registered for the purpose of secondary
resales of the Registered Notes, any Holder using the Registered Exchange Offer
to participate in a distribution of the Registered Notes (1) could not rely on
the staff position enunciated in such Exxon Capital Holdings Corporation letter
or similar letters and (2) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction of the Registered Notes. The Company acknowledges that such a
secondary resale transaction should be covered by an effective registration
statement containing the selling security holder information required by Item
507 of Regulation S-K;
(iii) the Company will require each Holder that is a Broker-Dealer
and that is the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) of Notes acquired for its own account as a result of market-making
activities or other trading activities (a "Participating Broker-Dealer"), to
---------------------------
include a representation in such Participating Broker-Dealer's letter of
transmittal with respect to the Registered Exchange Offer that such
Participating Broker-Dealer has not entered into any arrangement or
understanding with the Company or any affiliate of the Company to distribute the
Registered Notes;
(iv) the Company (1) will make each Person participating in the
Registered Exchange Offer aware (through the Prospectus included in the Exchange
Offer Registration Statement or otherwise) that any Broker-Dealer who holds
Notes acquired for its own account as a result of market-making activities or
other trading activities, and who receives Registered Notes in exchange for such
Notes pursuant to the Registered Exchange Offer, may be a statutory underwriter
and in connection with any resale of such Registered Notes must deliver a
Prospectus meeting the requirements of the Securities Act and describing the
methods by which Participating Broker-Dealers may resell such Registered Notes,
and (2) will include in the transmittal letter or similar documentation to be
executed by an exchange offeree in order to participate in the Registered
Exchange Offer the following additional provision:
"If the undersigned is a broker-dealer holding Notes acquired for its
own account as a result of market-making activities or other trading
activities, the undersigned hereby acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resale of Registered Notes received in respect of
such Notes pursuant to the Registered Exchange Offer"
-8-
<PAGE>
and the transmittal letter or similar documentation may also include a
statement to the effect 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;
(v) as a condition to its participation in the Registered Exchange
Offer pursuant to the terms of this Agreement, each Holder of the Notes who
tenders such Notes pursuant to the Registered Exchange Offer shall furnish a
written representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to the
effect that by accepting the Registered Exchange Offer, such Holder represents
to the Company that:
(A) it is not an affiliate of the Company (within the
meaning of the Securities Act);
(B) it is not engaged in and does not intend to engage in, and
has no arrangement or understanding with any person to participate in, a
distribution of the Registered Notes to be issued in the Registered Exchange
Offer;
(C) it is acquiring the Registered Notes in its ordinary course
of business; and
(D) if it is a Participating Broker-Dealer holding Notes
acquired for its own account 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 resale of
Registered Notes received in respect of such Notes pursuant to the Registered
Exchange Offer;
and the transmittal letter or similar documentation may also include a
statement to the effect 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; and
(vi) the Company shall include within the Prospectus contained in
the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," which shall contain:
(A) a statement substantially to the effect that any Broker-
Dealer and any Holder using the Registered Exchange Offer to participate in a
distribution of the Registered Notes to be acquired in the Registered Exchange
Offer:
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<PAGE>
(I) could not under Commission policy as in effect on the
date of this Agreement rely on the position of the Commission enunciated in the
Morgan Stanley and Co., Inc. Commission no-action letter (available June 5,
- ----------------------------
1991) and the Exxon Capital Holdings Corporation Commission no-action letter
----------------------------------
(available May 13, 1988), as interpreted in the to Shearman & Sterling
-------------------
Commission no-action letter (available July 2, 1993), and similar no-action
letters, and
(II) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the Registered Notes and that such a secondary resale
transaction should be covered by an effective registration statement containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K under the Securities Act; and
(B) a summary statement of the positions taken or policies made
by the staff of the Commission with respect to the potential "underwriter"
status of any Participating Broker-Dealer.
Such "Plan of Distribution" section shall also allow the use of the
Prospectus by Participating Broker-Dealers for a period of one year from the
Consummation of the Exchange Offer, or such shorter period as will terminate
when all the Notes acquired by Participating Broker-Dealers have been exchanged
for the Registered Notes and resold by such Broker-Dealers, and include a
statement to the effect that any Broker-Dealer who holds Notes acquired for its
own account as a result of market-making activities or other trading activities,
and who receives Registered Notes in exchange for such Notes pursuant to the
Registered Exchange Offer, may be a statutory underwriter and must deliver a
Prospectus meeting the requirements of the Securities Act in connection with any
resale of such Registered Notes and that any profit or commissions received by
such Broker-Dealer may be deemed to be underwriting compensation under the
Securities Act, and describing the means by which Participating Broker-Dealers
may resell the Registered Notes. The "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement shall not name
any such Participating Broker-Dealer or disclose the amount of Notes held by any
such Participating Broker-Dealer except to the extent required by Commission
policy.
(b) Shelf Registration Statement. In connection with any Shelf
----------------------------
Registration Statement, the Company shall comply with all the provisions of
Section 4(c) below (other than those that are not applicable) and shall effect
such registration to permit the resale of Notes being sold in accordance with
the intended method or methods of distribution set forth in the Shelf
Registration Statement.
(c) Registration Procedures. In connection with any Registration
-----------------------
Statement and any Prospectus required by this Agreement, the Company shall:
-10-
<PAGE>
(i) prepare and file with the Commission a Registration Statement on
the appropriate form under the Securities Act, which form: (x) shall be
selected by the Company; (y) shall, in the case of a Shelf Registration
Statement, be available for the sale of Notes by the selling Holders thereof;
and (z) shall comply as to form with the requirements of the Securities Act, and
include all financial statements required by the Commission to be filed
therewith, and use its best efforts to cause such Registration Statement to
become effective and to keep such Registration Statement continuously effective
for the period provided for in Section 2, in the case of an Exchange Offer
Registration Statement, and for the period provided for in Section 3, in the
case of a Shelf Registration Statement;
(ii) (A) prepare and file with the Commission such amendments and
post-effective amendments to such Registration Statement as may be necessary to
keep such Registration Statement effective for the applicable period set forth
in Section 2 or Section 3, as the case may be; and (B) cause each Prospectus to
be supplemented by any required prospectus supplement, and, as so supplemented,
cause the Prospectus to be filed pursuant to Rule 424 under the Securities Act
and to comply in all material respects with the applicable provisions of Rules
424 and 430A under the Securities Act in a timely manner;
(iii) advise the Initial Purchasers, each Holder of the Notes
included in the Shelf Registration Statement and, with respect to the Exchange
Offer Registration Statement, any Participating Broker-Dealer from whom the
Company has received prior written notice that it will be a Participating
Broker-Dealer in the Registered Exchange Offer:
(A) when each Registration Statement or any amendment thereto
has been filed with the Commission and when each such Registration Statement or
any post-effective amendment thereto has been declared effective;
(B) of any request by the Commission for amendments or
supplements to a Registration Statement or the Prospectus included therein or
for additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or the initiation or
threatening of any proceedings for that purpose;
(D) of the receipt by either of the Company or its legal counsel
of any notification with respect to the suspension of the qualification of the
Notes or the Registered Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
-11-
<PAGE>
(E) when the prospectus contained in any Registration Statement
may not be used for offers or sales of the Registered Notes because (x) of the
existence of any fact or the happening of any event (including any material non-
public information) that makes untrue any statement of a material fact made in
the Registration Statement, the Prospectus, any amendment or supplement thereto
or any document incorporated by reference therein, or that requires the making
of any additions to or changes in the Registration Statement or the Prospectus
in order to make the statements therein not misleading or (y) such prospectus
shall not contain the current information required by the Securities Act; it
being understood that any notice delivered pursuant to this subparagraph need
not specifically recite the reasons for its delivery, provided that the Company
consults with the Initial Purchasers prior to delivery of such notice as to the
reasons underlying such notice need;
(iv) use its best efforts to prevent the issuance of any order of
the Commission suspending the effectiveness of a Registration Statement; and if
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities commission
or other regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Notes or the Registered Notes under state
securities or Blue Sky laws, the Company shall use its best efforts to obtain
the withdrawal of such order at the earliest possible time, and provide prompt
notice of the withdrawal of any such order to each Holder of any Notes included
in the Shelf Registration Statement, and, with respect to the Exchange Offer
Registration Statement, to any Participating Broker-Dealer participating in the
Registered Exchange Offer;
(v) furnish to each of the Initial Purchasers, upon request, and,
in the case of a Shelf Registration, to each Holder of any Notes included in the
Shelf Registration Statement, and counsel to the Initial Purchasers referred to
in Section 6, a reasonable time prior to filing with the Commission, copies of
any Registration Statement or any Prospectus included therein and any amendments
or supplements thereto (including all documents incorporated by reference prior
to the effectiveness of such Registration Statement), which documents, other
than documents incorporated by reference, will be subject to the review of the
Initial Purchasers for a period of at least five Business Days, and the Company
may, in its reasonable discretion, reflect in each such document when so filed
with the Commission, such comments as the Initial Purchasers or such Holders
reasonably may propose within five Business Days after the receipt thereof;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus subsequent
to the effectiveness thereof (A) if requested, provide copies of such document
to any Holder of any Notes included in such Registration Statement, to the
Initial Purchasers and (B) make representatives of the Company available for
discussion of such document and other customary due diligence matters, and (C)
the Company may, in
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<PAGE>
its reasonable discretion, include such information in such document prior to
the filing thereof as Holders or the Initial Purchasers may reasonably request;
(vi) (A) make available at reasonable times for inspection by
the Initial Purchasers and, in the case of a Shelf Registration, Holders of any
Notes included in such Registration Statement, and any attorney or accountant
retained by such Holder or the Initial Purchasers, or any underwriter
participating in any disposition pursuant to a Shelf Registration Statement, all
relevant financial and other records, pertinent corporate documents and
properties of the Company and (B) cause the officers, directors and employees of
the Company to supply all information reasonably requested by any such Holder,
Initial Purchaser, attorney, accountant or underwriter in connection with such
Registration Statement subsequent to the filing thereof and prior to its
effectiveness, in each case, as is customary for similar due diligence
examinations;
(viii) if requested by any selling Holders in connection with a
Shelf Registration Statement or the Initial Purchasers in connection with market
making activities, (A) promptly incorporate in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if necessary,
such information as such Holders or the Initial Purchasers may reasonably
request, and to which the Company does not reasonably object, to have included
therein, including, without limitation, information relating to the "Plan of
Distribution" of the Notes, the purchase price being paid therefor and any other
terms of the offering of the Notes to be sold in such offering, and (B) make all
required filings of any such Prospectus supplement or post-effective amendment
as promptly as practicable after the Company is notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(ix) upon the occurrence of any event of the kind described in
Section 4(c)(iii)(E) or any other event that would cause such Registration
Statement or the Prospectus contained therein not to be effective and usable for
resales of Notes or Registered Notes during the period required by this
Agreement, promptly (except as contemplated by Section 2(c) or 3(a)(ii)(B)
hereof) prepare a post-effective amendment to the applicable Registration
Statement or a supplement to the related Prospectus and use its best efforts to
cause such amendment to be declared effective, or file any other required
document so that the Registration Statement and the Prospectus, as thereafter
delivered to Holders of the Transfer Restricted Securities or the purchasers of
Transfer Restricted Securities, (A) will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (B) will contain all information required by the Securities
Act. If any of the Initial Purchasers, the Holders of any Notes or Registered
Notes covered by a Registration Statement or any known Participating Broker-
Dealer is required by the terms of this Agreement to suspend the use of a
Prospectus until the requisite
-13-
<PAGE>
changes to such Prospectus have been made, then the period of effectiveness of
the applicable Shelf Registration Statement provided for in Section 3 and the
Exchange Offer Registration Statement provided for in Section 2 shall each be
extended by the number of days during the period from and including the date
such notice is required to be given under this Agreement to and including the
date when the Initial Purchasers, each selling Holder covered by such
Registration Statement, and any known Participating Broker-Dealer shall have
received an amended or supplemented Prospectus contemplated by this clause (ix)
or shall have received Advice (as defined below) from the Company;
(x) in the case of a Registered Exchange Offer, deliver to each of
the Initial Purchasers one manually signed copy of the Exchange Offer
Registration Statement without charge and with any post-effective amendment
thereto, including financial statements and schedules, and, if the Initial
Purchasers request, all exhibits (including those, if any, incorporated by
reference);
(xi) in the case of a Registered Exchange Offer, deliver to each
of the Initial Purchasers, any Participating Broker-Dealer and such other
persons required to deliver a Prospectus in connection with the offering and
sale of the Registered Notes following the Registered Exchange Offer, without
charge, as many copies of the final Prospectus included in the Exchange Offer
Registration Statement and any amendment or supplement thereto as such persons
may reasonably request, and, in connection therewith, the Company hereby
consents, subject to any notice by the Company in accordance with this Section
4(c) of the existence of any fact or event of the kind described in Section
4(c)(iii)(E), to the use of the Prospectus or any amendment or supplement
thereto by the Initial Purchasers, if necessary, any Participating Broker-Dealer
and such other persons as are required to deliver a Prospectus following the
Registered Exchange Offer in connection with the offering and sale of the
Registered Notes covered by the Prospectus, or any amendment or supplement
thereto, included in such Exchange Offer Registration Statement;
(xii) in the case of a Shelf Registration, furnish to each of the
Initial Purchasers, without charge, one manually signed copy of the Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the recipient Holder so requests,
all exhibits (including those, if any, incorporated by reference);
(xiii) in the case of a Shelf Registration, deliver, without
charge, to each of the Initial Purchasers and each Holder of the Notes included
within the coverage of a Shelf Registration Statement which was declared
effective by the Commission as many copies of the Prospectus (including each
preliminary prospectus) included in such Shelf Registration Statement and any
amendment or supplement thereto as such person may reasonably request, and, in
connection therewith, the Company hereby consents, subject to any notice by the
Company in
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<PAGE>
accordance with this Section 4(c) of the existence of any fact or event of the
kind described in Section 4(c)(iii)(E), to the use of the Prospectus or any
amendment or supplement thereto by each of the selling Holders of the Notes in
connection with the offering and sale of the Notes covered by the Prospectus, or
any amendment or supplement thereto, included in such Shelf Registration
Statement;
(xiv) in the case of a Shelf Registration, (A) enter into such
customary agreements and take all such other actions in connection therewith in
order to expedite or facilitate the offering or disposition of the Notes
included in the Shelf Registration Statement, including, but not limited to,
furnishing to the Initial Purchasers and each Holder of any Notes included in
the Shelf Registration Statement, in such substance and scope as they may
request and as are customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the effectiveness of the Shelf
Registration Statement:
(1) a certificate, dated the date of effectiveness of the Shelf
Registration Statement, signed by (x) the president or chief executive officer
of the Company and (y) the chief financial officer or the principal financial or
accounting officer of the Company, confirming, as of the date thereof, that the
Shelf Registration Statement and the related Prospectus do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading and
as to such other matters as such parties may reasonably request;
(2) opinions, dated the date of effectiveness of the Shelf
Registration Statement, of outside counsel for the Company, covering such
matters as are customarily included in opinions to underwriters in primary
underwritten offerings and as are reasonably requested by such parties; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement, from the independent
certified public accountants of the Company, in customary form and covering
matters of the type customarily covered in comfort letters by underwriters in
connection with primary underwritten offerings, and addressing, to the extent
relevant, the matters set forth in the Initial Letters (as defined in the
Purchase Agreement) delivered pursuant to the Purchase Agreement;
(B) in the case of an underwriting agreement entered into in
connection with a Shelf Registration, set forth in full indemnification
provisions and procedures substantially in the form of those set forth in
Section 7 hereof with respect to all parties required to be indemnified pursuant
to such Section 7; and
-15-
<PAGE>
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with clause (A)
above.
(xv) prior to any public offering of any Notes pursuant to a
Shelf Registration Statement, (A) cooperate with the selling Holders
participating in a Shelf Registration, and their respective counsel, in
connection with the registration and qualification of the Notes under the
securities or Blue Sky laws of such jurisdictions as the selling Holders may
request, and (B) do any and all other acts or things necessary or advisable to
enable the offering or disposition in such jurisdictions of the Notes, as the
case may be, covered by the Shelf Registration Statement; except that in no
event shall the Company be obligated in connection therewith to qualify as a
foreign corporation or to execute a general consent to service of process or to
take any other action that would subject it to service of process in suits in
any jurisdiction other than those arising out of the offering or sale of Notes
in such jurisdiction pursuant to such Registration Statement;
(xvi) to the extent that any Notes are held in certificated form
and are not represented by global certificates, cooperate with the holders of
such Notes, in connection with the Registered Exchange Offer, to include an
aggregate principal amount of such Notes in a global certificate representing
the Registered Notes, and, to the extent that any Notes or Registered Notes are
not eligible to be held in book-entry form, prepare and deliver Notes or
Registered Notes in certificated form as the Holders may request; provided, in
either case, that the Company will cooperate with participating Broker Dealers
(in the case of a Registered Exchange Offer) and any Holders selling Notes
pursuant to a Shelf Registration Statement, to facilitate the timely delivery of
such certificates (whether in book-entry or certificated form as provided above)
representing such Registered Notes or Notes, as the case may be, to be sold
which do not bear any restrictive legends (other than any customary legend
required by the applicable depository or any legend that would be required by a
Note or Registered Note held by an affiliate of the Company);
(xvii) use its best efforts to cause the Notes or Registered Notes
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities (except as may be required solely as
consequence of a Holder's business) as may be necessary to enable the
Consummation of the Registered Exchange Offer or, in the case of a Shelf
Registration, as may be applicable to the Company with respect to filing and
having declared effective the Shelf Registration Statement;
(xviii) obtain appropriate CUSIP numbers for each series of
Registered Notes not later than the effective date of the Registration Statement
and provide the Trustee with printed certificates for the Notes or Registered
Notes, as the
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case may be, in a form eligible for deposit with The Depository Trust Company,
or with Morgan Guaranty Trust Company of New York, Brussels Office, as operator
of the Euroclear System and Cedel Bank, Societe Anonyme;
(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders, as soon as practicable, an earnings statement meeting
the requirements of Rule 158 (which need not be audited) covering a period of at
least 12 months beginning after the effective date of a Registration Statement;
and
(xx) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required to be
filed by this Agreement, and, in connection therewith: (A) cooperate with the
Trustee and the Holders of Notes to effect such changes to the Indenture as may
be required for such Indenture to be so qualified in accordance with the terms
of the TIA; and (B) execute, and use all reasonable efforts to cause the Trustee
to execute, all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to enable
such Indenture to be so qualified in a timely manner.
The Initial Purchasers, each Holder of Notes included in a Shelf
Registration Statement and each Participating Broker-Dealer using the Prospectus
included in the Exchange Offer Registration Statement for the resale of
Registered Notes, by its acquisition of a Note or a Registered Note, agrees
that, upon receipt of any notice from the Company of the existence of any fact
or event of the kind described in Section 4(c)(iii)(E), the Initial Purchasers,
Holder or Participating Broker-Dealer will forthwith discontinue disposition of
the Notes or the Registered Notes, as applicable, and suspend the use of the
Prospectus until the Initial Purchasers, Holder or Participating Broker-Dealer
have received copies of a supplemented or amended Prospectus as contemplated by
Section 4(c)(ix), or until it is advised in writing by the Company that the use
of the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If
so directed by the Company, the Initial Purchasers, each such selling Holder of
Notes or each such Participating Broker-Dealer, as the case may be, will deliver
to the Company (at the expense of the Company) all copies, other than permanent
file copies then in such Holder's, Initial Purchaser's or Participating Broker-
Dealer's possession, of the Prospectus covering such Notes or Registered Notes,
as applicable, that was current at the time of receipt of such notice.
Section 5. Hold-Back Agreements.
--------------------
The Company agrees that neither it nor any affiliate, without the
prior written consent of Bear, Stearns & Co. Inc., will effect any public or
private sale or distribution (including a sale pursuant to Regulation D under
the Securities Act) of
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<PAGE>
any securities the same as or similar to those covered by a Registration
Statement filed pursuant to Section 2 or 3 hereof, or any securities convertible
into or exchange able or exercisable for such securities, from the date of this
Agreement at any time within 180 calendar days after the Issue Date.
Section 6. Registration Expenses.
---------------------
All expenses incident to the Company's performance of or compliance
with its obligations under Sections 2, 3 and 4 of this Agreement will be borne
by the Company regardless of whether a Registration Statement becomes effective,
and, in the case of a Shelf Registration Statement, the Company will reimburse
the Holders covered thereby for the reasonable fees and disbursements of one
counsel, who shall be Latham & Watkins, unless another firm shall be designated
by the Holders of a majority of the principal amount of the Notes or such
Registered Notes included in any such Registration Statement.
Section 7. Indemnification and Contribution.
--------------------------------
(a) In connection with any Registration Statement, the Company agrees
to indemnify and hold harmless (i) each of the Initial Purchasers, each
Participating Broker-Dealer and each Holder of Notes to be included in such
Registration Statement, (ii each person, if any, who controls (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
such Initial Purchaser, Participating Broker-Dealer or Holder (any of the
persons referred to in this clause (ii) being hereinafter referred to as a
"controlling person") and (ii the respective officers, directors, partners,
- -------------------
employees, representatives and agents of any such Initial Purchaser,
Participating Broker-Dealer or Holder or controlling person (any person referred
to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder") from and against any and all losses, liabilities, claims,
- -------------------
damages and expenses whatsoever as incurred (including, but not limited to,
reasonable attorneys' fees and any and all reasonable expenses whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and, subject to Section 7(c),
any and all amounts paid in settlement of any claim or litigation), jointly or
severally, to which any such Indemnified Holder may become subject under the
Securities Act, the Exchange Act or otherwise (collectively, "Losses"), insofar
------
as such Losses (or actions or proceedings in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to the extent, but only to the extent, that any such Loss (or action or
proceeding in respect thereof) arises out of or is based upon an untrue
statement or
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<PAGE>
alleged untrue statement in or omission or alleged omission from the
Registration Statement or Prospectus contained therein made in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such Indemnified Holder expressly for use therein. This indemnity obligation
will be in addition to any liability which the Company may otherwise have to
such Indemnified Holder, including under this Agreement.
(b) The Company hereby also agrees that in connection with any
underwritten offering of Transfer Restricted Securities pursuant to Section 3,
the Company will also indemnify any underwriters, selling brokers, dealers and
similar securities industry professionals participating in the distribution,
their officers, directors, employees, agents, advisors and representatives, and
each controlling person thereof, substantially to the same extent as provided in
Section 7(a) with respect to the indemnification of the Initial Purchasers and
Holder of Transfer Restricted Securities (and such Persons will indemnify the
Company and each controlling person thereof to the same extent as provided in
Section 7(c)).
(c) Each Initial Purchaser will, severally and not jointly, indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company and each other person, if any, who controls the Company
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) against any Losses to which they or any of them may become subject
under the Securities Act, the Exchange Act or otherwise, from and against any
Losses insofar as such Losses (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement or Prospectus
contained therein or any amendment or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Initial Purchaser specifically for use
therein, and shall reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or preparing
to defend or defending against or appearing as third party witness in connection
with any such Loss as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a) or (c) of this Section 7 of notice of the commencement of any claim or
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve it
from any liability which it may have under this Section 7 or otherwise). In
case any claim or such action is
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<PAGE>
brought against any indemnified party, and such indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in the defense thereof, and to the extent such
indemnifying party may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (a) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense thereof, (b) the indemnifying parties shall not have employed
counsel to have charge of the defense thereof within a reasonable time after
notice of commencement of the action, or (c) such indemnified party or parties
shall have reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to one or all of
the indemnifying parties (in which case the indemnifying parties shall not have
the right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events such fees and expenses shall be borne
by the indemnifying parties (it being understood, however, that the indemnifying
party shall not be liable in any one claim or action or separate but
substantially similar or related claims or actions in the same jurisdiction for
the expenses of more than one separate counsel and one additional local
counsel). Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its written consent (which consent may not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability or claims that are the subject matter of such proceeding.
(e) If the foregoing indemnification is unavailable or insufficient to
an indemnified party for any reason in respect to any Losses or reimbursable
expenses referred to therein, then in lieu of indemnification, each indemnifying
party shall contribute to the amount paid or payable, including expenses, by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received (or anticipated to be received) by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Notes or Registered Notes, as the case may be, or, if such
allocation is not permitted by applicable law, then in such proportion as is
appropriate to reflect not only the relative benefits received (or anticipated
to be received) but also the relative fault of each of the parties in connection
with the statements or omissions or alleged statements or omissions that
resulted in such Losses, as well as any other relevant equitable considerations.
The relative fault of the parties shall be determined by
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<PAGE>
reference to, among other things: (i) whether any losses, claims, damages or
liabilities relate to information supplied by the Company or such Holder of
Notes or such other indemnified person, as the case may be; (ii) the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; and (iii) any other equitable considerations
appropriate in the circumstances. The Company and each indemnified party agrees
that it would not be just and equitable if the amount of such contribution were
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the first
sentence of this paragraph (e). Notwithstanding any other provision of this
paragraph (e), the Holders of the Notes or Registered Notes shall not be
obligated to make contributions hereunder in any amount in excess of the amount
by which the net proceeds received by such Holders from the sale of the Notes
exceeds the amount of damages which such Holders have otherwise been required to
pay in respect of the same or any substantially similar claim, and no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The obligations of the Holders
to contribute pursuant to this Section 7(e) are several in proportion to the
respective principal amount of Notes or Registered Notes held by each of the
Holders hereunder and not joint. For purposes of this Section 7(e), each
director, officer, employee and agent of any indemnified party and each person,
if any, who controls such indemnified party (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) shall have the same rights
to contribution as such indemnified party and each director and officer of the
Company, and each person, if any, who controls the Company (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) shall
have the same rights to contribution as the Company.
(f) The foregoing provisions are in addition to any rights that an
indemnified party may have at common law or otherwise. The agreements contained
in this Section 7 shall survive the sale of the Notes or the Registered Notes
pursuant to a Registration Statement and shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of any indemnified party.
Section 8. Liquidated Damages.
------------------
The Company and the Initial Purchasers agree that the Holders of
Transfer Restricted Securities will suffer damages if the Company fails to
fulfill its obligations under this Agreement and that it would not be feasible
to ascertain the extent of such damages with precision. Accordingly, in the
event that, for any reason whatsoever: (a) the Company fails to file any of the
Registration Statements required by this 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
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<PAGE>
date specified for such effectiveness (the "Effectiveness Target Date"); (c) the
-------------------------
Company 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 this Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
--------------------
pay, as the exclusive remedy and in lieu of any other damages, liquidated
damages ("Liquidated Damages") to each Holder of Notes, with respect to the
------------------
first 90 calendar day period, or any portion thereof, immediately following the
occurrence of 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 calendar 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. At such time as no Registration Default is
continuing, the accrual of Liquidated Damages will cease. In the event of any
Registration Default, the Company will provide notice to the Trustee of such
Registration Default, and will cause the Trustee to provide appropriate notice
thereof and of the imposition of the related Liquidated Damages to the Holders
of the Notes.
Section 9. Rule 144.
--------
The Company agrees that to the extent it shall be required to do so
under the Exchange Act, the Company shall timely file the reports required to be
filed by it under the Exchange Act or the Securities Act (including, but not
limited to, the reports under Section 13 and 15(d) of the Exchange Act referred
to in subparagraph (c)(1) of Rule 144 under the Securities Act), and shall take
such further action as any Holder of Transfer Restricted Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Transfer Restricted Securities without registration under the
Securities Act within the limitations of the exemptions provided by Rule 144, as
such Rule may be amended from time to time, or any similar or successor rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder
of Transfer Restricted Securities in connection with the Holder's sale pursuant
to Rule 144, the Company shall deliver to such Holder a written statement as to
whether it has complied with such requirements.
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<PAGE>
Section 10. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the Company has obtained the
written consent of Holders of a majority in aggregate principal amount of
Transfer Restricted Securities; provided that the provisions of Section 7 of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions thereof may not be given, unless the
Company has obtained the written consent of each Indemnified Holder adversely
affected thereby.
(b) No Inconsistent Agreements. The Company will not, on or after the
--------------------------
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder are not inconsistent with the rights granted to the holders of
the Company's securities under any agreement in effect on the date hereof.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), or courier guaranteeing
overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Initial Purchasers or the Company, at their
respective addresses set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three
Business Days after being deposited in the mail, postage prepaid, if
mailed; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including, without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
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<PAGE>
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS MADE AND TO
BE FULLY PERFORMED IN SUCH STATE AND WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICT OF LAWS THEREOF.
(h) Submission to Jurisdiction. (i) The Company:
--------------------------
(x) irrevocably submits to the jurisdiction of any New York State
or federal court sitting in New York City and any appellate court from any
thereof in any action or proceeding arising out of or relating to this Agreement
or any other document delivered hereunder;
(y) irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State court or
in such federal court; and
(z) irrevocably waives, to the fullest extent permitted by law,
the defense of an inconvenient forum to the maintenance of such action or
proceeding and irrevocably consents, to the fullest extent permitted by law, to
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its address as provided in Section 10(c) of
this Agreement, such service to become effective five days after such mailing;
(ii) Nothing in this Section shall affect the right of any person to
serve legal process in any other manner permitted by law or affect the right of
any person to bring any action or proceeding against the Company or their
properties in the courts of other jurisdictions.
(i) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and the remaining provisions contained
herein shall not, to the fullest extent permitted by law, be affected or
impaired thereby.
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<PAGE>
(j) Third Party Beneficiaries. Holders of the Notes and Registered
-------------------------
Notes and each Indemnified Holder are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such persons.
(k) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement, is intended by the parties as a final expression of their agreement
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises. warranties or undertakings, other
than those set forth or referred to herein, with respect to the registration
rights granted by the Company with respect to the Transfer Restricted
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ARCH COMMUNICATIONS, INC.
/s/ J. Roy Pottle
By:__________________________________
Name: J. Roy Pottle
Title: Executive Vice President and
Chief Financial Officer
BEAR, STEARNS & CO. INC.
/s/ James C. Diao
By:__________________________________
Name: James C. Diao
Title: Senior Managing Director
BARCLAYS CAPITAL INC.
/s/ Joseph S. Muratore
By:__________________________________
Name: Joseph S. Muratore
Title: Director
RBC DOMINION SECURITIES CORPORATION
/s/ William H. Cook
By:__________________________________
Name: William H. Cook
Title: Vice President and Director
BNY CAPITAL MARKETS, INC.
/s/ John M. Roy
By:__________________________________
Name: John M. Roy
Title: Managing Director
TD SECURITIES (USA) INC.
/s/ Thomas. L. Regan
By:_________________________________
Name: Thomas. L. Regan
Title: Managing Director
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<PAGE>
EXHIBIT 10.8
USA MOBILE COMMUNICATIONS, INC. II
(TO BE RENAMED ARCH COMMUNICATIONS, INC.)
$130,000,000
12 3/4% SENIOR NOTES DUE 2007
PURCHASE AGREEMENT
------------------
JUNE 24, 1998
BEAR, STEARNS & CO. INC.
BARCLAYS CAPITAL INC.
RBC DOMINION SECURITIES CORPORATION
BNY CAPITAL MARKETS, INC.
TD SECURITIES (USA) INC.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
USA MOBILE COMMUNICATIONS, INC. II, a Delaware corporation to be renamed
Arch Communications, Inc. (the "Company"), proposes, subject to the terms and
-------
conditions stated herein, to issue and sell to Bear, Stearns & Co. Inc.,
Barclays Capital Inc., RBC Dominion Securities Corporation, BNY Capital Markets,
Inc. and TD Securities (USA) Inc. (the "Initial Purchasers") severally, an
------------------
aggregate of $130,000,000 principal amount of the Company's 12 3/4% Senior Notes
due 2007 (the "Notes"). The Notes will be issued pursuant to an Indenture (the
-----
"Indenture") to be dated as of the Closing Date (as defined herein) between the
---------
Company and U.S. Bank Trust National Association, as trustee (in such capacity,
the "Trustee").
-------
The Company has prepared a preliminary offering memorandum dated June 8,
1998, a supplement thereto dated June 22, 1998 (as supplemented, the
"Preliminary Offering Memorandum") and a final offering memorandum dated June
- --------------------------------
24, 1998 (the "Offering Memorandum") relating to and summarizing the terms of
-------------------
the Notes. The Company hereby confirms that it has authorized the use of the
Preliminary Offering Memorandum and the Offering Memorandum in connection with
the offer and sale of the Notes by the Initial Purchasers in the manner and to
the persons contemplated herein and therein (the "Offering"). Unless stated to
--------
the contrary, all references herein to the Offering Memorandum are to the
Offering Memorandum at the date hereof and are not meant to include any
amendment or supplement thereto subsequent to the date hereof.
The Notes are being issued and sold in connection with a series of
transactions, including: (i) the merger of Arch Communications Enterprises,
Inc. ("ACE") with and into a subsidiary ("Merger Sub") of USA Mobile
--- ----------
Communications, Inc. II (the "Merger"); (ii) the repayment of (a) a portion of
------
the outstanding indebtedness under a credit agreement dated May 21, 1996, as
amended,
<PAGE>
among ACE, Arch Communications Group, Inc. ("Parent") and The Bank of New York
------
("BNY"), as administrative agent (the "ACE Credit Facility") for the lenders
--- -------------------
thereunder, and (b) all outstanding indebtedness under a credit agreement dated
March 19, 1997, as amended, among USA Mobile Communications, Inc. II ("USAM"),
----
the direct subsidiaries of USAM and BNY, as administrative agent for the lenders
thereunder (the "USAM Credit Facility"); (iii) the amendment and restatement of
--------------------
the ACE Credit Facility to create the Amended Credit Facility, as defined in the
Preliminary Offering Memorandum (the "Amended Credit Facility"); (iv) the
-----------------------
termination of the USAM Credit Facility; and (v) an investment by Sandler
Capital Partners IV, L.P. and Sandler Capital Partners IV FTE, L.P. (together
with their assigns, "Sandler"), and other investors designated by Sandler, of
-------
$25.0 million in Parent in the form of Series C Convertible Preferred Stock of
Parent ("Series C Preferred Stock"), $24.0 million of the net proceeds of which
------------------------
Parent will contribute to the Company as an equity investment (the "Equity
------
Investment").
- ----------
As used in this agreement,"Transaction Documents" shall mean, collectively,
---------------------
this Agreement, the Indenture, the Exchange and Registration Rights Agreement
(as defined herein), the Merger Agreement (as defined herein) and the Amended
Credit Facility.
None of the Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and the Notes are being offered and sold in
--------------
reliance on exemptions from or in transactions not subject to the registration
requirements of the Securities Act, including sales by the Initial Purchasers to
"qualified institutional buyers" ("QIBs") as defined in, and in reliance on,
----
Rule 144A under the Securities Act ("Rule 144A").
---------
The Initial Purchasers and other holders of the Notes will have, with
respect to the Notes, the registration rights set forth in the Exchange and
Registration Rights Agreement, dated as of the Closing Date, in substantially
the form of Exhibit A hereto (the "Exchange and Registration Rights Agreement").
--------- ------------------------------------------
Pursuant to the Exchange and Registration Rights Agreement, the Company will
agree, among other things, to file with the Securities and Exchange Commission
(the "Commission") under the circumstances set forth therein (i) a registration
----------
statement under the Securities Act with respect to which Notes (the "Registered
----------
Notes") issued under the Indenture will be offered in exchange for the then
- -----
outstanding Notes and to use its best efforts to cause such registration
statement to be declared effective and (ii) under certain circumstances, a shelf
registration statement pursuant to Rule 415 under the Securities Act relating to
the resale of the Notes by holders thereof and to use its best efforts to cause
such shelf registration statement to be declared effective.
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to the Initial Purchasers that:
(a) The Preliminary Offering Memorandum as of its date and the date of
the supplement thereto did not and the Offering Memorandum as of the date hereof
and as of the Closing Date does not contain and will not contain any untrue
statement of a material fact or omit to state a material fact (except, in the
case of the Preliminary Offering Memorandum, for pricing terms and other pricing
related terms intentionally left blank) necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph (a) do not apply to statements or omissions in the Offering Memorandum
based
-2-
<PAGE>
upon the information referred to in Section 7(b) furnished to the Company in
writing by, or on behalf of, the Initial Purchasers expressly for use therein.
(b) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its respective jurisdiction of incorporation with full corporate power
and authority to carry on its business as it is currently being conducted and to
own, lease and operate its properties, and is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not, individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), results of operations, business or prospects
of the Company and its subsidiaries taken as a whole.
(c) The Merger and the Agreement and Plan of Merger to be dated as of
the Closing Date among ACE, Merger Sub and USAM (the "Merger Agreement") has
----------------
been duly authorized by all necessary corporate action on the part of each of
ACE, Merger Sub and USAM, including, to the extent required by applicable law,
all action by their respective boards of directors and stockholders, and when
executed and delivered by ACE, Merger Sub and USAM, will be a valid and binding
agreement of each of ACE, Merger Sub and USAM enforceable in accordance with its
terms except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. The
Merger, the Merger Agreement and the consummation of the transactions
contemplated thereby will not (i) conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute such a
default) under, any indenture, mortgage, deed or trust, loan agreement or other
agreement or instrument to which ACE, Merger Sub or USAM is a party or by which
any of them is bound or to which any of the property or assets of any of them is
subject except as would not, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), results of operations,
business or prospects of the Company and its subsidiaries taken as a whole, (ii)
result in any violation of the provisions of the certificate of incorporation,
by-laws or other governing documents of ACE, Merger Sub or USAM, (iii) result in
the violation of any law or statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over ACE, Merger Sub or
USAM or any of their properties or assets or (iv) result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of ACE, Merger Sub or USAM except in the case of this clause (iv) as described
in the Offering Memorandum or as would not, individually or in the aggregate,
have a material adverse effect on the condition (financial or otherwise),
results of operations, business or prospects of the Company and its subsidiaries
taken as a whole.
(d) Each of the Stock Purchase Agreement among Sandler, Parent and the
other investors to be dated as of the Closing Date (the "Stock Purchase
--------------
Agreement") and the Equity Investment has been duly authorized by all necessary
- ---------
corporate action on the part of Parent, including, to the extent required by
applicable law, all action of Parent's board of directors and stockholders, and
when executed and delivered by Parent, will be a valid and
-3-
<PAGE>
binding agreement of Parent enforceable in accordance with its terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. Neither the Stock
Purchase Agreement and the consummation of the transactions contemplated thereby
nor the Equity Investment will (i) conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute such a
default) under, any indenture, mortgage, deed or trust, loan agreement or other
agreement or instrument to which Parent is a party or by which it is bound or to
which any of the property or assets of Parent is subject, (ii) result in any
violation of the provisions of the certificate of incorporation, by-laws or
other governing documents of Parent, (iii) result in the violation of any law or
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over Parent or any of its properties or assets, (iv)
result in the creation or imposition of any lien, charge, claim or encumbrance
upon any property or asset of Parent, (v) require registration of the Series C
Preferred Stock under the Securities Act or (vi) require any other consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body which consent has not been
received (except as such may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976).
(e) The Notes have been duly authorized by the Company for issuance
and sale pursuant to this Agreement and, when executed and authenticated in
accordance with the provisions of the Indenture and delivered to the Initial
Purchasers against payment therefor as provided by this Agreement, the Notes
will be entitled to the benefits of the Indenture, and will be valid and binding
obligations of the Company enforceable in accordance with their terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.
(f) The Registered Notes have been duly authorized by the Company for
issuance and sale pursuant to this Agreement and the Exchange and Registration
Rights Agreement and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to the holders of the Notes being
exchanged therefor, the Registered Notes will be entitled to the benefits of the
Indenture, and will be valid and binding obligations of the Company enforceable
in accordance with their terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(g) This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company enforceable in
accordance with its terms except as (i) rights to indemnity and contribution
hereunder may be limited by applicable law, (ii) the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally and (iii) rights of acceleration and the
availability of equitable remedies may be limited by equitable
-4-
<PAGE>
principles of general applicability, and its consummation will not (A) conflict
with or result in a breach or violation of any of the terms or provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute such a default) under, any indenture, mortgage, deed or trust,
loan agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or they are bound or to which any of
their respective property or assets is subject, (B) result in any violation of
the provisions of the certificates of incorporation, by-laws or other governing
documents of the Company or any of its subsidiaries, (C) result in the violation
of any law or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties or assets or (D) result in
the creation or imposition of any lien, charge, claim or encumbrance upon any
respective property or asset of the Company or any of its subsidiaries.
(h) Each of the Indenture, the Exchange and Registration Rights
Agreement and the Amended Credit Facility has been duly authorized by the
Company and, when executed and delivered by the Company on the Closing Date,
will be a valid and binding agreement of the Company, enforceable in accordance
with its terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability, and their consummation will not (A) conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute such a default) under, any indenture, mortgage, deed or trust, loan
agreement or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or they are bound or to which any of
their respective property or assets is subject, (B) result in any violation of
the provisions of the certificates of incorporation, by-laws or other governing
documents of the Company or any of its subsidiaries, (C) result in the violation
of any law or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties or assets or (D) result in
the creation or imposition of any lien, charge, claim or encumbrance upon any
respective property or asset of the Company or any of its subsidiaries.
(i) The Amended Credit Facility has been duly authorized by Arch
Paging, Inc. ("API") as borrower and by Parent and the subsidiaries of the
---
Company as guarantors thereof (collectively, the "Amended Credit Facility
-----------------------
Parties") and, when executed and delivered by the Amended Credit Facility
- -------
Parties, will be a valid and binding agreement of the Amended Credit Facility
Parties, enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability, and will not (A) conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute such a default) under, any indenture, mortgage, deed or trust,
loan agreement or other agreement or instrument to which any of the Amended
Credit Facility Parties is a party or by which they are bound or to which any of
their respective property or assets is subject, (B) result in any violation of
the provisions of the certificates of incorporation, by-laws or other governing
documents of any of the Amended Credit Facility
-5-
<PAGE>
Parties, (C) result in the violation of any law or statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
any of the Amended Credit Facility Parties or any of their respective properties
or assets or (D) result in the creation or imposition of any lien, charge, claim
or encumbrance upon any respective property or asset of any of the Amended
Credit Facility Parties except under or as contemplated by the Amended Credit
Facility.
(j) The Company and certain of its subsidiaries (the "Tower Sellers")
-------------
have duly entered into the Asset Purchase and Sale Agreement (the "Tower Site
----------
Sale Agreement") dated as of April 10, 1998 among the Company, the Tower Sellers
- --------------
and OmniAmerica, Inc., which agreement is in full force and effect on and as of
the date hereof. The Tower Site Sale Agreement has been duly executed and
delivered by the Company and the Tower Sellers and is the valid and binding
agreement of the Company and the Tower Sellers, enforceable against the Company
and the Tower Sellers in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(k) The Notes conform as to legal matters to the description thereof
contained in the Offering Memorandum.
(l) Neither the Company nor any of its subsidiaries is in violation of
its respective certificate of incorporation or by-laws or in default (and no
condition exists which, with notice or lapse of time or both, would constitute a
default) in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture or instrument material to the conduct of the business
of the Company and its subsidiaries to which the Company or its subsidiaries is
a party or by which the Company or its subsidiaries or their respective property
is bound, in each case other than such violation or default as would not have a
material adverse effect on the condition (financial or otherwise), results of
operations, business or prospects of the Company and its subsidiaries, taken as
a whole.
(m) The execution, delivery and performance of the Merger Agreement,
this Agreement, the Indenture and the Notes and compliance by the Company and
each of its subsidiaries with all the provisions hereof and thereof, as the case
may be, and the consummation of the transactions contemplated hereby and thereby
will not require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body which
consent has not been received (except as such may be required under the
securities or "blue sky" laws of the various states of, or jurisdictions
outside, the United States).
(n) The execution, delivery and performance of the Merger Agreement
and compliance by each of ACE, Merger Sub and USAM with all the provisions
hereof and thereof, as the case may be, and the consummation of the transactions
contemplated hereby and thereby will not require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body which consent has not
-6-
<PAGE>
been received (except as such may be required under the securities or "blue sky"
laws of the various states of, or jurisdictions outside, the United States).
(o) The execution, delivery and performance of the Exchange and
Registration Rights Agreement and the Registered Notes and compliance by the
Company with all the provisions thereof and the consummation of the
transactions contemplated thereby will not require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body (except as such may be required under the
Securities Act, the Trust Indenture Act of 1939, as amended (the "Trust
-----
Indenture Act"), or the securities or "blue sky" laws of the various states of,
- -------------
or jurisdictions outside, the United States).
(p) Except as set forth in the Offering Memorandum, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or to which their respective property is the subject
that would be required to be disclosed by Item 103 of Regulation S-K promulgated
by the Commission or otherwise, and, to the Company's knowledge, no such
proceedings are threatened or contemplated.
(q) Except as would not have a material adverse effect on the
condition (financial or otherwise), results of operations, business or prospects
of the Company and its subsidiaries, taken as a whole, or otherwise be required
to be disclosed in a registration statement under the Securities Act, or as
disclosed in the Offering Memorandum, (i) neither the Company nor any of its
subsidiaries is in violation of any federal, state or local laws and regulations
relating to pollution or protection of human health or the environment or the
use, treatment, storage, disposal, transport or handling, emission, discharge,
release or threatened release of toxic or hazardous substances, materials or
wastes, or petroleum and petroleum products ("Materials of Environmental
--------------------------
Concern") (collectively, "Environmental Laws"), including, without limitation,
------------------
noncompliance with or lack of any permits or other environmental authorizations,
and (ii) (A) neither the Company nor any of its subsidiaries has received any
communication from any person or entity alleging any violation of or
noncompliance with any Environmental Laws, and there are no past or present
circumstances known to the Company that could be reasonably expected to lead to
any such violation in the future, (B) there is no pending or, to the Company's
knowledge, threatened claim, action, investigation or notice by any person or
entity against the Company or any of its subsidiaries or against any person or
entity for whose acts or omissions the Company or any of its subsidiaries is
liable, either contractually or by operation of law, alleging liability for
investigatory, cleanup, or governmental response costs, or natural resources or
property damages, or personal injuries, attorney's fees or penalties relating to
any Materials of Environmental Concern or any violation or potential violation,
of any Environmental Law (collectively, "Environmental Claims"), and (C) there
--------------------
are no existing actions, activities, circumstances, conditions, events or
incidents that could be reasonably expected to form the basis of any such
Environmental Claim.
(r) Except as disclosed in the Offering Memorandum, the Company and
each of its subsidiaries has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("Permits"), including,
-------
without limitation, under any applicable Environmental Laws, as are necessary to
own, lease and operate its properties and to conduct their respective businesses
except those Permits, the absence of which would not,
-7-
<PAGE>
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), results of operations, business or prospects
of the Company and its subsidiaries taken as a whole; the Company and each of
its subsidiaries has fulfilled and performed all of their respective obligations
with respect to such Permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof which
might have a material adverse effect on the condition (financial or otherwise),
results of operations, business or prospects of the Company and its
subsidiaries, taken as a whole, and such Permits contain no restrictions that
materially interfere with the business or operations of the Company and its
subsidiaries as currently conducted.
(s) Except as otherwise set forth in the Offering Memorandum or such
as are not material to the condition (financial or otherwise), results of
operations, business or prospects of the Company and its subsidiaries, taken as
a whole, the Company and each of its subsidiaries has good and marketable title,
free and clear of all liens, claims, encumbrances and zoning, use and other
restrictions, except liens for taxes not yet due and payable, to all real and
other property and assets described in the Offering Memorandum as being owned by
the Company and its subsidiaries and the Company and each of its subsidiaries
enjoys peaceful and undisturbed possession of all such real and other property
and other assets with such liens, claims, encumbrances and restrictions as do
not materially interfere or threaten to materially interfere with the use made
or proposed to be made by the Company and its subsidiaries. All leases to which
the Company or its subsidiaries is a party are valid and binding and no default
by the Company or its subsidiaries, or to the knowledge of the Company, by any
other party, has occurred or is continuing thereunder, which might result in any
material adverse effect on the condition (financial or otherwise), results of
operations, business or prospects of the Company and its subsidiaries, taken as
a whole, and the Company and each of its subsidiaries enjoys peaceful and
undisturbed possession under all such leases with such exceptions as do not
materially interfere with the use made or proposed to be made by the Company or
its subsidiaries.
(t) The Company and each of its subsidiaries maintains, with insurers
of recognized standing, reasonably adequate insurance against property and
casualty loss, general liability, business interruption and such other losses
and risks, in each case, in such amounts as are prudent and customary in the
respective businesses in which the Company and each of its subsidiaries is
engaged.
(u) Arthur Andersen LLP are independent public accountants with
respect to the Company within the meaning of the Securities Act.
(v) The financial statements of the Company, including the notes
thereto, contained in the Offering Memorandum present fairly the respective
financial position, results of operations and cash flows of the Company, as of
the respective dates and for the respective periods to which they apply, and
have been prepared in accordance with generally accepted accounting principles
("GAAP") and the requirements of Regulation S-X promulgated by the Commission
----
that would be applicable if the Offering Memorandum were a prospectus included
in a registration statement on Form S-1 filed under the Securities Act. The
summary and selected historical financial data included in the Offering
Memorandum are accurately presented and have been derived from, and prepared on
a basis consistent with, the respective financial statements and the books and
records of the Company. All
-8-
<PAGE>
other financial and statistical data relating to the Company included in the
Offering Memorandum are accurately presented and are derived from, and prepared
on a basis consistent with, the respective financial statements and the books
and records of the Company.
(w) All of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned of record (directly or indirectly) and beneficially by Parent. All of
the outstanding shares of capital stock of each of the subsidiaries of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and, except as set forth in Schedule III, are owned of record and
beneficially by the Company, subject to the stock pledges disclosed in the
Offering Memorandum.
(x) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company, except as
disclosed in the Offering Memorandum.
(y) Except as disclosed in the Offering Memorandum, there are no
business relationships or related party transactions that would be required to
be disclosed therein by Item 404 of Regulation S-K promulgated by the
Commission.
(z) Subsequent to the respective dates as of which information is
given in the Offering Memorandum (or, if the Offering Memorandum is not in
existence, the most recent Preliminary Offering Memorandum), (i) neither the
Company nor any of its subsidiaries has incurred any liability or obligation,
direct or contingent, nor entered into any transaction not in the ordinary
course of business, in either case which is material to the Company and its
subsidiaries taken as a whole, and (ii) there has not been any material change
in the short-term debt or long-term debt of the Company or any of its
subsidiaries, except in each case for additional borrowings under the USAM
Credit Facility, ACE Credit Facility or, on the Closing Date, the Amended Credit
Facility, in the ordinary course of business and except as described in or
contemplated by the Offering Memorandum (or, if the Offering Memorandum is not
in existence, the most recent Preliminary Offering Memorandum).
(aa) There is (i) no unfair labor practice complaint pending against
the Company or its subsidiaries or, to the knowledge of the Company, threatened
against the Company or its subsidiaries, before the National Labor Relations
Board or any state or local labor relations board, and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending against the Company or its subsidiaries or, to the
knowledge of the Company, threatened against it, and (ii) no strike, labor
dispute, work rule or other slowdown, job action or stoppage pending against the
Company or its subsidiaries or, to the knowledge of the Company, threatened
against it except for such matters specified in clause (i) or (ii) above, which,
singly or in the aggregate, would not have a material adverse effect on the
condition (financial or otherwise), results of operations, business or prospects
of the Company and its subsidiaries, taken as a whole.
-9-
<PAGE>
(bb) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(cc) All tax returns required to be filed by the Company and each of
its subsidiaries in any jurisdiction have been filed, other than those filings
being contested in good faith, and all taxes, including withholding taxes,
penalties and interest, assessments, fees and other charges due pursuant to such
returns or pursuant to any assessment received by the Company and each of its
subsidiaries have been paid, other than those being contested in good faith and
for which adequate reserves have been provided. The Company will not incur any
federal, state or local income, franchise or other taxes as a result of the
Merger which are material to the Company and its subsidiaries taken as a whole.
(dd) The Company and each of its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with its
business, and neither the Company nor any of its subsidiaries has received any
notice of infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in any
material adverse effect on the condition (financial or otherwise), results of
operations, business or prospects of the Company or its subsidiaries except as
described in the Offering Memorandum.
(ee) The Company does not intend to incur debts beyond its ability to
pay such debts as they mature, taking into account the timing and the amounts of
cash to be received by the Company and the timing and the amounts of cash to be
payable on or in respect of the Company's indebtedness.
(ff) The Notes are eligible for resale to QIBs pursuant to Rule 144A
and, when issued, will not be of the same class (within the meaning of Rule
144A(d)(3)) as any securities (i) listed on a national securities exchange
registered under Section 6 of the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or (ii) quoted on any United States "automated
------------
inter-dealer quotation system" (as such term is used in the Exchange Act) in the
United States.
(gg) Neither the Company, any of its affiliates (as used in this
Agreement, such term shall have the meaning set forth in Rule 501(b) under the
Securities Act) nor any person authorized to act on behalf of any such person
(it being understood that no representation is given as to the Initial
Purchasers and their respective affiliates) has, directly or indirectly, (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Securities Act) which is or could be
integrated with the sale of the Notes in a manner that would require the
registration of any of the Notes
-10-
<PAGE>
under the Securities Act or (ii) engaged in any form of general solicitation or
general advertising (as such terms are defined in Rule 502(c) under the
Securities Act) in connection with the Offering.
(hh) None of the Company, any of its affiliates or any person acting
on its or their behalf (it being understood that no representation is given as
to the Initial Purchasers and their respective affiliates) has engaged in any
directed selling efforts within the meaning of Rule 902 under the Securities Act
with respect to any Notes to be sold in reliance on Regulation S, and each of
the Company, its affiliates and persons acting on its or their behalf (it being
understood that no representation is given as to the Initial Purchasers and
their respective affiliates) has complied with Rule 903 under the Securities Act
with respect to any Notes to be sold in reliance on Regulation S.
(ii) Subject to compliance by the Initial Purchasers with the
representations, warranties, covenants and the procedures set forth in Sections
3 and 4 hereof, it is not necessary in connection with the offer, sale and
delivery of the Notes to the Initial Purchasers in the manner contemplated by
this Agreement and the Offering Memorandum to register the Notes under the
Securities Act or to qualify the Indenture under the Trust Indenture Act.
(jj) The Company is not, or upon consummation of the transactions
contemplated under this Agreement, the Exchange and Registration Rights
Agreement and the Indenture will be, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), or be subject to
----------------------
registration under the Investment Company Act.
(kk) All of the representations and warranties of the Company and the
Tower Sellers contained in the Tower Site Sale Agreement were true and correct
on the date thereof and are true and correct on the date hereof, except where
the inaccuracy of such statements would not (i) reasonably be expected to have a
material adverse effect on the condition (financial or otherwise), results of
operations, business or prospects of the Company, (ii) cause the Offering
Memorandum to contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (iii) constitute a
failure of condition that would relieve the other parties to the Tower Site Sale
Agreement of their obligation to consummate substantially all of the
transactions contemplated by the Tower Site Sale Agreement.
(ll) The execution and delivery of this Agreement, the Exchange and
Registration Rights Agreement and the Indenture and the sale of the Notes to the
Initial Purchasers or by the Initial Purchasers to other purchasers of the Notes
will not involve any prohibited transaction within the meaning of Section 406 of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
and regulations promulgated thereunder ("ERISA") or Section 4975 of the Internal
-----
Revenue Code of 1986, as amended, or the rules and regulations promulgated
thereunder (the "Code"). The representation made by the Company in the
----
preceding sentence is made in reliance upon and subject to the accuracy of, and
compliance with, the representations and covenants made or deemed made by
purchasers of the Notes (other than the Initial Purchasers) as set forth in the
Offering Memorandum under the section entitled "Notice to Investors."
-11-
<PAGE>
(mm) Neither the Company nor its subsidiaries or affiliates or any
person acting on its or their behalf, has taken, nor will it or any of them or
any such person take, directly or indirectly, any action designed to cause or
result in, or which constitutes or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the Notes to
facilitate the sale or resale of the Notes.
(nn) Subsequent to the respective dates as of which information is
given in the Offering Memorandum, except as set forth therein, (i) neither the
Company nor its subsidiaries has sustained any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, and (ii) there has not been any material adverse change in the
business, prospects, properties, operations, condition (financial or other) or
results of operations of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business.
2. Purchase, Sale and Delivery of the Notes.
----------------------------------------
(a) Subject to the terms and conditions herein set forth and on the
basis of the representations, warranties, covenants and agreements herein
contained, the Company agrees to sell to the several Initial Purchasers, and the
Initial Purchasers agree to purchase, severally and not jointly, from the
Company, the aggregate principal amount of Notes set forth opposite such Initial
Purchasers' names in Schedule I hereto at a purchase price equal to 95.108% of
----------
the principal amount thereof.
(b) Subject to the terms and conditions herein set forth, payment of
the purchase price for, and delivery of, the Notes shall be made at the offices
of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts at 9:00 a.m. (New
York time), unless postponed as a result of the failure of the Company to
satisfy any of the conditions set forth in Section 6 hereof, on June 29, 1998 or
at such other time or on such other date as shall be mutually agreed in writing
between the Company and the Initial Purchasers (the time and date of such
payment and delivery being herein called the "Closing Date"). At least 24 hours
------------
prior to the Closing Date, the Company shall execute and deliver the Notes for
authentication in definitive form and in such denominations and registered in
such names as the Initial Purchasers may request in writing not less than 36
hours prior to the Closing Date. The Notes shall be represented by one
permanent global note, which may be subdivided ("Global Notes"), in definitive
------------
form, registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), for the account or accounts of participants in the DTC system
---
(including Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear") and Cedel Bank, Societe Anonyme
---------
("Cedel Bank"), as the case may be) having an aggregate principal amount
----------
corresponding to the aggregate principal amount of the Notes purchased by the
Initial Purchasers hereunder, which will be deposited by or on behalf of the
Company with DTC or its designated custodian. Against delivery of the Notes to
the Initial Purchasers, which will be accomplished by causing DTC to credit the
respective accounts of the Initial Purchasers, the Initial Purchasers shall pay
or cause to be paid to the Company the purchase price for the Notes, which
payment shall be made to the Company by wire transfer or certified or official
bank check or checks drawn in federal funds or similar immediately available
funds to the order of the Company.
-12-
<PAGE>
3. Subsequent Offers and Resales of the Notes. The Initial Purchasers
------------------------------------------
and the Company hereby establish and agree to observe the following procedures
in connection with the offer and sale of the Notes:
(a) Each Initial Purchaser has advised the Company that it proposes to
offer the Notes for resale upon the terms and conditions set forth in this
Agreement and the Offering Memorandum. Each Initial Purchaser understands that
the Notes have not been and, other than pursuant to the Company's obligations
under the Exchange and Registration Rights Agreement, will not be registered
under the Securities Act. Each Initial Purchaser agrees that it has not and
will not take, and acknowledges that the Company has not taken, any action that
would permit a public offering of the Notes in any jurisdiction and further
agrees that, with respect to the offer or sale of any Notes or the delivery or
distribution of any Offering Memorandum, it will comply with applicable laws and
regulations in any jurisdiction in which it acquires, offers, sells or delivers
the Notes or distributes the Offering Memorandum to which it is subject.
(b) Each Initial Purchaser represents and warrants that (i) it is a
"qualified institutional buyer" within the meaning of Rule 144A and (ii) that
neither it nor any of its affiliates nor any person acting on behalf of any such
person has engaged or will engage in any general solicitation or general
advertising, as such terms are defined in Rule 502(c) under the Securities Act,
in connection with the offer or sale of the Notes.
(c) Each Initial Purchaser represents and warrants that in connection
with the initial resale of the Notes, it has solicited and will solicit offers
for the Notes only from persons whom it reasonably believes to be QIBs and that
it will send a copy of the Offering Memorandum (including any amendment or
supplement thereto) to each purchaser of the Notes in connection with written
confirmation of the sale of the Notes to such person.
4. Agreements of the Company. The Company covenants and agrees with the
-------------------------
Initial Purchasers that:
(a) The Company will make no further amendment or supplement to the
Offering Memorandum except as permitted herein; and if at any time prior to the
earlier of (i) the completion of the distribution of the Notes by the Initial
Purchasers or (ii) 180 days after the Closing Date any event shall have occurred
as a result of which the Offering Memorandum, as then amended or supplemented,
would, in the judgment of the Initial Purchasers or the Company, include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, each Initial Purchaser or the Company, as the
case may be, will promptly notify the other and the Company will promptly
prepare and deliver to the Initial Purchasers an amendment or supplement that
will correct such untrue statement or omission.
(b) The Company shall advise the Initial Purchasers promptly and, if
requested, will confirm such advice in writing, (i) of any proposal to amend or
supplement the Offering Memorandum and will afford the Initial Purchasers a
reasonable opportunity to comment on any such proposed amendment or supplement,
(ii) of receipt by the Company of any notification with respect to the
suspension of the qualification of the Notes for sale in
-13-
<PAGE>
any jurisdiction or the initiation or threat of any proceeding for that purpose
and (iii) of any downgrading in the rating accorded the Notes by any "nationally
recognized statistical rating organization" (as defined for purposes of Rule
436(g) under the Securities Act, an "NRSRO"), or any public announcement that
-----
any such organization has under surveillance or review its rating of the Notes
(other than an announcement with positive implications of a possible upgrading,
and no implication of a possible downgrading of such rating) as soon as the
Company learns of any such downgrading or announcement.
(c) The Company will promptly deliver to the Initial Purchasers,
without charge, such number of copies of the Offering Memorandum and all
amendments of and supplements thereto as the Initial Purchasers may reasonably
request.
(d) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding and so long as the Indenture so
requires, the Company will (i) furnish 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 Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company'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 the Company's
debt securities who request it in writing.
(e) During the period referred to in paragraph (d), the Company will
furnish to the Initial Purchasers as soon as available a copy of each report or
other publicly available information of the Company mailed to the security
holders of the Company or filed with the Commission and such other publicly
available information concerning the Company as the Initial Purchasers may
reasonably request.
(f) Without the prior consent of Bear, Stearns & Co. Inc., prior to
the expiration of 180 days after the date of the Offering Memorandum the Company
will not offer, sell, contract to sell or otherwise dispose of any note or
debenture similar to the Notes having a maturity of more than one year (other
than the Registered Notes).
(g) The Company shall do and perform, or cause to be done or
performed, all things required or necessary to be done and performed under this
Agreement by the Company prior to the Closing Date and to satisfy all conditions
precedent to the delivery of the Notes.
(h) The Company shall use its best efforts in cooperation with the
Initial Purchasers to (i) permit the Notes to be eligible for clearance and
settlement through the facilities of DTC, Euroclear and Cedel Bank and (ii)
include quotation of the Notes on the Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") Market of the National Association of
------
Securities Dealers, Inc.
-14-
<PAGE>
(i) The Company will use its best efforts to take such actions as are
necessary to enable Standard & Poor's Corporation ("S&P") and Moody's Investors
---
Service, Inc. ("Moody's") to provide their respective initial credit ratings on
-------
the Notes.
(j) None of the Company, any of its affiliates or any person acting on
behalf of any of them (it being understood that no representation is given as to
the conduct of the Initial Purchasers and their respective affiliates) will
solicit any offer to buy or offer to sell the Notes by means of any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act, except in
either case as contemplated by the Exchange and Registration Rights Agreement.
(k) None of the Company, any of its affiliates or any person acting on
behalf of any of them (it being understood that no representation is given as to
the conduct of the Initial Purchasers and their respective affiliates) will,
directly or indirectly, offer, sell, solicit offers to buy or sell or otherwise
negotiate in respect of any security (as defined in the Securities Act) which
will be integrated with the sale of any of the Notes in a manner that would
require the registration of any of the Notes under the Securities Act.
(l) During the period of two years after the Closing Date (or such
other period as the Notes in general constitute "restricted securities" within
the meaning of Rule 144 under the Securities Act) it will, upon request, furnish
to the Initial Purchasers and any holder of Notes a copy of the restrictions on
transfer applicable to the Notes.
(m) The Company will not, and will not permit any of its affiliates
to, resell any of the Notes that have been acquired by any of them and that
constitute "restricted securities" within the meaning of Rule 144 of the
Securities Act, except outside the United States in accordance with Regulation
S, pursuant to an exemption from the registration requirements of the Securities
Act or in a transaction registered under the Securities Act.
(n) Neither the Company nor any of its affiliates has or will, either
alone or with one or more other persons, bid for or purchase for any account in
which it or any of its affiliates has a beneficial interest any Notes or attempt
to induce any person to purchase any Notes, and neither the Company nor any of
its affiliates will make bids or purchase Notes for the purpose of creating
actual, or apparent, active trading in, or of raising the price of, the Notes.
(o) Each of the Notes will bear a legend substantially in the form
contained in the section captioned "Notice to Investors" in the Offering
Memorandum for the time period and upon the other terms stated therein;
provided, however, that such legend will be removed upon request to the Trustee
or the security registrar under the Indenture after such Notes are resold
pursuant to a registration statement that has been declared effective by the
Commission under the Securities Act.
(p) For so long as any of the Notes constitute "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, the Company will
make available to any holder of the Notes or to any prospective purchaser of the
Notes designated by any holder, upon request of such holder or prospective
purchaser, information required to be
-15-
<PAGE>
provided by Rule 144A(d)(4) under the Securities Act if at the time of such
request the Company is not subject to the reporting requirements under Section
13 or 15(d) of the Exchange Act.
(q) The Company will use the proceeds from the sale of the Notes in
the manner described in the Offering Memorandum under the caption "Use of
Proceeds."
(r) The Company will comply with the agreements in the Transaction
Documents to which it is a party except where the failure to comply would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), results of operations, business or prospects
of the Company and its subsidiaries taken as a whole.
5. Expenses. The Company will pay all costs and expenses incident to the
--------
performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (a)
the printing or other production of documents with respect to the transactions,
including all costs of printing any Preliminary Offering Memorandum and the
Offering Memorandum, (b) all arrangements relating to the delivery to the
Initial Purchasers of copies of the foregoing documents, (c) the fees and
disbursements of the counsel, the accountants and any other experts or advisors
retained by the Company, (d) preparation, issuance and delivery to the Initial
Purchasers of any certificates evidencing the Notes, (e) the qualification of
the Notes under state or foreign securities or "blue sky" laws, including filing
fees and reasonable fees and disbursements of counsel for the Initial Purchaser
relating thereto, (f) the fees paid to rating agencies in connection with the
Notes, (g) the quotation of the Notes on PORTAL, (h) "roadshow" travel and other
expenses incurred in connection with the marketing and sale of the Notes, (i)
the fees and expenses of the Trustee and any agent of the Trustee and the
reasonable fees and disbursements of counsel for the Trustee and (j) the costs
and charges of DTC, and, if any, Euroclear and Cedel Bank.
6. Conditions to Initial Purchasers' Obligations. The obligation of the
---------------------------------------------
Initial Purchasers to purchase the Notes under this Agreement is subject to the
satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have been any downgrading, nor shall
any notice have been given of any intended or potential downgrading in the
rating accorded any of the Company's or Parent's securities by any NRSRO, or any
public announcement that any such organization has under surveillance or review
its rating of any such securities (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading of such rating).
-16-
<PAGE>
(c) (i) Since the date of the latest balance sheet included in the
Offering Memorandum, there shall not have been any material adverse change, or
any development involving a prospective material adverse effect on the condition
(financial or otherwise), results of operations, business or prospects of the
Company, whether or not arising in the ordinary course of business, except as
otherwise described in the Offering Memorandum, (ii) since the date of the
latest balance sheet included in the Offering Memorandum there shall not have
been any material change, or any development reasonably likely to involve a
prospective material adverse change, in the long-term debt of the Company from
that set forth in the Offering Memorandum, except as otherwise described in the
Offering Memorandum, (iii) the Company shall have no liability or obligation,
direct or contingent, which would be required to be disclosed in a final
prospectus filed under Rule 424(b) under the Securities Act, other than those
set forth in the Offering Memorandum and (iv) on the Closing Date the Initial
Purchaser shall have received a certificate dated the Closing Date, signed by
Lyndon R. Daniels, in his capacity as President and Chief Operating Officer of
the Company, and by J. Roy Pottle, in his capacity as Executive Vice President
and Chief Financial Officer of the Company, confirming the matters set forth in
paragraphs (a), (b), (c) and (j) of this Section 6.
(d) The Initial Purchasers shall have received on the Closing Date an
opinion (in the form and substance satisfactory to the Initial Purchasers and
counsel for the Initial Purchasers), dated the Closing Date, of Hale and Dorr
LLP, counsel for the Company, to the effect set forth in Exhibit B hereto.
---------
(e) The Initial Purchasers shall have received on the Closing Date an
opinion (in the form and substance satisfactory to the Initial Purchasers and
counsel for the Initial Purchasers), dated the Closing Date, of Garry B. Watzke,
general counsel for the Company, to the effect set forth in Exhibit C hereto.
---------
(f) The Initial Purchasers shall have received an opinion, dated the
Closing Date, of Wilkinson, Barker, Knauer & Quinn, LLP, special
telecommunications regulatory counsel for the Company, to the effect that to
such counsel's knowledge, the Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal
telecommunications authorities material to the operations of the Company and its
subsidiaries, taken as a whole and as presently conducted, and such counsel has
no knowledge of either the Company or any of its subsidiaries receiving any
notice of proceedings relating to the revocation or involuntary modification of
any such certificate, authorization or permit.
Such counsel shall also state, that as special telecommunications
regulatory counsel to the Company and its subsidiaries, it believes that the
information and statements contained in the Offering Memorandum under the
headings "Risk Factors -- Government Regulation, Foreign Ownership and Possible
Redemption" (to the extent that the discussion in this section pertains to the
federal telecommunications laws and regulations) and "Business -- Regulation"
insofar as such statements constitute a summary of the legal matters, documents
or proceedings referred to therein, provide a fair summary of such legal
matters, documents and proceedings.
-17-
<PAGE>
In rendering any such opinion, such counsel may rely as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, to the extent shown to and
satisfactory in form and scope to counsel for the Initial Purchasers.
(g) The opinion of Hale and Dorr LLP, counsel for the Company,
described in paragraph (d) above shall be rendered to the Initial Purchasers at
the request of the Company and shall so state therein.
(h) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of Latham & Watkins, counsel for the Initial
Purchasers, as to such matters as the Initial Purchasers shall reasonably
request.
(i) The Initial Purchasers shall have received a letter or letters on
and as of the date of this Agreement (each, an "Initial Letter"), in form and
--------------
substance satisfactory to the Initial Purchasers, from Arthur Andersen LLP,
independent public accountants, with respect to the financial statements and
certain financial information contained in the Offering Memorandum and a letter
or letters on and as of the Closing Date, in form and substance satisfactory to
the Initial Purchasers from Arthur Andersen LLP confirming the information
contained in the Initial Letter provided by such accountants.
(j) The Company shall not have failed at or prior to the Closing Date
to perform or comply with any of the agreements herein contained and required to
be performed or complied with by the Company at or prior to the Closing Date.
(k) On or prior to the Closing Date, each of DTC, Euroclear and Cedel
Bank shall have accepted the Global Notes for clearance.
(l) On or prior to the Closing Date, the Notes shall have been
approved for quotation on PORTAL.
(m) The Company and the Trustee shall have entered into the Indenture
and the Initial Purchasers shall have received executed counterparts thereof.
(n) The Company shall have entered into the Exchange and Registration
Rights Agreement and the Initial Purchasers shall have received executed
counterparts thereof.
(o) The Merger shall be consummated and become effective in accordance
with applicable law, including the laws of the State of Delaware, prior to, or
simultaneously with, the Closing of the Offering on substantially the terms
described in the Offering Memorandum and the Initial Purchasers shall have
received such documentation as they deem necessary to evidence the consummation
and effectiveness thereof.
(p) The Amended Credit Facility Parties and the lenders listed on
Schedule II attached hereto shall have entered into the Amended Credit Facility
and the Initial Purchasers shall have received executed counterparts thereof and
API shall have made initial borrowings thereunder as contemplated by the
Offering Memorandum.
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<PAGE>
(q) Parent, Sandler and certain other investors shall have entered
into and executed and consummated the Stock Purchase Agreement and the Initial
Purchasers shall have received executed counterparts thereof.
(r) Parent shall have made the Equity Investment.
(s) Prior to the Closing Date, the Company shall have furnished to the
Initial Purchasers such further information, certificates and documents as the
Initial Purchasers may reasonably request.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each Initial
Purchaser and each person, if any, who controls any Initial Purchaser within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, against any and all losses, liabilities, claims, damages and expenses
whatsoever as incurred (including, but not limited to, reasonable attorneys'
fees and any and all reasonable expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), jointly or severally, to which they or any of them may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Offering Memorandum or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading; provided, however, that the Company will not be liable in any
such case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or omission, or alleged untrue statement or omission, made therein in
reliance upon and in conformity with written information referred to in Section
7(b) furnished to the Company by, or on behalf of, any Initial Purchaser
expressly for use therein. This indemnity obligation will be in addition to any
liability which the Company may otherwise have, including under this Agreement.
(b) Each Initial Purchaser agrees to indemnify and hold harmless the
Company, each of the directors of the Company, each of the officers of the
Company, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, against any losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all
reasonable expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), jointly or
severally, to which they or any of them may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Offering Memorandum or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in the
light of the
-19-
<PAGE>
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or omission, or
alleged untrue statement or omission, made therein in reliance upon and in
conformity with written information furnished to the Company by, or on behalf
of, any Initial Purchaser expressly for use therein; provided, however, that in
no case shall any Initial Purchaser be liable or responsible for any amount in
excess of the discount of the purchase price of the Notes granted to such
Initial Purchaser hereunder. The Company acknowledges that (i) the statements
set forth in the last paragraph of the inside front cover of the Offering
Memorandum, (ii) the names of the Initial Purchasers as set forth on the outside
front cover page of the Offering Memorandum and in the table in the section
captioned "Plan of Distribution" and (iii) the information contained in the last
paragraph of the section captioned "Plan of Distribution" in the Offering
Memorandum constitute the only information furnished to the Company in writing
by, or on behalf of, any Initial Purchaser expressly for use in the Offering
Memorandum or in any amendment thereof or supplement thereto.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any claim or action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 or otherwise). In case any
such claim or action is brought against any indemnified party, and such
indemnified party notifies an indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate in the defense thereof,
and to the extent such indemnifying party may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense thereof, (ii) the indemnifying parties
shall not have employed counsel to have charge of the defense thereof within a
reasonable time after notice of the commencement, or (iii) such indemnified
party or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties (it being
understood, however, that the indemnifying party shall not be liable in any one
claim or action or separate but substantially similar or related claims or
actions in the same jurisdiction for the expenses of more than one separate
counsel and one additional local counsel). Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent (which
consent may not be unreasonably withheld). No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
-20-
<PAGE>
release of such indemnified party from all liability or claims that are the
subject matter of such proceeding.
8. Contribution. In order to provide for contribution in circumstances
------------
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Initial Purchasers
shall contribute to the aggregate losses, claims, damages, liabilities and
expenses of the nature contemplated by such indemnification provision (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting any contribution received from persons who may
also be liable for contribution, including officers and directors of the Company
and persons who control the Company within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act) to which the Company, on
the one hand, and one or more of the Initial Purchasers, on the other hand, may
be subject as incurred in such proportions as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Initial
Purchasers, on the other hand, from the offering of the Notes or, if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company, on the one hand, and the Initial Purchasers, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Initial Purchasers, on the other hand, shall be deemed to be
in the same proportion as (x) the total proceeds from the offering of the Notes
(net of discounts to the Initial Purchasers but before deducting expenses)
received by the Company and (y) the total discounts received by the Initial
Purchasers. The relative fault of the Company, on the one hand, and of the
Initial Purchasers, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand, and the Initial Purchasers,
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 8, no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 8, no Initial
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price at which the Notes purchased by it were offered to
investors exceeds the amount of any damages that such Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. For purposes of this Section 8, each
person, if any, who controls any Initial Purchaser within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Initial Purchaser, and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20(a) of the
-21-
<PAGE>
Exchange Act and each officer and each director of the Company shall have the
same right to contribution as the Company. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties, notify each party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 8 or otherwise, except to
the extent that it has been prejudiced in any material respect by the omission
to so notify. No party shall be liable for contribution with respect to any
action or claim settled without its consent (which consent may not be
unreasonably withheld).
9. Default by an Initial Purchaser.
-------------------------------
(a) If one or more of the Initial Purchasers shall fail at the Closing
Date to purchase the Notes which it is obligated to purchase under this
Agreement (the "Defaulted Notes") and such Defaulted Notes do not exceed in the
---------------
aggregate 10% of the aggregate principal amount of the Notes, then the non-
defaulting Initial Purchasers shall purchase the Defaulted Notes.
(b) Notwithstanding the foregoing, if the Defaulted Notes equal or
exceed in the aggregate 10% of the aggregate principal amount of the Notes, then
the non-defaulting Initial Purchasers shall have the right, but shall not be
obligated, within 48 hours after the Closing Date to purchase all, but not less
than all, of the Defaulted Notes upon the terms herein set forth; provided that
if the non-defaulting Initial Purchasers shall not have elected to purchase the
Defaulted Notes within such 48-hour period then the Company shall be entitled to
a further 48-hour period within which to procure another party or parties
satisfactory to the non-defaulting Initial Purchasers to purchase the Defaulted
Notes on such terms.
No action taken pursuant to this Section 9 shall relieve any
defaulting Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, the non-defaulting Initial Purchasers or the
Company shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the Offering
Memorandum or in any other documents or arrangements.
10. Survival of Representations and Agreements. All representations and
------------------------------------------
warranties, covenants and agreements of the Initial Purchasers and the Company
contained in this Agreement, including, without limitation, the agreements
contained in Sections 4 and 5, the indemnity agreements contained in Section 7
and the contribution agreements contained in Section 8, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Initial Purchasers or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors or any controlling
person thereof, and shall survive delivery of and payment for the Notes to and
by the Initial Purchasers. The representations contained in Section 1 and the
agreements contained in Sections 5, 7 and 8 and this Section 10 shall survive
the termination of this Agreement, including termination pursuant to Section 11.
-22-
<PAGE>
11. Termination.
-----------
(a) Bear, Stearns & Co. Inc., on behalf of the Initial Purchasers,
shall have the right to terminate this Agreement at any time prior to the
Closing Date:
(i) if any domestic or international event or act or occurrence
has materially disrupted, or in the Initial Purchasers' sole opinion will in the
immediate future materially disrupt, the United States or international
securities markets;
(ii) if trading on the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers Automated Quotation
System shall have been suspended or materially limited;
(iii) if a banking moratorium has been declared by any United
States federal or New York State authority or if any new restriction materially
adversely affecting the distribution of the Notes shall have become effective;
(iv) if the United States becomes engaged in hostilities or there
is an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States; or
(v) if there shall have been any other change in political,
financial or economic conditions, if the effect of such event in the sole
judgment of the Initial Purchaser is to make it impracticable or inadvisable to
proceed with the offering, sale and delivery of the Notes on the terms
contemplated by the Offering Memorandum.
(b) Any notice of termination pursuant to this Section 11 shall be
made to the Company by telephone, telecopy or telex confirmed in writing by
letter.
(c) If this Agreement shall be terminated pursuant to any of the
provisions hereof, or if the sale of the Notes provided for herein is not
consummated because any condition to the obligations of the Initial Purchasers
set forth herein is not satisfied or because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or comply
with the provision hereof, the Company will, subject to demand by the Initial
Purchasers, reimburse the Initial Purchasers for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of their counsel), incurred
by the Initial Purchasers in connection herewith.
12. Notice. All communications hereunder, except as may be otherwise
------
specifically provided herein, shall be in writing and, if sent to any Initial
Purchaser, shall be mailed, delivered, telecopied, telexed or telegraphed and
confirmed in writing, to such Initial Purchaser, c/o Bear, Stearns & Co. Inc.,
245 Park Avenue, New York, New York 10167, Attention: Gerald Dorros; with a copy
to Latham & Watkins, 885 Third Avenue, New York, New York 10022, Attention:
Robert A. Zuccaro; if sent to the Company, shall be mailed, delivered,
telecopied, telexed or telegraphed and confirmed in writing to Arch
Communications, Inc., 1800 West Park Drive, Suite 250, Westborough,
Massachusetts 01581, Attention: Chief Executive Officer; with a copy to Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention: David A.
Westenberg.
-23-
<PAGE>
13. Consent to Jurisdiction; Waiver of Immunities.
---------------------------------------------
(a) The Company:
(i) irrevocably submits to the jurisdiction of any New York State
or federal court sitting in New York City and any appellate court from any
thereof in any action or proceeding arising out of or relating to this Agreement
or any other document delivered hereunder;
(ii) irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State court or
in such federal court; and
(iii) irrevocably waives, to the fullest extent permitted by law,
the defense of an inconvenient forum to the maintenance of such action or
proceeding and irrevocably consents, to the fullest extent permitted by law, to
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its address as provided in Section 12 hereof
such service to become effective five days after such mailing.
(b) Nothing in this Section 13 shall affect the right of any person to
serve legal process in any other manner permitted by law or affect the right of
any person to bring any action or proceeding against the Company or its
properties in the courts of other jurisdictions.
14. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, the Initial Purchasers, the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Notes from the Initial Purchasers.
15. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York for contracts made and to be
fully performed in such state without regard to the conflict of law principles
thereof.
16. Counterparts. This Agreement may be executed and delivered (including
------------
by facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
[signature pages follow]
-24-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
USA MOBILE COMMUNICATIONS, INC. II
/s/
By:_______________________________________________
Name:
Title:
Accepted as of the date first above written:
BEAR, STEARNS & CO. INC.
/s/ J. Andrew Bagas
By:_______________________________________________
Name: J. Andrew Bagas
Title: Senior Managing Director
BARCLAYS CAPITAL INC.
/s/ Joseph A. Muratore
By:_______________________________________________
Name: Joseph A. Muratore
Title: Director
RBC DOMINION SECURITIES CORPORATION
/s/ Donald W. Graham
By:_______________________________________________
Name: Donald W. Graham
Title: Vice President
BNY CAPITAL MARKETS, INC.
/s/ John M. Roy
By:_______________________________________________
Name: John M. Roy
Title: Managing Director
TD SECURITIES (USA) INC.
/s/
By:______________________________________________
Name:
Title:
-25-
<PAGE>
SCHEDULE I
Aggregate Principal Amount
Name of Initial Purchaser Of Notes To Be Purchased
- ------------------------- ---------------------------
Bear, Stearns & Co. Inc. $ 71,500,000
Barclays Capital Inc. 17,550,000
RBC Dominion Securities Corporation 14,950,000
BNY Capital Markets, Inc. 13,000,000
TD Securities (USA) Inc. 13,000,000
============
$130,000,000
-26-
<PAGE>
SCHEDULE II
The Bank of New York
Toronto Dominion Bank (Texas), Inc.
Van Kampen American Capital
First Union National Bank
Royal Bank of Canada
PNC Bank, N.A.
Fleet Bank
Bank of Boston
General Electric Capital Corporation
Sun Trust Bank
Societe Generale
Bear, Stearns Government Securities
Barclays Bank
-27-
<PAGE>
SCHEDULE III
List of Non-Wholly Owned Subsidiaries
Partially-Owned Subsidiaries of Arch Communications Group, Inc.
---------------------------------------------------------------
Name Percent Owned
---- -------------
Arch Latin America 12%
Canada, Inc. 20%
Partially-Owned Subsidiaries of Arch Communications Enterprises, Inc.
---------------------------------------------------------------------
Name Percent Owned
---- -------------
Canada, Inc. 33%
Partially-Owned Subsidiaries of The Westlink Company
----------------------------------------------------
Name Percent Owned
---- -------------
Answer Iowa, Inc. 62%
Benbow PCS Ventures, Inc. 9.9%
Non-Voting 15% Voting Stock
Cascade Mobile Communications 40% Limited Partner
Limited Partnership 35% General Partner
TeleComm/KRT Partnership 75% General Partner
Waterloo Communications, Inc. 45% General Partner
-28-
<PAGE>
EXHIBIT A
[Form of Exchange and Registration Rights Agreement]
A-1
<PAGE>
EXHIBIT B
[Form of Hale and Dorr LLP Opinion]
B-1
<PAGE>
EXHIBIT C
[Form of Garry B. Watzke Opinion]
C-1
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF DOES
SUBSIDIARY INCORPORATION BUSINESS AS
- ---------- --------------- -----------
<S> <C> <C>
3057011 Canada, Inc................................ Ontario, Canada
Answer Iowa, Inc................................... Iowa Arch Paging
Arch Canada, Inc................................... Ontario, Canada
Arch Capitol District, Inc......................... New York Arch Paging
Arch Communications Services, Inc.................. New York Arch Paging
Arch Connecticut Valley, Inc....................... Massachusetts Arch Paging
Arch Michigan, Inc................................. Delaware Arch Paging
Arch Paging, Inc................................... Delaware Arch Paging
Arch Southeast Communications, Inc................. Delaware Arch Paging
Becker Beeper, Inc................................. Illinois Arch Paging
The Beeper Company of America, Inc................. Colorado Arch Paging
Benbow Investments, Inc............................ Delaware
Per-Com Wireless Enterprises, Inc.................. Ontario, Canada
The Westlink Company............................... Delaware Arch Paging
The Westlink Paging Company of New Mexico, Inc..... New Mexico Arch Paging
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated February 9, 1998 (except with
respect to the matter discussed in Notes 3, 7 and 8, as to which the date is
June 29, 1998) included herein and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 19, 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 333-59807) of Arch Communications, Inc.
Wilkinson, Barker, Knauer & Quinn,
LLP
By: /s/ Kenneth D. Patrich
--------------------------
Kenneth D. Patrich
<PAGE>
EXHIBIT 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. EASTERN STANDARD TIME, ON NOVEMBER
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., EASTERN STANDARD TIME ON THE EXPIRATION DATE.
ARCH COMMUNICATIONS, INC.
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")
LETTER OF TRANSMITTAL
FOR 12 3/4% SENIOR NOTES DUE 2007
EXCHANGE AGENT:
U.S. BANK TRUST NATIONAL ASSOCIATION
By Facsimile:
(651) 244-5011
Attention: Flora Gomez
Confirm by telephone:
(651) 244-8161
By Registered or Certified Mail:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attn: Specialized Finance Department
By Hand/Overnight Courier:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attn: Specialized Finance Department
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated October , 1998
(the "Prospectus") of Arch Communications, Inc. ("Arch" or the "Issuer") and
this Letter of Transmittal for 12 3/4% Senior Notes due 2007 which may be
amended from time to time (this "Letter"), which together constitute the
Issuer's offer (the "Exchange Offer") to exchange, for each $1,000 in
principal amount of its outstanding 12 3/4% Senior Notes due 2007 (the
"'Private Notes") issued and sold in a transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"), $1,000 in
principal amount of 12 3/4% Senior Notes due 2007 (the "Exchange Notes").
1
<PAGE>
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Private Notes who wish to tender their Private Notes must,
prior to the Expiration Date; (1) complete, sign, date and mail or otherwise
deliver this Letter to the Exchange Agent, in person or to the address set
forth above, if delivery of this Letter is required pursuant to Instruction 1,
and (2) tender his or her Private Notes or, if a tender of Private Notes is to
be made by book-entry transfer to the account maintained by the Exchange Agent
at The Depository Trust Company (the "Book-Entry Transfer Facility"), confirm
such book-entry transfer (a "Book-Entry Confirmation"), in each case in
accordance with the procedures for tendering described in the Instructions to
this Letter. Holders of Private Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or Book-Entry
Confirmation and all other documents required by this Letter to be delivered
to the Exchange Agent on or prior to the Expiration Date, must tender their
Private Notes according to the guaranteed delivery procedures set forth under
the caption "The Exchange Offer--Procedures for Tendering" in the Prospectus.
(See Instruction 1).
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of
the Prospectus or this Letter may be directed to the Exchange Agent, at the
address listed above.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS TO
THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW.
Capitalized terms used in this Letter and not defined herein shall have the
respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Private Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Private Notes on a separate signed schedule and affix that
schedule to this Letter.
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
- --------------------------------------------------------------------------------
PRINCIPAL
NAME(S) AND ADDRESS(ES) AMOUNT OF
OF REGISTERED HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT PRIVATE NOTES
(PLEASE FILL IN IF BLANK) NUMBER(S)(1) OF PRIVATE NOTES TENDERED(2)
- --------------------------------------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
TOTALS:
- --------------------------------------------------------------------------------
(1) Need not be completed if Private Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Private
Notes represented by a certificate or Book-Entry Confirmation delivered
to the Exchange Agent will be deemed to have been tendered.
- --------------------------------------------------------------------------------
2
<PAGE>
Ladies and Gentleman:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuer the principal amount of Private Notes
indicated above. Subject to, and effective upon, the acceptance for exchange
of the Private Notes tendered with this Letter, the undersigned exchanges,
assigns and transfers to, or upon the order of, the Issuer all right, title
and interest in and to the Original Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuer) with respect to the tendered Private Notes,
with full power of substitution, to: (a) deliver certificates for such Private
Notes: (b) deliver Private Notes and all accompanying evidence of transfer and
authenticity to or upon the order of the Issuer upon receipt by the Exchange
Agent, as the undersigned's Agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by the Issuer of the Private Notes
tendered under the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Private Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he, she or it has full
power and authority to tender, exchange, assign and transfer the Private Notes
tendered hereby and that the Issuer will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Issuer to be
necessary or desirable to complete the assignment and transfer of the Private
Notes tendered.
The undersigned agrees that acceptance of any tendered Private Notes by the
Issuer and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Issuer of its obligations under the
Exchange and Registration Rights Agreement (as defined in the Prospectus) and
that, upon the issuance of the Exchange Notes, the Issuer will have no further
obligations or liabilities thereunder (except in certain limited
circumstances). By tendering Private Notes, the undersigned certifies (a) that
it is not an "affiliate" of the Issuer within the meaning of Rule 405 under
the Securities Act, that it is not a broker-dealer that owns Private Notes
acquired directly from the Issuer or an affiliate of the Issuer, that it is
acquiring the Exchange Notes in the ordinary course of the undersigned's
business and that the undersigned has no arrangement with any person to
participate in the distribution of the Exchange Notes or (b) that it is an
"affiliate" (as so defined) of the Issuer or of the initial purchasers in the
original offering of the Private Notes, and that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable to it.
The undersigned acknowledges that, if it is a broker-dealer that will
receive Exchange Notes for its own account, it will deliver a prospectus in
connection with any resale of such Exchange Notes. 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.
The undersigned understands that the Issuer may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of
the undersigned under this Letter shall be binding upon the undersigned's
heirs, personal representatives, successors and assigns. Tenders may be
withdrawn only in accordance with the procedures set forth in the Instructions
contained in this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate
for any Private Notes not tendered but represented by a certificate also
encompassing Private Notes which are tendered) to the undersigned at the
address set forth in Box 1.
3
<PAGE>
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict
between the terms of the Prospectus and this Letter, the Prospectus shall
prevail.
[_]CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
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 PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owners(s): _____________________________
Date of Execution of Notice of Guaranteed Delivery:
Window Ticket Number (if available):
Name of Institution which Guaranteed Delivery:
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
PLEASE SIGN HERE
WHETHER OR NOT PRIVATE NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X _____________________________________________________ ___________________
X _____________________________________________________ ___________________
SIGNATURE(S) OF OWNER(S) OR AUTHORIZED SIGNATORY DATE
Area Code and Telephone Number: ____________________________________________
This box must be signed by registered holder(s) of Private Notes as their
name(s) appear(s) on certificate(s) for Private Notes, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Letter. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below. (See Instruction 3)
Name(s) ____________________________________________________________________
____________________________________________________________________________
(PLEASE PRINT)
Capacity ___________________________________________________________________
Address ____________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Signature(s) ---------------------------------------------------
Guaranteed by an (AUTHORIZED SIGNATURE)
Eligible ---------------------------------------------------
Institution: (TITLE)
(If required by ---------------------------------------------------
Instruction 3) (NAME OF FIRM)
5
<PAGE>
BOX 3
TO BE COMPLETED BY ALL TENDERING HOLDERS
- --------------------------------------------------------------------------------
PAYOR'S NAME: U.S. BANK TRUST NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR Social Security Number
TIN IN THE BOX AT RIGHT AND or Employer
CERTIFY BY SIGNING AND Identification Number
DATING BELOW.
SUBSTITUTE
FORM W-9
DEPARTMENT OF ----------------------
THE TREASURY --------------------------------------------------------
INTERNAL PART 2--Check the box if you are NOT subject to back-
REVENUE up withholding under the provisions of Section
SERVICE 2406(a)(1)(C) of the Internal Revenue Code because
(1) you have not been notified that you are subject
to back-up withholding as a result of failure to
report all interest or dividends or (2) the Internal
Revenue Service has notified you that you are no
longer subject to back-up withholding. [_]
CERTIFICATION--UNDER THE PENALTIES OF PART 3
PERJURY, I CERTIFY THAT THE INFORMA- Check if
TION PROVIDED ON THIS FORM IS TRUE, Awaiting
CORRECT AND COMPLETE. TIN [_]
PAYOR'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
--------------------------------------------------------
SIGNATURE ______________ DATE _______
BOX 4 BOX 5
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if To be completed ONLY if
certificates for Private Notes in certificates for Private Notes in
a principal amount not exchanged, a principal amount not exchanged,
or Exchange Notes, are to be or Exchange Notes, are to be sent
issued in the name of someone to someone other than the person
other than the person whose whose signature appears in Box 2
signature appears in Box 2, or if or to an address other than that
Private Notes delivered by book- shown in Box 1.
entry transfer which are not
accepted for exchange are to be
returned by credit to an account
maintained at the Book-Entry Deliver:
Transfer Facility other than the
account indicated above. (check appropriate boxes)
[_] Private Notes not
tendered
Issue and deliver:
[_] Exchange Notes, to:
(check appropriate boxes) Name______________________________
(PLEASE PRINT)
[_] Private Notes not Address __________________________
tendered
__________________________________
[_] Exchange Notes, to:
Name _____________________________
(PLEASE PRINT)
Address __________________________
PLEASE COMPLETE THE SUBSTITUTE
FORM W-9 AT BOX 3
TAX I.D. OR SOCIAL SECURITY
NUMBER:
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INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Private Notes
as well as a properly completed and duly executed copy of this Letter and any
other documents required by this Letter, or a Book-Entry Confirmation, as the
case may be, must be received by the Exchange Agent at one of its addresses
set forth herein on or before the Expiration Date. This Letter must be used:
(i) by all holders who are not ATOP members, (ii) by holders who are ATOP
members but choose not to use ATOP or (iii) if the Private Notes are to be
tendered in accordance with the guaranteed delivery procedures set forth in
the Prospectus under "The Exchange Offer--Procedures for Tendering". The
method of delivery of this Letter, certificates for Private Notes or a Book-
Entry Confirmation, as the case may be, and any other required documents is at
the election and risk of the tendering holder, but except as otherwise
provided below, the delivery will be deemed made when actually received by the
Exchange Agent. If delivery is by mail, the use of registered mail with return
receipt requested, properly insured, is suggested.
Holders whose Private Notes are not immediately available or who cannot
deliver their Private Notes or a Book-Entry Confirmation, as the case may be,
and all other required documents to the Exchange Agent on or before the
Expiration Date may tender their Private Notes pursuant to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedure:
(i) tender must be made by or through an Eligible Institution (as defined in
the Prospectus under the caption "The Exchange Offer--Procedures for
Tendering"); (ii) prior to the Expiration Date, the Exchange Agent must have
received from the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission,
mail or hand delivery) (x) setting forth the name and address of the holder,
the description of the Private Notes and the principal amount of Private Notes
tendered, (y) stating that the tender is being made thereby and (z)
guaranteeing that, within five New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, this Letter together
with the certificates representing the Private Notes or a Book-Entry
Confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent;
and (iii) the certificates for all tendered Private Notes or a Book-Entry
Confirmation, as the case may be, as well as all other documents required by
this Letter, must be received by the Exchange Agent within five New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in the Prospectus under the caption "The Exchange
Offer--Procedures for Tendering".
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be
determined by the Issuer, whose determination will be final and binding. The
Issuer reserves the absolute right to reject any or all tenders that are not
in proper form or the acceptance of which, in the opinion of the Issuer's
counsel, would be unlawful. The Issuer also reserves the right to waive any
irregularities or conditions of tender as to particular Private Notes. All
tendering holders, by execution of this Letter, waive any right to receive
notice of acceptance of their Private Notes.
Neither the Issuer, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of
any Private Note evidenced by a submitted certificate or by a Book-Entry
Confirmation is tendered, the tendering holder must fill in the principal
amount tendered in the fourth column of Box 1 above. All of the Private Notes
represented by a certificate or by a Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated. A certificate for Private Notes not tendered will be sent to the
holder, unless otherwise provided in Box 5, as soon as practicable after the
Expiration Date, in the event that less than the entire principal amount of
Private Notes represented by a submitted certificate is tendered (or, in the
case of Private Notes tendered by book-entry transfer, such non-exchanged
Private Notes will be credited to an amount maintained by the holder with the
Book-Entry Transfer Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Private Notes, a notice of withdrawal must; (i) be received by the
Exchange Agent before the Issuer notifies the Exchange Agent that it has
accepted the tender of Private Notes pursuant to the Exchange
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Offer; (ii) specify the name of the person who tendered the Private Notes;
(iii) contain a description of the Private Notes to be withdrawn, the
certificate numbers shown on the particular certificates evidencing such
Private Notes and the principal amount of Private Notes represented by such
certificates; and (iv) be signed by the holder in the same manner as the
original signature on this Letter (including any required signature
guarantee).
3. SIGNATURE ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this
Letter is signed by the holder(s) of Private Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) for such Private Notes, without alteration, enlargement or any
change whatsoever.
If any of the Private Notes tendered hereby are owned by two or more joint
owners, all owners must sign this Letter. If any tendered Private Notes are
held in different names on several certificates, it will be necessary to
complete, sign and submit as many separate copies of this Letter as there are
names in which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Private Notes are tendered; and/or (ii)
untendered Private Notes, if any, are to be issued to the holder of record,
then the holder of record need not endorse any certificates for tendered
Private Notes, nor provide a separate bond power. If any other case, the
holder of record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is 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 proper evidence satisfactory to
the Issuer of their authority to so act must be submitted, unless waived by
the Issuer.
Signatures on this Letter must be guaranteed by an Eligible Instruction,
unless Private Notes are tendered: (i) by a holder who has not completed Box 4
(entitled "Special Issuance Instructions") or Box 5 (entitled "Special
Delivery Instructions") on this Letter; or (ii) for the account an Eligible
Institution. In the event that the signatures in this Letter or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by an eligible guarantor institution which is a member of The
Securities Transfer Agents Medallion Program (STAMP), The New York Stock
Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion
Program (SEMP) (collectively, "Eligible Institutions"). If Private Notes are
registered in the name of a person other than the signer of this Letter, the
Private Notes surrendered for exchange must be endorsed by the registered
holder with the signature thereon guaranteed by an Eligible Institution, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Issuer, in its sole discretion, duly
executed by the registered holder with the signature thereon guaranteed by an
Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Private Notes not exchanged are to be
issued or sent, if different from the name and address of the person signing
this Letter. In the case of issuance in a different name, the tax
identification number of the person named must also be indicated. Holders
tendering Private Notes by book-entry transfer may request that Private Notes
not exchanged be credited to such account maintained at the Book-Entry
Facility as such holder may designate.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder
whose tendered Private Notes are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification
number ("TIN"), which, in the case of a holder who is an individual, is his or
her social security number. If the Exchange Agent is not provided with the
correct TIN, the holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, delivery to the holder of the Exchange
Notes pursuant to the Exchange Offer may be subject to back-up withholding.
(If withholding results in overpayment of taxes, a refund may be obtained).
Exempt holders (including, among others, all corporations and certain foreign
individuals) are not subject to these back-up withholding and reporting
requirements. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
Under federal income tax laws, payments that may be made by the Issuer on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to back-up withholding at a rate of 31%. In order to prevent back-up
withholding,
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each tendering holder must provide his or her correct TIN by completing the
"Substitute Form W-9" referred to above, certifying that the TIN provided is
correct (or that the holder is awaiting a TIN) and that: (i) the holder has
not been notified by the Internal Revenue Service that he or she is subject to
back-up withholding as a result of failure to report all interest or
dividends; or (ii) the Internal Revenue Service has notified the holder that
he or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Private Notes are in more than one name or are not in the
name of the actual owner; consult the enclosed Guidelines for information on
which TIN to report.
6. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Private Notes to it or its order pursuant to the
Exchange Offer. If, however, the Exchange Notes or certificates for Private
Notes not exchanged are to be delivered to, or are to be issued in the name
of, any person other than the record holder, or if tendered certificates are
recorded in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed by any reason other than the transfer of
Private Notes to the Issuer or its order pursuant to the Exchange Offer, then
the amount of such transfer taxes (whether imposed on the record holder or any
other person) will be payable by the tendering holder. If satisfactory
evidence of payment of taxes or exemption from taxes is not submitted with
this Letter, the amount of transfer taxes will be billed directly to the
tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to amend or
waive any of the specified conditions in the Exchange Offer in the case of any
Private Notes tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Private Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above, for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: This Letter (together with certificates representing tendered
Private Notes or a Book-Entry Confirmation and all other required documents)
or a properly executed Notice of Guaranteed Delivery must be received by the
Exchange Agent on or before the Expiration Date.
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EXHIBIT 99.2
ARCH COMMUNICATIONS, INC.
EXCHANGE OFFER
TO HOLDERS OF THEIR
12 3/4% SENIOR NOTES DUE 2007
NOTICE OF GUARANTEED DELIVERY
As set forth in the Prospectus dated October , 1998 (the "Prospectus") of
Arch Communications, Inc. ("Arch" or the "Issuer") under "The Exchange Offer--
Procedures for Tendering" and in the Letter of Transmittal (the "Letter of
Transmittal") relating to the offer (the "Exchange Offer") by the Issuer to
exchange up to $1,000 in principal amount of its 12 3/4% Senior Notes due 2007
issued and sold in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Private Notes"), for $1,000 in principal amount
of its 12 3/4% Senior Notes due 2007 (the "Exchange Notes"), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer of
the Issuer if: (i) certificates for the Private Notes are not immediately
available; or (ii) time will not permit all required documents to reach the
Exchange Agent (as defined below) on or prior to the Expiration Date (as
defined in the Prospectus) of the Exchange Offer. Such form may be delivered
by hand or transmitted by telegram, telex, facsimile transmission or letter to
the Exchange Agent.
TO: U.S. BANK TRUST NATIONAL ASSOCIATION (the "Exchange Agent")
By Facsimile:
(651) 244-5011
Attention: Flora Gomez
Confirm by telephone:
(651) 244-8161
By Registered or Certified Mail:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attn: Specialized Finance Department
By Hand/Overnight Courier:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attn: Specialized Finance Department
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO
A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and conditions set
forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the
principal amount of Private Notes set forth below pursuant to the guaranteed
delivery procedure described in the Prospectus and the Letter of Transmittal.
Sign Here
Principal Amount of Private Notes
Tendered ____________________________
Signature(s) _____________________
Certificate Nos. (if available) _____ __________________________________
Total Principal Amount Represented Please Print the Following
by Private Notes Certificate(s) ____ Information
Account Number ______________________ Name(s) __________________________
__________________________________
Dated:_________________________, 1998
Address __________________________
__________________________________
Area Code and Tel. No(s). ________
__________________________________
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GUARANTEE
The undersigned, a member of a recognized signature guarantee medallion program
within the meaning of Rule 17A(d)-15 under the Securities Exchange Act of 1934,
as amended, hereby guarantees that delivery to the Exchange Agent of
certificates tendered hereby, in proper form for transfer, or delivery of such
certificates pursuant to the procedure for book-entry transfer, in either case
with delivery of a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other required documents, is being made within
five trading days after the date of execution of a Notice of Guaranteed
Delivery of the above-named person.
Name of Firm
Authorized Signature
Number and Street or P.O. Box
City State Zip Code
Area Code and Tel. No.
Dated: ________, 1998
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