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Filed by Arch Wireless, Inc.
Pursuant to Rule 425
Subject Companies: Arch Wireless, Inc.
Arch Transition Corp.
Arch Wireless Communications, Inc.
Arch Wireless Holdings, Inc.
Registration Statement File Nos.: 333-61434
333-61434-01
333-61434-02
333-61434-03
To All Arch Wireless Team Members:
We want to take this opportunity to bring you up to date on several developments
at Arch. On May 1 we released our first quarter operating results, which by most
measures met or exceeded our expectations as well as those of Wall Street
investors. Importantly, these results included a strong increase in two-way
messaging units, and continued generation of free cash flow - a key financial
goal that allows us to fund our growth from ongoing operations and limits our
need to borrow.
In addition, earlier today we announced an exchange offer to holders of our
publicly traded debt in which we agreed to issue new shares of Arch common and
preferred stock and new notes in exchange for outstanding non-bank debt. In
conjunction with the exchange offer we also will seek an amendment to our bank
credit agreement that would favorably modify its terms. The net result of these
actions would be to greatly strengthen Arch's balance sheet and provide
significant financial flexibility to aggressively implement our business
strategy going forward, particularly the growth of our promising two-way
messaging business.
During the first quarter we made important progress as revenues and operating
cash flow increased from year-earlier totals due in part to the PageNet merger.
We were pleased to record net additions of 63,000 two-way units in the quarter,
bringing total two-way units in service to 221,000 at March 31, 2001. We also
introduced several two-way messaging products and signed several strategic
alliances, notably one with MSN, a division of Microsoft, to market two-way
e-mail and instant messaging services to millions of MSN Hotmail customers. With
these announcements and others to follow, we believe we are gaining exciting
momentum in our two-way business and are on our way to establishing a distinct
leadership position in this market.
To ensure that Arch has the necessary financial resources to achieve long-term
success in this growing arena, we initiated an exchange offer that, upon
completion, is expected to significantly reduce Arch's total debt and
substantially improve our overall liquidity. Specifically, the exchange offer
asks our note holders to exchange approximately $600 million in notes for Arch
common stock, preferred stock and new notes. A successful exchange offer, which
is expected to take several months to complete, would eliminate or defer
interest payments on all publicly traded Arch debt, and, through an amended
credit facility, defer and reduce interest payments to our banks.
We believe our note holders will support the exchange offer, recognizing that
Arch is well-positioned to grow its two-way business and that, in time, such
growth will translate into appreciation in the value of Arch Wireless common
stock. The exchange offer also includes the solicitation of votes from our note
holders that would allow us to conduct our financial restructuring through an
alternative plan of reorganization, one that requires fewer votes, if we do not
receive the desired level of votes in favor of the proposed exchange offer.
Importantly, the re-capitalization process, by whatever means achieved,
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should be completed later this summer and should have no impact on Arch's
operations, sales or customer service. In short, it will be business as usual at
Arch.
Arch posted some promising results for the first quarter of 2001, especially in
our two-way business, and as a result is in an excellent position to lead the
industry through its transition. We also made significant progress during the
quarter in integrating the operations of PageNet. Still, our proposed financial
restructuring is a necessary and important step to help ensure that we have the
resources to take advantage of that growth opportunity and unlock the potential
value of our nationwide operations. With your continued support, we look forward
in coming months to further improving our operating performance, quickly
completing our financial restructuring and rapidly growing our two-way business.
We thank you for your continued role in building Arch's future.
Sincerely,
Ed Baker Lyn Daniels
Chairman and Chief Executive Officer President and Chief Operating Officer
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ARCH WIRELESS, INC.
EXCHANGE OFFER
Internal Q&A
Q: WHAT DID ARCH ANNOUNCE ON MAY 23, 2001?
A: We filed a registration statement with the SEC relating to a proposed
exchange of two new issues of senior notes, new units of preferred
stock and shares of Arch common stock for approximately $608 million of
our publicly traded debt. We also announced that we would seek an
amendment to Arch's current bank facility that would give us increased
financial flexibility. Among other benefits, the amendment would reduce
the amount of debt outstanding, defer the amortization schedule for the
period 2002 through 2005 as well as reduce interest rates and provide
less restrictive financial covenants.
Q: WHAT IS THE PURPOSE OF THE EXCHANGE OFFER AND BANK AMENDMENTS?
A: The proposed exchange offer and bank amendments are part of a
re-capitalization plan through which we intend to strengthen our
balance sheet and create greater financial flexibility to more
aggressively grow our business. A principal objective of the proposed
exchange offer and re-capitalization plan is to reduce the amount of
cash currently required to service our outstanding debt. This type of
financial restructuring is a tool companies use to reduce their debt
and gain access to more capital with which to operate and grow their
businesses.
Q: WHAT DOES THIS RE-CAPITALIZATION PLAN MEAN FOR THE COMPANY AND OUR
STOCKHOLDERS?
A: Lower long-term debt and an improved debt-to-equity ratio mean that we
would have reduced interest payments and deferred principal payments
and thus enhanced financial flexibility to re-invest in our ongoing
business operations. The re-capitalization plan is the latest in a
series of actions Arch has taken in recent years to enhance financial
flexibility. As some of you may recall, we completed several
debt-for-equity exchanges over the past year that already have reduced
our overall debt and interest payments and strengthened our capital
position. Put another way, Arch's proposed exchange offer is designed
to "right-size" the company's balance sheet to our currently projected
revenues and operating cash flow, provide a long-term solution to
financial challenges brought about by a transitioning industry, and
unlock the value in our two-way business by giving Arch "running room"
to aggressively grow two-way services in the years ahead.
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Q: DOES ARCH'S FINANCIAL RESTRUCTURING REFLECT FINANCIAL CHALLENGES FACED
BY OTHERS IN THE TELECOM AND WIRELESS MESSAGING INDUSTRY?
A: Yes, to some extent. As we all know, many companies in the
telecommunications and wireless messaging industry are going through
challenging financial times. Arch is fortunate in that we have
substantial assets - including the highest quality two-way messaging
network in the country, a large customer base, a diverse product line,
and experienced and capable team members - that establish us as a
leader in our segment of the telecom industry. However, we are not
immune to issues impacting the broader telecom sector. Accordingly, we
believe a financial restructuring will help ensure that we have
adequate resources over time to reach our full potential in the rapidly
growing market for wireless messaging and wireless mobile data.
Q: WHAT ARE THE CHANCES THAT THE EXCHANGE OFFER AND BANK AMENDMENTS WILL
BE SUCCESSFUL?
A: We believe both our note holders and lenders will support the exchange
initiative and proposed amendments because they allow us to more fully
execute our business plan. In short, these steps will enable us to
unlock the potential value in the growing market for wireless Internet
messaging and data services.
Q. WHAT IF THE EXCHANGE OFFER AND BANK AMENDMENTS ARE NOT SUCCESSFUL?
A: Recognizing that our proposed exchange offer may not gain the required
level of consents, we are soliciting additional consents in the
exchange offer from note holders and separately soliciting consents
from our bank group to a plan of reorganization that would effectuate
the debt exchange through an alternative plan of reorganization, one
that requires fewer votes. Such a plan would be contemplated if the
required level of participation in the registered exchange offer, or
the necessary bank consents, are not obtained but sufficient consents
are received to approve the plan of reorganization.
Q. WHAT IS THE TIMING FOR THE EXCHANGE OFFER?
A. The exchange offer will become effective once Arch's registration
statement has been approved by the SEC. However, the exact timeframe
for completion of the exchange offer and re-capitalization plan is
difficult to predict. Nonetheless, we expect it to be completed some
time this summer.
Q. WHY HAS ARCH INCURRED SUCH A SIZABLE DEBT?
A: Like many other companies in rapidly growing industries, Arch's
indebtedness is the result of significant capital and operating
expenses that have been incurred
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over the years through numerous mergers and acquisitions. While those
mergers and acquisitions have helped Arch become an industry leader,
and Arch management has controlled expenses well, there has been a
cumulative cost of that growth. In a normalized growth environment,
companies are able to service that accumulated debt by generating
higher levels of revenues and operating cash flow. As one-way paging
units have declined faster than the growth in two-way messaging units
during the recent period of transition, however, our debt level runs
the risk of becoming higher than our ability to properly service it.
Thus, our goal is to reduce it to more normalized levels, and do so
well ahead of the time when we may not be able to make our debt
payments.
Q. WHAT AFFECT, IF ANY, WILL THE RE-CAPITALIZATION PLAN HAVE ON THE
ACTIVITIES OF ARCH TEAM MEMBERS?
A: The re-capitalization plan should have no affect on the day-to-day
activities of Arch Wireless team members. Our operations will continue
as normal and customers will not be impacted at all.
Q: WILL THE RE-CAPITALIZATION PLAN CHANGE ARCH'S BUSINESS STRATEGY?
A: No. The proposed exchange offer and re-capitalization plan will not
alter the company's overall operating strategy, which will continue to
focus on growing our two-way messaging and wireless mobile data
business and providing ongoing service to our 11 million customers
nationwide. As you know, Arch has a full line of two-way messaging
products and we are continually seeking ways to increase the value of
these messaging devices and widen the distribution of our two-way
services.
Q: IS THERE A RECENT EXAMPLE THAT SUPPORTS THIS BUSINESS STRATEGY?
A: A notable example of Arch's two-way business focus is our recent
agreement with MSN, a division of Microsoft, to market two-way e-mail
and instant messaging services to millions of MSN's Hotmail customers.
With this alliance, along with others, we believe we are gaining
momentum in our two-way and mobile data business and are on our way to
establishing a distinct leadership position in this market.
Q: IF ARCH'S BUSINESS STRATEGY APPEARS TO SHOWING PROMISE, WHY IS THERE A
NEED TO RESTRUCTURE THE COMPANY'S FINANCES?
A: In order to ensure Arch has the resources available to take advantage
of what we and others see as a very significant and growing opportunity
in wireless messaging and wireless mobile data, we are taking the
actions noted above.
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Q: DOES THE EXCHANGE OFFER PROVIDE ONLY A SHORT-TERM "FIX" TO ARCH'S
BALANCE SHEET?
A: No. On the contrary, our re-capitalization proposal is designed to help
us meet our financial requirements over an extended period of time. As
noted, we need to reduce our debt if we want to ultimately succeed in
this new two-way messaging environment, and what we have proposed is a
solution that we believe should eliminate any financial concerns about
the company for some time to come.
Q: IS ARCH PLANNING ANY LAYOFFS AS A RESULT OF THESE ACTIONS?
A: No. Arch Wireless is not planning any lay-offs as a result of the
exchange offer. However, as you know, we have been reducing the size of
the work force in conjunction with the PageNet merger and our overall
cost savings program. Arch currently has approximately 6,900 full-time
team members.
Q: WHAT WILL HAPPEN TO ARCH'S ONE-WAY MESSAGING BUSINESS?
A: Although we, along with our peers, have experienced a decline in the
number of traditional (or one-way) subscribers in recent years, we
expect the pace of one-way decline to slow down at some point in the
future. Over the next year or so, however, we expect to incur continued
losses of one-way subscribers due largely to user migration to
alternative two-way messaging products and wireless services.
Q: IS THIS RESTRUCTURING A RESULT OF ARCH BEING DE-LISTED FROM NASDAQ?
A: No, our re-capitalization plan is unrelated to Arch being de-listed
from Nasdaq on April 30. As communicated earlier, Arch Wireless common
stock is now listed on the OTC Bulletin Board, an electronic
over-the-counter quotation system, under the ticker symbol ARCH. .
Q: HOW WERE ARCH'S FIRST QUARTER OPERATING RESULTS?
A: Arch posted increased operating results for the first quarter ended
March 31, 2001. By most accounts, the results met our expectations as
well as those of Wall Street investors. Importantly, the company
continued to generate free cash flow during the quarter, one of the
only dedicated wireless data providers to do so. Arch recorded net
additions of 63,000 two-way units during the quarter, bringing total
two-way units in service to 221,000 at March 31, 2001.
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Important information: This communication is filed with the Securities and
Exchange Commission pursuant to Rules 165 and 425 promulgated under the
Securities Act of 1933, as amended. Arch Wireless, Inc., Arch Transition Corp.,
Arch Wireless Communications, Inc. and Arch Wireless Holdings, Inc. have filed a
Registration Statement on Form S-4 in connection with the exchange offer
containing information about the exchange offer and related transactions.
Investors and security holders are urged to read the Registration Statement and
the prospectus contained therein carefully, as they contain important
information about Arch, its subsidiaries, the exchange offer and related
matters. Investors and security holders can obtain free copies of these
documents through the web site maintained by the U.S. Securities and Exchange
Commission at http//www.sec.gov. In addition to the Registration Statement and
the prospectus, Arch Wireless, Inc. and Arch Wireless Communications, Inc. file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy any reports,
statements and other information filed by them at the Securities and Exchange
Commission's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549 or at the Commission's other public reference rooms in New York, New York
and Chicago, Illinois. P lease call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on public reference rooms. The filings of
Arch Wireless, Inc. and Arch Wireless Communications, Inc. with the Securities
and Exchange Commission also are available to the public from commercial
document-retrieval services and for no charge at the web site maintained by the
Securities and Exchange Commission at http//www.sec.gov.
Statements under the Private Securities Litigation Reform Act: Statements
contained herein which are not historical fact, such as statements regarding
anticipated growth in demand for Arch's advanced two-way messaging services, the
ability of Arch to achieve its business plan, the anticipated benefits of the
proposed exchange offer and bank amendments and the expected support of Arch's
note holders and bank lenders for the proposed exchange offer and bank
amendments, are forward-looking statements for
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purposes of the safe harbor provisions under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements involve risks and
uncertainties that may cause Arch's actual results to be materially different
from the future results expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially from those
expectations include, but are not limited to, risks and uncertainties associated
with the proposed exchange offer and bank amendments, future capital needs,
unforeseen delays or difficulties in launching Arch's additional two-way
messaging products and services, competitive pricing pressures, competition from
both traditional paging services and other wireless communications services,
declining demand for traditional paging products and services, government
regulation, reliance upon third party providers for certain equipment and
services, as well as other risks described from time to time in Arch's periodic
reports and registration statements filed with the Securities and Exchange
Commission. Although Arch believes the expectations reflected in the
forward-looking statements are based on reasonable assumptions, it can give no
assurance that its expectations will be attained. Arch disclaims any intent or
obligation to update any forward-looking statements.