<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Paging Network, Inc.
(Name of Registrant as Specified In Its Charter)
Paging Network, Inc.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[PAGENET LOGO]
PAGING NETWORK, INC.
April 1, 1998
Dear Fellow Shareowner:
You are cordially invited to attend PageNet's Annual Meeting of Shareowners
to be held at 11:00 A.M., Central Daylight Time, on Thursday, May 21, 1998, at
the offices of Bank of America -- Illinois, 231 South La Salle Street, 21st
Floor, Chicago, Illinois.
This year you are being asked to elect two directors and to approve
PageNet's Amended and Restated 1991 Stock Option Plan, which will permit all
PageNet employees to be eligible to receive stock options. Your Board of
Directors urges you to read the accompanying proxy statement and recommends that
you vote "FOR" Proposals No. 1 and 2.
At the meeting, I will also report on PageNet's affairs on behalf of the
Board of Directors and a discussion period will be provided for questions and
comments.
The Board of Directors appreciates and encourages shareowner participation
in PageNet's affairs. Whether or not you plan to attend the meeting, it is
important that your shares be represented. Accordingly, we request that you
sign, date and mail the enclosed proxy in the envelope provided at your earliest
convenience.
Thank you for your cooperation and thank you for being a PageNet
shareowner.
Very truly yours,
JOHN P. FRAZEE, JR.
Chairman, President and Chief
Executive Officer
<PAGE> 3
PAGING NETWORK, INC.
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
Dallas, Texas
April 1, 1998
The Annual Meeting of Shareowners of Paging Network, Inc. (the "Company")
will be held at the offices of Bank of America -- Illinois, 231 South La Salle
Street, 21st Floor, Chicago, Illinois, on Thursday, May 21, 1998, at 11:00 A.M.,
Central Daylight Time, for the following purposes:
1. To elect two Class I directors of the Company to serve until the 2001
Annual Meeting of Shareowners.
2. To consider and approve the Company's Amended and Restated 1991 Stock
Option Plan, which would permit all employees of the Company to be
eligible to receive stock options under that plan.
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Shareowners of record at the close of business on March 23, 1998, will be
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
Shareowners are requested to complete, date and return the enclosed form of
proxy in the envelope provided. No postage is required if mailed in the United
States.
RUTH WILLIAMS
Senior Vice President, General Counsel
and Assistant Secretary
<PAGE> 4
PAGING NETWORK, INC.
4965 PRESTON PARK BOULEVARD
SUITE 800
PLANO, TEXAS 75093
---------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement is furnished to the holders of the common stock, $.01
par value per share ("Common Stock"), of Paging Network, Inc. (the "Company") in
connection with the solicitation of proxies on behalf of the Board of Directors
of the Company for use at the Annual Meeting of Shareowners to be held on May
21, 1998 (the "Annual Meeting"), or at any adjournment or postponement thereof,
pursuant to the accompanying Notice of Annual Meeting of Shareowners. The
purposes of the meeting and the matters to be acted upon are set forth in the
accompanying Notice of Annual Meeting of Shareowners. The Board of Directors
knows of no other business that will come before the meeting.
This Proxy Statement and proxies for use at the meeting will be mailed to
shareowners on or about April 7, 1998, and such proxies will be solicited
chiefly by mail, but additional solicitations may be made by telephone or
telegram by the officers or regular employees of the Company. The Company may
enlist the assistance of brokerage houses in soliciting proxies. All
solicitation expenses, including costs of preparing, assembling and mailing
proxy material, will be borne by the Company. In addition, to assist in the
solicitation of proxies, the Company has retained Corporate Investor
Communications, Inc., whose fees are expected to be approximately $6,000 (plus
out-of-pocket expenses).
REVOCABILITY AND VOTING OF PROXY
A form of proxy for use at the meeting and a return envelope for the proxy
are enclosed. Shareowners may revoke the authority granted by their execution of
proxies at any time before their effective exercise by filing with the Senior
Vice President, General Counsel and Assistant Secretary of the Company a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the meeting. Shares represented by executed and unrevoked proxies will be
voted in accordance with the choice or instructions specified thereon. If no
specifications are given, the proxies intend to vote the shares represented
thereby to approve Proposals No. 1 and 2 as set forth in the accompanying Notice
of Annual Meeting of Shareowners and in accordance with their best judgment on
any other matters that may properly come before the meeting.
RECORD DATE AND VOTING RIGHTS
Only shareowners of record at the close of business on March 23, 1998, are
entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. The Company had outstanding on March 23, 1998, 103,309,788
shares of Common Stock, each of which is entitled to one vote upon the matters
to be presented at the meeting. A majority of the outstanding shares will
constitute a quorum at the meeting. Shares represented by executed proxies which
abstain from one or all matters to be acted upon at the meeting and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. The affirmative vote of the holders of a
plurality of the shares of Common Stock present or represented and actually
voted at the meeting is required for the election of directors and the
affirmative vote of holders of a majority of the shares of Common Stock present
or represented and actually voted at the meeting is required for the approval of
the adoption of the Amended and Restated 1991 Stock Option Plan. Abstentions and
broker non-votes will have no effect on the outcome of the election of directors
and the proposed adoption of the Amended and Restated 1991 Stock Option Plan.
<PAGE> 5
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information, as of February 6, 1998 except
when noted, regarding the beneficial ownership of the Company's Common Stock of
(i) each person known to the Company to own beneficially more than five percent
of the Company's outstanding Common Stock, (ii) the Company's Chief Executive
Officer and those persons who were, at December 31, 1997, the other four most
highly compensated executive officers of the Company and its subsidiaries, (iii)
two additional individuals for whom disclosure would have been provided in (ii)
but for the fact that the individuals were not serving as executive officers on
December 31, 1997, and (iv) all present executive officers and directors of the
Company as a group. For comparable information with respect to the directors,
see "PROPOSAL NO. 1 -- ELECTION OF TWO DIRECTORS" on pages 3 through 5.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF OUTSTANDING
BENEFICIAL COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP(1) STOCK
------------------------ ------------ --------------
<S> <C> <C>
T. Rowe Price Associates, Inc............................... 10,262,600(2) 9.9%
100 E. Pratt Street Baltimore, MD 21202
John P. Frazee, Jr.......................................... 261,160(3) *
George M. Perrin............................................ 253,764(4) *
Glenn W. Marschel........................................... 70,100(5) *
Michael A. DiMarco.......................................... 97,508(6) *
Barry A. Fromberg........................................... 94,000(7) *
William G. Scott............................................ 52,822(8) *
Ruth Williams............................................... 4,000(9) *
All present executive officers and directors as a group (15
persons).................................................. 3,034,742(10) 2.9%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the persons shown have sole voting and
investment power over the shares listed. Includes options exercisable as of
February 6, 1998, or within 60 days after such date.
(2) Information has been obtained from T. Rowe Price Associates, Inc. as of
March 26, 1998.
(3) Includes 238,000 shares subject to exercisable options.
(4) Information has been obtained from a Form 4, dated March 9, 1998, filed by
Mr. Perrin with the Securities and Exchange Commission (the "Commission").
Includes 250,000 shares subject to exercisable options. Does not include
66,000 shares owned by a trust for the benefit of Mr. Perrin's minor child,
in which shares Mr. Perrin disclaims any beneficial ownership.
(5) Does not include 10,000 shares owned by Mr. Marschel's wife, in which
shares Mr. Marschel disclaims any beneficial ownership.
(6) Includes 87,508 shares subject to exercisable options. Of this amount,
10,000 shares constitute restricted stock, which vests at a rate of 20% per
year, subject to the attainment by the Company of specified performance
criteria, with the remainder, if any, vesting on the tenth anniversary of
the date of grant.
(7) Represents 94,000 shares subject to exercisable options.
(8) Includes 47,822 shares subject to exercisable options. Of this amount,
5,000 shares constitute restricted stock, which vests at a rate of 20% per
year, subject to the attainment by the Company of specified performance
criteria, with the remainder, if any, vesting on the tenth anniversary of
the date of grant.
(9) Represents 4,000 shares subject to exercisable options.
(10) Includes 883,966 shares subject to exercisable options.
2
<PAGE> 6
PROPOSAL NO. 1 -- ELECTION OF TWO DIRECTORS
Two directors are to be elected at the meeting, to serve as Class I
directors of the Company until the 2001 Annual Meeting of Shareowners and until
their successors shall have been duly elected and qualified. Each person named
below is now a director of the Company. In the event that either of these
nominees shall be unable to serve as a director, discretionary authority is
reserved to vote for a substitute. The Board of Directors has no reason to
believe that either of these nominees will be unable to serve.
The directors of the Company, including the nominees for election to Class
I at the meeting, their ages, the year in which each first became a director,
their principal occupations or employment during the past five years, any other
public companies of which they are a director and the number and percentage of
outstanding shares of Common Stock beneficially owned by each as of February 6,
1998, are:
CLASS I (TERM EXPIRES 1998)
<TABLE>
<CAPTION>
YEAR AMOUNT AND
FIRST NATURE OF PERCENTAGE OF
BECAME PRINCIPAL OCCUPATION BENEFICIAL OUTSTANDING
INCUMBENTS AGE DIRECTOR DURING THE PAST FIVE YEARS OWNERSHIP(1) COMMON STOCK
---------- --- -------- ------------------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
John P. Frazee, Jr.... 53 1995 Chairman, President and Chief 261,160(2) *
Executive Officer of the Company
since August 4, 1997; Private
Investor from August 1993 to August
1997; President and Chief Operating
Officer of Sprint Corporation from
March 1993 to August 1993; Chairman
and Chief Executive Officer of Centel
Corporation, a telecommunications
company, from April 1988 to January
1993. Mr. Frazee also serves as a
director of Dean Foods Company, Nalco
Chemical Company, Inc., Security
Capital Group, Inc. and Homestead
Village Incorporated.
John S. Llewellyn, 63 1997 Chief Executive Officer of Ocean 9,333(3) *
Jr.................. Spray Cranberries, Inc. and other
positions from 1982-1997, at which
time he retired. Mr. Llewellyn also
serves as a director of Dean Foods
Company.(8)(9)
</TABLE>
3
<PAGE> 7
CLASS II (TERM EXPIRES 1999)
<TABLE>
<CAPTION>
YEAR AMOUNT AND
FIRST NATURE OF PERCENTAGE OF
BECAME PRINCIPAL OCCUPATION BENEFICIAL OUTSTANDING
INCUMBENTS AGE DIRECTOR DURING THE PAST FIVE YEARS OWNERSHIP(1) COMMON STOCK
---------- --- -------- ------------------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Carl D. Thoma......... 49 1981 Co-Founder and Managing Partner of 1,400,367(4) 1.4%
Thoma Cressey Equity Partners,
successor to Golder, Thoma, Cressey,
Rauner, Inc., an investment firm
co-founded by Mr. Thoma in 1980. Mr.
Thoma also serves as a director of MS
Financial, Inc.(9)
Roy A. Wilkens........ 55 1997 President and Chief Executive Officer 2,621 *
of WilTel and its successor company,
WorldCom Network Services from 1985-
1997. Mr. Wilkens also serves as a
director of Qwest Communications
International Inc., Unidial Inc. and
Invensys Corporation, Inc.(9)(10)
CLASS III (TERM EXPIRES 2000)
INCUMBENTS
- ----------------------
Richard C. 67 1994 Executive Vice President of 20,307(5) *
Alberding........... Hewlett-Packard Co. and other
management positions from 1958-1991.
Mr. Alberding also serves as a
director of Digital Microwave
Corporation, Kennametal Inc.,
Quickturn Design Systems, Inc.,
Digital Link Corp., Sybase, Inc.,
Walker Interactive Systems, Inc. and
Storm Technology, Inc.(9)
Bryan C. Cressey...... 48 1993 Co-Founder and Partner of Thoma 787,867(6) *
Cressey Equity Partners, successor to
Golder, Thoma, Cressey, Rauner, Inc.,
an investment firm co-founded by Mr.
Cressey in 1980. Mr. Cressey also
serves as a director of Cable Design
Technologies Corp. and American
Medserve Corp.(10)
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
YEAR AMOUNT AND
FIRST NATURE OF PERCENTAGE OF
BECAME PRINCIPAL OCCUPATION BENEFICIAL OUTSTANDING
INCUMBENTS AGE DIRECTOR DURING THE PAST FIVE YEARS OWNERSHIP(1) COMMON STOCK
---------- --- -------- ------------------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Lee M. Mitchell....... 54 1991 Partner in Thoma Cressey Equity 53,621(7) *
Partners, successor to Golder, Thoma,
Cressey, Rauner, Inc., an investment
firm for which Mr. Mitchell has
served as a principal since 1994;
Partner, Sidley & Austin, a law firm,
1992-1994. Mr. Mitchell also serves
as a director of Washington National
Corporation, American Medserve Corp.,
ERO, Inc. and the Chicago Stock
Exchange.(8)(10)
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the persons shown have sole voting and
investment power over the shares listed. Includes options exercisable as of
February 6, 1998, or within 60 days of such date.
(2) Includes 238,000 shares subject to exercisable options.
(3) Includes 9,000 shares subject to exercisable options.
(4) Includes 45,000 shares subject to exercisable options.
(5) Includes 18,000 shares subject to exercisable options.
(6) Includes 45,000 shares subject to exercisable options.
(7) Includes 45,000 shares subject to exercisable options.
(8) Member of Nominating Committee of Board of Directors.
(9) Member of Stock Option/Compensation Committee of Board of Directors.
(10) Member of Audit Committee of Board of Directors.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee, which met five times during
the 1997 fiscal year. The primary functions of the Audit Committee are to
provide assistance to the Board of Directors in fulfilling its responsibilities
relating to corporate accounting and reporting practices and to maintain, by way
of regularly scheduled meetings, a direct line of communication among the
directors, the Company's internal auditors and independent auditors. In
addition, the Audit Committee is responsible for reviewing and monitoring the
performance of non-audit services by the Company's independent auditors and for
considering the range of non-audit and audit fees.
The Board of Directors has a Stock Option/Compensation Committee (the
"Compensation Committee"), which met five times during the 1997 fiscal year and
acted by unanimous consent six times. The Compensation Committee's functions are
to grant stock options to the Company's key employees and otherwise administer
the Company's stock option plans, and to set the salary and bonus compensation
for the Company's President and Chief Executive Officer and review and approve
the salary and bonus compensation recommendations of the President and Chief
Executive Officer for the Company's other executive officers.
The Board of Directors has a Nominating Committee, whose function is to
recommend candidates for membership on the Board to the full Board of Directors
and assist in the recruitment of those candidates. While the Nominating
Committee did not meet formally during the 1997 fiscal year, its members had
many discussions during the year, either in person or by telephone.
During the 1997 fiscal year, the Board of Directors held ten meetings. Each
director attended more than seventy-five percent (75%) of the Board meetings and
the meetings of Board committees on which he served.
5
<PAGE> 9
COMPENSATION OF DIRECTORS
Directors who are full-time officers of the Company receive no additional
compensation for serving on the Board of Directors or its committees. Effective
January 1, 1998, directors who are not full-time officers receive an annual
retainer of $20,000 plus $1,500 for each attended meeting of the Board of
Directors, $1,000 for each teleconference meeting of the Board of Directors and
reimbursement for traveling costs and other out-of-pocket expenses incurred in
attending such meetings. Directors who serve on one or more of the Audit
Committee, the Stock Option/Compensation Committee or the Nominating Committee
receive $5,000 per year for their service. Directors who serve as chairman of
one or more of these committees receive an additional $5,000 per year.
In addition, pursuant to the Company's Amended and Restated 1992 Stock
Option Plan for Directors (the "Directors Plan"), each non-employee director is
granted an option, following his initial election as a director, to purchase
45,000 shares of Common Stock. The option exercise price is the fair market
value of the underlying Common Stock on the date of grant. The options granted
become exercisable in five equal annual installments beginning on the date of
grant and continuing so long as the person remains a director of the Company.
In addition to the initial grants described above, subsequent grants of
options to purchase an additional 45,000 shares of Common Stock will be made to
each eligible director on the date immediately following the date that the
option most recently granted such director under the Directors Plan becomes
exercisable in full. The exercise price for these options will also be at the
fair market value of the underlying Common Stock on the date of grant. It is
anticipated that such additional options would become exercisable in five equal
annual installments beginning on the date of grant and continuing so long as the
person remains a director of the Company. The Directors Plan also provides that
by January 1 of each calendar year, a director may waive his rights to payment
of all cash retainers and meeting fees for such year and receive, in lieu
thereof, either: (i) that number of shares of Common Stock having a value
(calculated based on the market value of the Common Stock on the date of each
such meeting during the year) equal to the dollar amount of the annual retainer,
meeting and other fees due for such year, or (ii) an option for that number of
shares which produces an option having a value under the Black-Scholes pricing
model (see footnote 11 on page 11), equal to the dollar amount of the annual
retainer, meeting and other fees due for such year, which grants would become
exercisable as to one-twelfth of the shares covered by each on the last day of
each calendar month ending after grant. With respect to 1997 and 1998, each
director has waived his rights to cash payments and has elected to receive
shares of Common Stock instead.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREOWNERS AND RECOMMENDS A VOTE "FOR" THE TWO NAMED
CANDIDATES STANDING FOR ELECTION.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The members of the Compensation Committee for 1997, Messrs. Alberding,
Llewellyn, Thoma and Wilkens, are pleased to present their report on executive
compensation.
Compensation Philosophy and Objectives. The guiding principle considered in
the development and administration of annual and long-term compensation plans is
to align the interests of executive management with those of the Company's four
constituencies: its shareowners, its customers, its employees, and the
communities it serves. The key elements that underscore this principle are the
following:
1. Establishing compensation plans which deliver cash compensation
that is commensurate with the Company's performance relative to operating,
financial and strategic objectives, all of which are regularly reviewed and
approved by the Compensation Committee and the Board of Directors;
6
<PAGE> 10
2. Providing significant equity-based incentives for executives to
ensure that they are motivated over the long term to respond to the
Company's business challenges and opportunities as owners as well as
employees;
3. Establishing criteria for determination of annual cash compensation
awards which appropriately balance financial performance, customer service
levels, community service, and leadership and management development; and
4. Establishing total cash compensation targets above market averages
to ensure the Company's ability to attract and retain world-class executive
talent.
While the Company's objective for executive base salaries is to approximate
market averages, the annual cash incentive portion of executive compensation is
targeted to provide payouts exceeding market norms based on performance. Bonuses
may be granted to certain executives of the Company solely within the discretion
of the Compensation Committee and the Board of Directors, and such bonuses have
been wide-ranging, with up to as much as 75% of the executive's base salary (and
higher in some cases) payable as a bonus in recognition of particularly
outstanding achievement. The Company's bonus plan rewards executives for both
overall Company performance and the executive's individual performance in
serving the Company's four constituencies.
The Company's long-term incentive program consists of stock options granted
pursuant to the 1991 Stock Option Plan and, for fiscal years 1996 and 1997, also
consisted of restricted stock awards pursuant to the Company's 1997 Restricted
Stock Plan. The stock option grants historically have been made at the fair
market value of the Common Stock on the date of grant and become exercisable
over a period of years. Through grants under the 1991 Stock Option Plan,
executives receive significant equity opportunity which provides an incentive to
build long-term shareowner value. Management does not plan to recommend awards
of restricted shares under the 1997 Restricted Stock Plan in the future.
Fiscal 1997. For fiscal 1997, the executive compensation program consisted
of base salary, a bonus plan based on the factors described above and stock
options that generally become exercisable over a period of time from the date of
grant.
The compensation program was highly dependent upon bonus payouts based upon
performance. The Company's performance during fiscal 1997 met or exceeded
expectations in substantially all categories. This achievement resulted in bonus
payouts to the executive officers.
Mr. Frazee was hired as Chairman, President and Chief Executive Officer
effective August 4, 1997. Mr. Frazee's compensation package, including his stock
options and bonus opportunity, was negotiated with him at the time of his hiring
on the basis of his previous compensation and competitive factors at the time.
Consistent with the Company's policies, a significant portion of his cash
compensation is payable as a bonus based upon his performance. In addition,
stock options were granted to him in order to more closely align his interests
with the other shareowners of the Company.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
public companies for compensation over $1 million paid to the corporation's
chief executive officer and four other most highly compensated executive
officers. Qualifying performance-based compensation would not be subject to the
deduction limit if certain requirements are met. The Company currently intends
to review the performance-based portion of the compensation paid to its
executive officers to determine what actions would be necessary to comply with
the statute. The Company believes that options granted under its stock option
plans are exempt from the limitations and that, except with respect to Mr.
Frazee, other compensation expected to be paid during 1998 will be below the
compensation limitations.
Option Vesting Upon Sale of the Company. As described in footnote 1 to the
table entitled "Option Grants in Last Fiscal Year" on page 11, under certain
circumstances all options, including those granted to the five most highly
compensated executive officers of the Company, become immediately vested and
exercisable
7
<PAGE> 11
in full in the event of certain mergers or acquisitions or a sale of all or
substantially all of the Company's assets or capital stock.
Report on Repricing of Options. As of June 12, 1997, a significant portion
of stock options granted during the period January 1, 1995 through December 31,
1996 were repriced at $8.25 per share, the closing price of the Company's Common
Stock on that date. The repricing was accomplished by offering option holders
the right to receive a smaller number of new options in exchange for their old
options. Vesting was restarted so that the new options would vest in three equal
installments on February 1 of each year commencing 1998. The rate of exchange
was determined for each individual by a formula whereby the number of shares
covered by the new option was equal to the product of the number of shares
covered by the stock option to be replaced times $8.25, divided by the option
price for each stock option to be replaced. For example, an optionee with an
option for 10,000 shares at $20.00 per share received an option for 4,125 shares
at $8.25 per share. The Compensation Committee decided to reprice the stock
options because they determined that such stock options no longer served as an
effective incentive for the retention and motivation of key personnel.
Summary. The Company's philosophy is that total compensation programs for
its Chief Executive Officer, and other executives, should be established by the
same process used for its other salaried employees, except that: (1) executives
should have a greater portion of their compensation at risk than other
employees, (2) a large portion of executive compensation should be tied directly
to the performance of the business, and (3) executives should share in the same
risks and rewards as do shareowners of the Company.
We, the members of the Compensation Committee of the Board, believe that
the Company's compensation practices have been successful in retaining and
motivating qualified executives. We will continue to monitor the effectiveness
and appropriateness of each of the components to reflect changes in the business
environment.
CARL D. THOMA, Chairman
RICHARD C. ALBERDING
JOHN S. LLEWELLYN, JR.
ROY A. WILKENS
8
<PAGE> 12
RECENT SENIOR MANAGEMENT ADDITIONS
On February 8, 1998, the Board of Directors elected Michael A. DiMarco and
Edward W. Mullinix, Jr., to the new position of executive vice president. Mr.
DiMarco, formerly Senior Vice President -- Operations of the Company, assumed
the position of Executive Vice President -- Sales. Mr. Mullinix, who joined the
Company in November 1997 as Senior Vice President -- Strategic Planning, assumed
the position of Executive Vice President -- Operations. Messrs. DiMarco and
Mullinix joined Mark A. Knickrehm, who was named Executive Vice President and
Chief Financial Officer of the Company on February 4, 1998, and Barry A.
Fromberg, Executive Vice President -- International. These management changes
were made as part of a major realignment of the Company's operations, announced
February 9, 1998.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation paid by the Company and its subsidiaries for services
rendered in all capacities for the fiscal years ended December 31, 1997, 1996
and 1995, of (i) the Company's Chief Executive Officer at December 31, 1997,
(ii) those persons who were, at December 31, 1997, the other four most highly
compensated executive officers of the Company and its subsidiaries and (iii) two
additional individuals for whom disclosure would have been provided in (ii) but
for the fact that the individuals were not serving as executive officers on
December 31, 1997 (collectively, the "Named Officers"). Positions indicated are
as of April 1, 1998.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------------------- ------------------------
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS ALL OTHER
YEAR SALARY BONUS OTHER AWARDS (SHARES) COMPENSATION(1)
---- -------- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Frazee, Jr.(2)...... 1997 $279,571 $150,000 $ 50,938(3) $100,000(4) 600,000 $ 20,000(6)
Chairman, President 1996 -- -- -- -- -- 16,250(6)
and Chief Executive 1995 -- -- -- -- 45,000(5) 12,291(6)
Officer
George M. Perrin............ 1997 371,666 200,000 -- -- 50,000 19,550(6)
Former Chairman 1996 60,000 -- -- -- 50,000 --
1995 780,000 -- -- -- 50,000 --
Glenn W. Marschel(7)........ 1997 383,247 -- -- 190,313(9) 299,704(10) 912,182(11)
Former President and 1996 600,000 300,000 67,950(8) -- 200,000 --
Chief Executive Officer 1995 50,000 -- 7,770(8) -- 180,000 --
Michael A. DiMarco.......... 1997 295,000 160,000 -- 110,625(12) 96,923(13) 5,100
Executive Vice
President -- 1996 237,333 100,000 -- -- 66,000 4,750
Sales 1995 196,917 83,200 -- -- 90,000 1,969
Barry A. Fromberg........... 1997 244,167 100,000 -- -- -- --
Executive Vice
President -- 1996 232,917 84,600 -- -- 27(14) 3,169
International 1995 207,917 84,000 -- -- -- 560
William G. Scott(15)........ 1997 215,000 80,000 -- 55,313(17) 113,464(18) 4,750
Senior Vice President -- 1996 172,982 75,000 -- -- 60,000 --
Systems and Technology 1995 12,205 -- 8,942(16) -- 90,000 --
Ruth Williams (19).......... 1997 143,333 58,000 115,250(20) -- 125,000 --
Senior Vice President, 1996 -- -- -- -- -- --
General Counsel and 1995 -- -- -- -- -- --
Assistant Secretary
</TABLE>
- ---------------
(1) Except where noted, represents Company matching contributions to the
Company's 401(k) Plan.
(2) Mr. Frazee became an employee and Chairman, President and Chief Executive
Officer of the Company effective August 4, 1997; annual compensation
represents compensation for the period from this date through year end. Mr.
Frazee has served as a director of the Company since 1995.
9
<PAGE> 13
(3) Includes payments of $10,178 to Mr. Frazee as a housing allowance in the
Plano, Texas area, $23,214 paid to defray expenses associated with Mr.
Frazee establishing a residence in the Plano, Texas area, and $12,546
related to providing Mr. Frazee transportation to and from his primary
residence in Florida.
(4) Represents the fair market value of 11,510 shares of the Company's Common
Stock awarded to Mr. Frazee on August 4, 1997.
(5) Represents non-employee director option grant under the Directors Plan
prior to his employment by the Company.
(6) Represents compensation for services rendered as a non-employee director of
the Company.
(7) Mr. Marschel became an employee and President and Chief Executive Officer
of the Company on December 1, 1995, and resigned his positions with the
Company effective August 4, 1997.
(8) Represents payments made to defray expenses associated with Mr. Marschel's
relocation to the Plano, Texas area.
(9) Represents the fair market value of 30,000 shares of the Company's Common
Stock awarded to Mr. Marschel on April 25, 1997, vesting at the rate of 20%
per year beginning on April 25, 1998 through 2002, contingent upon meeting
certain performance goals. This award was forfeited by Mr. Marschel upon
his resignation.
(10) Consists of options to purchase 152,000 shares of the Company's Common
Stock subject to new grants, 80,962 shares granted to replace the 1996
options and 66,742 shares granted to replace the 1995 options. All of these
options expired unexercised upon Mr. Marschel's resignation.
(11) Includes $906,651 paid to Mr. Marschel in connection with his resignation,
pursuant to his Employment Agreement.
(12) Represents the fair market value of 10,000 shares of the Company's Common
Stock awarded to Mr. DiMarco on February 2, 1997, vesting at the rate of
20% per year beginning on February 2, 1998 through 2002, contingent upon
meeting certain performance goals.
(13) Consists of options to purchase 36,000 shares of the Company's Common Stock
subject to new grants, 28,286 shares granted to replace the 1996 options
and 32,637 shares granted to replace the 1995 options.
(14) Represents option to purchase 27 shares of the common stock, nominal value
NLG 100 per share, of Paging Network International N.V., a limited
liability company incorporated under the laws of The Netherlands.
(15) Mr. Scott became an employee of the Company on December 4, 1995.
(16) Represents payments made to defray expenses associated with Mr. Scott's
relocation to the Plano, Texas area.
(17) Represents the fair market value of 5,000 shares of the Company's Common
Stock awarded to Mr. Scott on February 2, 1997, vesting at the rate of 20%
per year beginning on February 2, 1998 through 2002, contingent upon
meeting certain performance goals.
(18) Consists of options to purchase 54,000 shares of the Company's Common Stock
subject to new grants, 25,714 shares granted to replace the 1996 options
and 33,750 shares granted to replace the 1995 options.
(19) Ms. Williams became an employee and Senior Vice President and General
Counsel of the Company on May 1, 1997; annual compensation represents
compensation for the period from this date through year end.
(20) Represents payments made to defray expenses associated with Ms. Williams'
relocation to the Plano, Texas area.
10
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth further information on grants of options to
purchase the Company's Common Stock during the fiscal year ended December 31,
1997, to the Named Officers. This information is also reflected in the table
entitled "Summary Compensation Table" on pages 9 and 10.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SECURITIES OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO OPTION GRANT DATE
GRANTED EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME (SHARES)(1) FISCAL 1997 PRICE DATE VALUE (11)
---- ----------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
John P. Frazee, Jr............ 600,000(2) 18.4% $ 8.688 08/04/07 $1,890,200
George M. Perrin.............. 50,000(3) 1.5 11.063 02/12/07 195,050
Glenn W. Marschel............. 152,000(4) 4.7 11.063 02/12/07 592,951
147,704(5) 4.5 8.25 06/12/07 441,949
Michael A. DiMarco............ 36,000(6) 1.1 11.063 02/12/07 140,436
60,923(7) 1.9 8.25 06/12/07 182,289
William G. Scott.............. 54,000(8) 1.7 11.063 02/12/07 210,654
59,464(9) 1.8 8.25 06/12/07 177,924
Ruth Williams................. 125,000(10) 3.8 6.969 05/01/07 315,674
</TABLE>
- ---------------
(1) All options are exercisable only so long as employment continues or within
limited periods following termination of employment. Except as otherwise
determined by the Compensation Committee, if the Company is merged or
consolidated into a new surviving company and the holders of the Company's
voting securities (on a fully-diluted basis) immediately prior to the
merger or consolidation own less than a majority of the ordinary voting
power to elect directors of the new surviving company (on a fully-diluted
basis), or if there is a sale of all or substantially all of the Company's
assets or capital stock in any transaction or series of related
transactions, then (i) ten business days before any such occurrence, the
options shall become immediately vested and exercisable in full and (ii)
upon such occurrence, will terminate to the extent not then exercised. All
options have a term of 10 years.
(2) This option vests 200,000 shares per year on August 4 of each year
commencing 1997 through 1999.
(3) This option vested in full on February 12, 1997.
(4) This option would have vested 76,000 shares per year on each of February
12, 1998 and February 12, 2001. This option expired unexercised upon Mr.
Marschel's resignation.
(5) This option was granted to replace options granted in 1995 and 1996
pursuant to the option repricing affected in 1997. This option would have
vested 49,235 shares per year on February 1 of each year commencing 1998
through 2000. This option expired unexercised upon Mr. Marschel's
resignation.
(6) This option vests 12,000 shares on February 12, 1998 and 6,000 shares per
year on February 12 of each year commencing 1999 through 2002.
(7) This option was granted to replace options granted in 1995 and 1996
pursuant to the option repricing affected in 1997. This option vests 20,308
shares per year on February 1 of each year commencing 1998 through 2000.
(8) This option vests 24,000 shares on February 12, 1998, 6,000 shares on
February 12, 2001 and 24,000 shares on February 12, 2002.
(9) This option was granted to replace options granted in 1995 and 1996
pursuant to the option repricing affected in 1997. This option vests 19,821
shares per year on February 1 of each year commencing 1998 through 2000.
(10) This option vests 25,000 shares per year on May 1 of each year commencing
1998 through 2002.
(11) Based on the Black-Scholes pricing model. The estimated values under that
model are based on arbitrary assumptions as to variables such as stock
price volatility, projected future dividend yield and
11
<PAGE> 15
interest rates, and discounted for potential forfeiture due to vesting
schedules. The estimated values above use the following significant
assumptions: volatility -- ranged from .54 to .58; dividend yield -- 0%;
turnover -- 8% per year; risk-free interest rate -- yield to maturity of
7-year treasury note at grant date (rates ranged from 5.46% to 6.89%). The
actual value, if any, an executive may realize will depend on the excess of
the stock price over the exercise price on the date the option is
exercised. There is no assurance that the value realized by an executive
will be at or near the value estimated using a Black-Scholes model.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the unexercised
options to purchase the Company's Common Stock granted during the fiscal year
ended December 31, 1997 and prior years under the 1991 Stock Option Plan to the
Named Officers and held by them at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John P. Frazee, Jr........... 0 0 200,000 400,000 $ 412,400 $824,800
George M. Perrin............. 0 0 801,000 0 1,793,580 0
Glenn W. Marschel............ 0 0 0 0 0 0
Michael A. DiMarco........... 0 0 45,200 114,923 134,656 206,308
Barry A. Fromberg............ 0 0 90,000 180,000 112,500 225,000
William G. Scott............. 0 0 0 113,464 0 148,660
Ruth Williams................ 0 0 0 125,000 0 472,625
</TABLE>
- ---------------
(1) Based on the difference between the exercise price of each option and
$10.75, the last reported sales price of the Company's Common Stock on the
Nasdaq Stock Market on December 31, 1997, the last trading date in the
Company's 1997 fiscal year.
CONTRACTS RELATING TO EMPLOYMENT
In connection with the hiring of John P. Frazee, Jr. as Chairman, President
and Chief Executive Officer of the Company, the Company and Mr. Frazee entered
into an Employment Agreement, dated as of August 4, 1997 (the "Employment
Agreement"), which provides for Mr. Frazee to be employed as Chairman, President
and Chief Executive Officer of the Company for an initial term expiring on July
31, 1998, with automatic one-year extensions thereafter unless the Company or
Mr. Frazee elects to give notice to terminate not less than 90 days prior to the
commencement of any such one-year renewal period. Pursuant to the Employment
Agreement, Mr. Frazee is paid a base salary of $650,000 per year, with a target
bonus of $350,000 in the event the Company achieves certain corporate objectives
specified by the Board of Directors of the Company. Upon execution of his
Employment Agreement, Mr. Frazee was granted options to purchase 600,000 shares
of Common Stock, of which options to acquire 500,000 shares of Common Stock were
granted under the Company's 1991 Stock Option Plan and options to acquire
100,000 shares of Common Stock were granted under a Nonstatutory Stock Option
Agreement. One-third of these options vest on each anniversary of the date of
the Employment Agreement so long as Mr. Frazee remains an employee of the
Company. Mr. Frazee was also granted a stock award of 11,510 shares of Common
Stock under the 1997 Restricted Stock Plan. In addition, the Company provides
Mr. Frazee with transportation to and from his primary residence in Florida. For
additional information regarding Mr. Frazee's compensation, see "EXECUTIVE
COMPENSATION" on pages 6 through 12.
In connection with services provided to the Company by George M. Perrin,
the former Chairman of the Company, the Company and Mr. Perrin entered into a
Compensation Agreement in February 1997 and an additional Agreement in August
1997, pursuant to which the Company agreed to pay Mr. Perrin an aggregate of
$876,000, $200,000 of which was paid on January 31, 1998 and $676,000 of which
is payable over a period of two years beginning on January 31, 1998.
12
<PAGE> 16
CORPORATE PERFORMANCE GRAPH
Set forth below is a line graph comparing (i) the yearly percentage change
in the cumulative total shareowner return on the Company's Common Stock, with
(ii) the cumulative total return of The Nasdaq Stock Market (U.S. Companies)
Index and the Nasdaq Telecommunications Stock Index for the period beginning
December 31, 1992 and ended December 31, 1997. The comparison assumes $100 was
invested on December 31, 1992 in the Company's Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends.
<TABLE>
<CAPTION>
Measurement Period Company
(Fiscal Year Covered) Index Market Index Peer Index
<S> <C> <C> <C>
12/31/92 100.0 100.0 100.0
12/31/93 151.2 114.8 154.2
12/30/94 168.6 112.2 128.7
12/29/95 241.7 158.7 168.5
12/31/96 151.2 195.2 172.3
12/31/97 106.6 239.5 254.5
</TABLE>
13
<PAGE> 17
TEN YEAR OPTION REPRICINGS
The following table identifies the options to purchase the Company's Common
Stock held by certain of the executive officers which were granted at a lower
exercise price in exchange for stock options previously granted to these
executive officers during the 10-year period ending December 31, 1997. The
Compensation Committee Report on Repricing of Options on page 8 sets forth the
basis for the exchange that occurred during 1997.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF NUMBER OF MARKET ORIGINAL OPTION
SHARES SHARES PRICE EXERCISE TERM
UNDERLYING UNDERLYING PER SHARE AT PRICE AT NEW REMAINING AT
DATE OF EXISTING REPRICED TIME OF TIME OF EXERCISE DATE OF
NAME REPRICING OPTIONS OPTIONS REPRICING REPRICING PRICE REPRICING
---- --------- ---------- ---------- ------------ --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn W. Marschel(1)........ 06/12/97 200,000 80,962 $ 8.25 $20.38 $ 8.25 108 months
Former President and 06/12/97 180,000 66,742 8.25 22.25 8.25 102 months
Chief Executive Officer
Michael A. DiMarco.......... 06/12/97 66,000 28,286 8.25 19.25 8.25 112 months
Executive Vice
President -- 06/12/97 90,000 32,637 8.25 22.75 8.25 100 months
Sales
Douglas R. Ritter........... 06/12/97 90,000 32,637 8.25 22.75 8.25 100 months
Senior Vice President --
Corporate Development
William G. Scott............ 06/12/97 60,000 25,714 8.25 19.25 8.25 112 months
Senior Vice President -- 06/12/97 90,000 33,750 8.25 22.00 8.25 102 months
Systems and Technology
G. Robert Thompson.......... 04/27/95 30,000 30,000 14.00 17.125 14.00 82 months
Vice President -- 06/12/97 90,000 32,108 8.25 23.13 8.25 107 months
Finance 06/12/97 30,000 17,679 8.25 14.00 8.25 94 months
</TABLE>
- ---------------
(1) Options granted Mr. Marschel in exchange expired unexercised upon Mr.
Marschel's resignation.
PROPOSAL NO. 2 -- APPROVAL OF THE COMPANY'S AMENDED AND
RESTATED 1991 STOCK OPTION PLAN
The adoption of the Company's Amended and Restated 1991 Stock Option Plan
to broaden the group of individuals eligible to receive stock options under the
1991 Stock Option Plan from key employees only to all employees is to be
approved at the meeting. The 1991 Stock Option Plan initially was adopted by the
Board of Directors on August 23, 1991, and approved by the shareowners on August
23, 1991, and was amended by the Board of Directors on January 26, 1993, which
amendment was approved by the shareowners on May 20, 1993. An increase in the
number of shares issuable pursuant to the 1991 Stock Option Plan from 6,450,000
to 13,950,000 was approved by the Board of Directors on September 11, 1996,
subject to the approval of the Company's shareowners, which was given on May 22,
1997. The 1991 Stock Option Plan authorizes the Company to grant either
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or nonstatutory options, to purchase shares of
Common Stock. As of March 31, 1998, options for an aggregate of 5,732,382 shares
were outstanding under the 1991 Stock Option Plan. An aggregate of 6,950,617
shares are available for future option grants. On March 31, 1998, the closing
price of a share of the Common Stock on The Nasdaq Stock Market was $15.375.
The 1991 Stock Option Plan has been used by the Company to provide an
opportunity to selected key employees of the Company and its subsidiaries to
purchase Common Stock of the Company through the exercise of options granted
under the plan. By encouraging such stock ownership, the Company seeks to
attract, retain and motivate experienced and skilled employees and, in
particular, to provide the Company with the necessary flexibility to compete for
highly skilled personnel. Members of the Board of Directors who are not Company
employees are not eligible to receive options under the 1991 Stock Option Plan.
14
<PAGE> 18
Subject to the approval of the Company's shareowners, the Board of
Directors has approved the Amended and Restated 1991 Stock Option Plan to
broaden the group of individuals eligible to receive stock options under the
1991 Stock Option Plan to include all employees of the Company and of its
subsidiaries. In broadening the group of eligible participants, the Company
seeks to maximize the number of individuals with an incentive to participate in
and contribute significantly to the growth and financial success of the Company.
The Company believes that stock ownership motivates employees to adopt as their
own the strategic and long-term performance objectives of the Company. Moreover,
stock ownership by a broader group of employees more closely aligns the
interests of the Company's employees with those of the shareowners.
The following table sets forth the number of options to purchase Common
Stock granted under the 1991 Stock Option Plan prior to March 31, 1998, to: (i)
each of the Named Officers, (ii) each of the nominees for election as a
director, (iii) all directors of the Company who are not executive officers of
the Company as a group, (iv) all present executive officers of the Company as a
group, and (v) all employees of the Company, including all other current
officers, as a group:
OPTIONS GRANTED UNDER THE 1991 STOCK OPTION PLAN
<TABLE>
<CAPTION>
OPTIONEE NUMBER OF OPTIONS(1)
-------- --------------------
<S> <C>
John P. Frazee, Jr.......................................... 600,000(2)
George M. Perrin............................................ 801,000
Glenn W. Marschel........................................... 299,704(3)
Michael A. DiMarco.......................................... 244,123
Barry A. Fromberg........................................... 320,000
William G. Scott............................................ 133,464
Ruth Williams............................................... 145,000
All present executive officers of the Company as a group.... 2,414,811
All employees of the Company, including present officers who
are not executive officers, as a group.................... 4,584,572
TOTAL....................................................... 6,999,383
</TABLE>
- ---------------
(1) Amounts reflect option repricings described on page 14.
(2) Mr. Frazee has also been granted options to acquire 45,000 shares of Common
Stock under the Directors Plan for his prior service as a non-employee
director of the Company and has been granted options to acquire 100,000
shares of Common Stock pursuant to the terms of his Employment Agreement.
(See "Contracts Relating to Employment" on page 12.)
(3) All of these options expired unexercised upon Mr. Marschel's resignation.
The 1991 Stock Option Plan is administered by the Compensation Committee
elected by the Board of Directors. The Compensation Committee, subject to the
provisions of the 1991 Stock Option Plan, has exclusive authority to select the
times when and the employees to whom stock options may be granted, the number of
shares of Common Stock to be acquired by the exercise of stock options, the
exercise price, the term during which options may be exercised and whether any
particular option will be an incentive stock option or a nonstatutory stock
option.
To qualify as an incentive stock option under Section 422 of the Code, an
option, among other things, must (i) not be exercisable more than ten years from
the date of grant; (ii) have an exercise price equal to or in excess of the fair
market value of the Common Stock on the date of grant; and (iii) not be
transferable other than by will or laws of descent and distribution and must be
exercisable during the employee's lifetime only by the option holder.
Furthermore, if an employee owns capital stock constituting more than 10 percent
of the total combined voting power of all classes of capital stock of the
Company or any of its subsidiaries, the term of any incentive stock option
granted to that employee may not exceed five years and the exercise price must
be at least 110% of the fair market value of the Common Stock on the date of
grant. During any calendar
15
<PAGE> 19
year the aggregate exercise price of incentive stock options held by an employee
which first became exercisable in that year may not exceed $100,000.
The 1991 Stock Option Plan provides that nonstatutory options may be
granted with an exercise price determined by the Compensation Committee so long
as the exercise price is not less than the fair market value of the Common Stock
on the date of grant. The 1991 Stock Option Plan also provides that the exercise
price of both incentive and nonstatutory stock options may be paid in cash, in
shares of Common Stock or by certified check. The Amended and Restated 1991
Stock Option Plan will permit the payment of the exercise price of both
incentive and nonstatutory stock options out of the proceeds of the sale of
shares of Common Stock received upon exercise.
The option agreements between the Company and the optionee contain certain
vesting provisions, which lapse from time to time as to portions of the grant,
as determined by the Compensation Committee.
Options granted under the 1991 Stock Option Plan are not to be transferable
other than by the laws of descent and distribution and may be exercisable during
the lifetime of an optionee only by the optionee. The Amended and Restated 1991
Stock Option Plan grants the Compensation Committee the power to permit the
transfer of options.
An employee who is granted an incentive stock option will generally
recognize no income or gain for tax purposes on the grant or exercise of the
incentive stock option. However, the excess of the fair market value of the
shares on the date of exercise (or, if later and provided the employee does not
elect to have any applicable vesting requirements disregarded for tax purposes,
the date the shares become transferable or are no longer subject to a
substantial risk of forfeiture (i.e., "vested" for purposes of Section 83 of the
Code)) over the exercise price is included in alternative minimum taxable income
for purposes of the "alternative minimum tax" provisions of the Code.
If stock purchased pursuant to the exercise of an incentive stock option is
sold more than two years from the date the option is granted and more than one
year from the date of exercise, the gain realized on the sale of the stock (the
difference between the exercise price of the option and the amount realized on
the sale) will be treated as long-term capital gain rather than as ordinary
income. Currently, the maximum individual tax rate for ordinary income is 39.6%
and for capital gain is 28% if the holding period is at least one year and 20%
if the holding period is at least 18 months. Should the employee dispose of the
shares before the later of those two dates, any gain realized will be treated as
ordinary income to the extent it does not exceed the gain which the employee
would have realized had he sold the shares immediately upon exercising the
option.
Nonstatutory stock options are taxed in accordance with Section 83 of the
Code and regulations thereunder. An employee granted a nonstatutory stock option
will not recognize any income on grant but will recognize income at the date of
exercise or, if later and provided the employee does not elect to have any
vesting restrictions disregarded for tax purposes, when the shares purchased
pursuant to the option become vested for purposes of Section 83 of the Code. The
income recognized (the difference between the exercise price of the option and
the fair market value of the shares at the time the employee recognizes the
income) will be ordinary income to the employee.
In general, the Company can deduct as a business expense only an amount
equal to the ordinary income, if any, recognized by an employee upon his sale of
Common Stock purchased pursuant to an incentive stock option, as well as the
ordinary income recognized by an optionee with respect to the exercise of a
nonstatutory option. Under current accounting practice, generally no charge to
the expense of the Company results from the grant or exercise of an incentive
stock option or a nonstatutory stock option granted pursuant to the 1991 Stock
Option Plan because the exercise price of the stock option must equal or exceed
the fair market value of the Common Stock on the date of grant.
The affirmative vote of the holders of a majority of the shares of Common
Stock present or represented and actually voted on the issue at the meeting is
required to ratify the adoption by the Board of Directors of the Amended and
Restated 1991 Stock Option Plan.
16
<PAGE> 20
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREOWNERS AND RECOMMENDS A VOTE "FOR" ITS APPROVAL.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
certain of its officers, and any persons holding more than ten percent of the
Common Stock are required to report their ownership of the Common Stock and any
changes in that ownership to the Commission. Specific due dates for these
reports have been established and the Company is required to report in this
proxy statement any failure to file by such dates during 1997. During the
Company's 1997 fiscal year, to the knowledge of the Company, all of these filing
requirements were satisfied. In making these statements, the Company has relied
upon written representations of its directors, officers, and its ten percent
holders as well as copies of those reports filed with the Commission that have
been furnished to the Company.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Ernst & Young LLP has been the independent auditors for the Company and
will serve in that capacity for the 1998 fiscal year. A representative of Ernst
& Young LLP will be present at the Annual Meeting, will have an opportunity to
make a statement if he desires to do so and will be available to respond to
appropriate questions from shareowners.
SHAREOWNER PROPOSALS AND NOMINATIONS
All shareowner proposals that are intended to be presented at the 1999
Annual Meeting of Shareowners of the Company must be received by the Company not
later than December 7, 1998, for inclusion in the Board of Directors' proxy
statement and form of proxy relating to the meeting.
Shareowners of the Company may nominate one or more persons for election as
a director at a meeting only if written notice of such shareowner's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Senior Vice President, General
Counsel and Assistant Secretary of the Company not later than 80 days prior to
the date of any annual or special meeting. In the event that the date of such
annual or special meeting was not publicly announced by the Company by mail,
press release or otherwise more than 90 days prior to the meeting, notice by the
shareowner to be timely must be delivered to the Senior Vice President, General
Counsel and Assistant Secretary of the Company not later than the close of
business on the tenth day following the day on which such announcement of the
date of the meeting was communicated to the shareowners.
17
<PAGE> 21
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at the
meeting. However, if any other business properly comes before the meeting, it is
the intention of the persons named in the enclosed proxy to vote on such matters
in accordance with their judgment.
The prompt return of your proxy will be appreciated and helpful in
obtaining the necessary vote. Therefore, whether or not you expect to attend the
meeting, please sign the proxy and return it in the enclosed envelope.
By Order of the Board of Directors
RUTH WILLIAMS, Senior Vice President,
General Counsel and Assistant
Secretary
Dated: April 1, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING FINANCIAL
STATEMENTS AND SCHEDULE) WILL BE SENT WITHOUT CHARGE TO ANY SHAREOWNER
REQUESTING IT IN WRITING FROM: PAGING NETWORK, INC., ATTN: JENNY HAYNES, VICE
PRESIDENT -- INVESTOR RELATIONS, 4965 PRESTON PARK BOULEVARD, SUITE 800, PLANO,
TEXAS 75093.
The Company's annual report on Form 10-K may also be viewed on the Internet
by accessing the Company's home page at http://www.pagenet.com.
18
<PAGE> 22
[PAGENET LOGO]
PAGING NETWORK, INC.
AMENDED AND RESTATED 1991 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Amended and Restated 1991 Stock
Option Plan (the "Plan") is to advance the interests of PAGING NETWORK, INC.
("PageNet") and its shareowners by providing an opportunity to all employees of
PageNet and its present and future domestic and foreign subsidiaries
(collectively, the "Company") to purchase the common stock of PageNet through
the exercise of options granted under this Plan and thereby have an incentive
to participate in and contribute significantly to the growth and financial
success of the Company. By encouraging such stock ownership, the Company seeks
to attract, retain and motivate employees with experience, ability and
leadership to share in the strategic and long-term performance objectives of
the Company and to more closely align the interests of the employees with those
of the shareowners.
2. EFFECTIVE DATE. The 1991 Stock Option Plan became effective
on August 23, 1991, the date it was adopted by the Board of Directors of
PageNet. The Plan was approved by the shareowners of PageNet on August 23,
1991. The Plan was amended by the Board of Directors on January 26, 1993,
subject to shareowner approval, which was given on May 20, 1993. The Plan was
further amended by the Board of Directors on September 11, 1996 and on January
9, 1997, subject to shareowner approval, which was given on May 22, 1997. This
amendment and restatement of the Plan will become effective on April 22, 1998,
the date it was adopted by the Board of Directors of PageNet, subject to the
receipt of approval by the shareowners of PageNet at the 1998 Annual Meeting of
Shareowners.
3. STOCK SUBJECT TO THE PLAN; TYPES OF OPTIONS. The shares that
may be granted under this Plan will not exceed in the aggregate 13,950,000
shares of the $.01 par value common stock of PageNet ("Common Stock"). Any
shares subject to an option which for any reason expires, is cancelled or is
terminated unexercised as to such shares may again be the subject of an option
under the Plan. The shares delivered upon exercise of options under this Plan
may, in whole or in part, be either authorized but unissued shares or issued
shares re-acquired by PageNet. In addition to the foregoing aggregate
limitation, no more than 500,000 shares may be granted under this Plan in any
one calendar year to any one eligible individual. The Plan allows for the
granting of nonqualified stock options ("nonqualified options"), the federal
income tax treatment of which is determined under Section 83 of the Internal
Revenue Code of 1986, as amended from time to time, and regulations thereunder
(the "Code"), and incentive stock options intended to qualify under Section 422
of the Code.
<PAGE> 23
4. ADMINISTRATION OF STOCK OPTIONS. The Plan will be
administered by the Stock Option/Compensation Committee of the Board of
Directors of PageNet (the "Board"), provided, however, that any authority or
responsibility reserved to the Committee under the Plan may be exercised in its
discretion by the Board, including but not limited to granting options under
the Plan. The term "Committee" means the entity administering the Plan
pursuant to this paragraph, whether the administrator is the Board or the Stock
Option/Compensation Committee.
Subject to the provisions of the Plan, the Committee will have full
power to construe and interpret the Plan and to establish, amend and rescind
rules and regulations for its administration. Any decisions made with respect
thereto will be final and binding on the Company, the employee to whom the
option is granted (the "optionee") and all other persons. No employee will
have a right to be granted an option or, having received an option, a right to
again be granted an option under the Plan. Determinations made by the
Committee under the Plan need not be uniform and may be made selectively among
eligible employees under the Plan, whether or not such eligible employees are
similarly situated.
5. ELIGIBLE EMPLOYEES. Incentive options or nonqualified
options, or both, may be granted to all employees of PageNet and any present
and future domestic and foreign subsidiary of the Company. The Committee will
have the exclusive power to select the employees who may receive options under
the Plan, and may select the eligible employees individually or by groups or
categories, as determined by the Committee in its sole discretion.
6. DURATION OF THE PLAN. This Plan will terminate on the tenth
anniversary of shareowner approval of the amendment and restatement at the 1998
Annual Meeting of Shareowners, unless terminated earlier pursuant to Paragraph
11, and no options may be granted thereafter.
7. RESTRICTIONS ON INCENTIVE OPTIONS. With respect to incentive
options (but not nonqualified options) granted under this Plan, the aggregate
fair market value, determined as of the date each such option is granted, of
the shares with respect to which options are exercisable for the first time by
an employee during any calendar year will not exceed $100,000. If an incentive
option is granted with respect to shares exceeding the aforementioned $100,000
limitation, the portion of such option which is in excess of the $100,000
limitation will be treated as a nonqualified option. In the event that an
individual is eligible to participate in any other stock option plan of the
Company which is also intended to comply with the provisions of Section 422 of
the Code, the $100,000 limitation will apply to the aggregate number of shares
for which incentive stock options are granted under all such plans.
8. TERMS AND CONDITIONS OF STOCK OPTIONS. Options granted under
this Plan will be evidenced by instruments in such form and containing such
terms and conditions as the Committee will determine; provided, however, that
such instruments will evidence among their terms and conditions the following:
2
<PAGE> 24
(a) PRICE. The purchase price per share of Common Stock
payable upon the exercise of each option granted hereunder will be as
determined by the Committee in its discretion, and will be not less than 100%
of the fair market value of the stock on the day the option is granted. Such
fair market value will be determined in accordance with procedures to be
established in good faith by the Committee in conformity with regulations
issued by the Internal Revenue Service with regard to incentive and
nonqualified options.
(b) NUMBER OF SHARES. Each option grant will specify the
number of shares to which it pertains.
(c) EXERCISE OF OPTIONS. Each option grant will be
exercisable for the full amount or for any part thereof and at such intervals
or in such installments as the Committee may determine; provided, however, that
no option will be exercisable with respect to any shares later than ten (10)
years after the date of the grant of such option. In case of an option not
otherwise immediately exerciseable in full, the Committee may accelerate the
exerciseability of such option in whole or in part at any time.
(d) NOTICE OF EXERCISE AND PAYMENT. An option will be
exercisable only by delivery of a written notice to the Company's Treasurer, or
any other officer of the Company designated by the Committee to accept such
notices on its behalf, specifying the number of shares for which it is
exercised. If said shares are not at that time effectively registered under
the Securities Act of 1933, as amended, the optionee will include with such
notice a letter, in form and substance satisfactory to the Company, confirming
that the shares are being purchased for the optionee's own account for
investment and not with a view to distribution. Payment will be made in full
at the time the option is exercised. Payment will be made either by (i)
cashier's or certified check, wire transfer or other form of good and
immediately available funds, (ii) if permitted by the Committee and stated in
the instrument, by delivery and assignment to the Company of shares of Common
Stock having a value equal to the option price, (iii) if permitted by the
Committee, by delivery of a written notice stating that a market sell order has
been placed with a broker with respect to shares of Common Stock issuable upon
exercise of the option and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the aggregate exercise price of the option or the portion
thereof so exercised, or (iv) by a combination of (i) and (ii) above. The
value of the Common Stock for such purpose will be its fair market value as of
the date the option is exercised, as determined in accordance with procedures
to be established by the Committee.
(e) WITHHOLDING TAXES; DELIVERY OF SHARES. The Company's
obligation to deliver shares of Common Stock upon exercise of an option, in
whole or in part, will be subject to the optionee's satisfaction of all
applicable federal, state and local tax withholding obligations.
(f) NON-TRANSFERABILITY. Except as otherwise provided by the
Committee, no option will be transferable by the optionee otherwise than by
will or the laws of descent and distribution, and each option will be
exercisable during the optionee's lifetime only by the optionee (or the
optionee's guardian or legal representative).
3
<PAGE> 25
(g) TERMINATION OF OPTIONS. Each instrument will contain
provisions for the termination of the options granted thereunder if the
optionee ceases for any reason to be an employee of or perform services for the
Company, no more favorable to the optionee than the following:
(i) if the optionee ceases to be employed by or
perform services for the Company for any reason other than for cause,
disability or death, the option will terminate on the earlier to occur of the
ninetieth day after the effective date of such resignation or termination and
the date of termination of the option pursuant to this Plan, and the option may
not be exercised thereafter;
(ii) if the optionee ceases to be employed by or
perform services to the Company for cause, which will mean willful misconduct,
dishonesty, insubordination, conviction of a felony, gross negligence in the
performance of duties as an employee, the material or repeated violation of
policies and practices of the Company, including its Code of Ethics, or the use
of illegal drugs or the illegal use of controlled substances, the option will
terminate on the day of such termination for cause;
(iii) if the optionee ceases to be employed by or
perform services for the Company because of any physical or mental disability
which would have entitled such employee to payment of disability benefits under
the Company's long-term disability plan or any similar plan of the Company
(regardless of whether such employee was then a participant in such plan), he
may at any time within a period of one year after such termination of
employment, or prior to the termination of the option pursuant to this Plan,
whichever is earlier, exercise his option to the extent that the option was
exercisable by him on the date he ceased to be employed by or perform services
for the Company; and
(iv) if the optionee dies at a time when the option
was already vested and exerciseable, then his estate, personal representative
or beneficiary to whom it has been transferred pursuant to Paragraph 8(f) may,
at any time within a period of one year after the optionee's death, or prior to
the termination of the option pursuant to this Plan, whichever is earlier,
exercise it to the extent the optionee might have exercised it at the time of
his death;
provided, however, that the Committee may provide specifically in an instrument
governing an option grant for such other period of time during which an optionee
may exercise an option after termination of services as the Committee may
approve, subject to the overriding limitation that no option may be exercised to
any extent by anyone after the date of expiration of the option.
(h) RIGHTS AS SHAREOWNER. An optionee will have no rights
as a shareowner with respect to any shares covered by his option until the date
the option has been exercised and the full purchase price for such shares has
been received by the Company.
4
<PAGE> 26
9. STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS;
RECAPITALIZATIONS. Appropriate adjustment will be made in the maximum number
of shares of Common Stock subject to the Plan and in the number, kind, and
option price of shares covered by outstanding options granted hereunder to give
effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of PageNet
after the effective date of the Plan.
10. MERGER; SALE OF ASSETS; DISSOLUTION. Notwithstanding anything
to the contrary contained in this Plan, in the event of a "Change of Control,"
as defined herein, every option outstanding hereunder will become immediately
exercisable in full. In the event of a change in the Common Stock resulting
from a merger or similar reorganization, the number and kind of shares which
thereafter may be optioned and sold under the Plan and the number and kind of
shares then subject to options granted hereunder and the price per share
thereof will be appropriately adjusted, in such manner as the Committee may
deem equitable, to prevent substantial dilution or enlargement of the rights
available or granted hereunder.
A "Change of Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(a) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of PageNet representing 25% or more of the
combined voting power of PageNet's then outstanding securities (not including
in such securities beneficially owned by such Person any securities acquired
directly from PageNet), other than any Person who becomes such a Beneficial
Owner in connection with a transaction described in clause (i) of paragraph (c)
below; or
(b) the following individuals cease for any reason to
constitute a majority of the number of directors then serving: individuals who
on the date hereof constitute the Board, and any new director whose appointment
or election by the Board or nomination for election by PageNet's shareowners
was approved or recommended by at least two-thirds (2/3) of the directors then
still in office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously so approved or
recommended (other than a new director whose initial assumption of office is in
connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors of
PageNet); or
(c) there is consummated a merger or consolidation of
PageNet or any direct or indirect subsidiary of PageNet with any other
corporation, other than (i) a merger or consolidation which would result in the
voting securities of PageNet outstanding immediately prior to such merger or
consolidation continuing to represent, in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit plan of
PageNet, at least 65% of the combined voting power of the securities of PageNet
or such surviving entity or any parent thereof outstanding immediately after
such merger or consolidation (either by remaining outstanding or by being
converted into voting securities of the surviving entity or parent thereof), or
(ii) a merger or consolidation
5
<PAGE> 27
effected to implement a recapitalization of PageNet, or similar transaction, in
which no Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of PageNet representing 25% or more of the combined voting power of
PageNet's then outstanding securities (not including in the securities
Beneficially Owned by such Person any securities acquired directly from
PageNet); or
(d) the shareowners of PageNet approve a plan of complete
liquidation or dissolution of PageNet or there is consummated an agreement for
the sale or disposition by PageNet of all or substantially all of PageNet's
assets, other than a sale or disposition by PageNet of all or substantially all
of PageNet's assets to an entity, at least 65% of the combined voting power
of the outstanding securities of which are owned by shareowners of PageNet in
substantially the same proportions as their ownership of PageNet immediately
prior to such sale.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record
holders of the Common Stock of PageNet immediately prior to such transaction or
series of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the assets of
PageNet immediately following such transaction or series of transactions.
For purposes of this Section 10, (a) "Person" shall mean any person or
entity other than (1) any employee plan established by PageNet, (2) PageNet or
any of its affiliates (as defined in Rule 12b-2 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), (3) an underwriter
temporarily holding securities pursuant to an offering of such securities, or
(4) a corporation owned, directly or indirectly, by shareowners of PageNet in
substantially the same proportions as their ownership of PageNet and (b)
"Beneficial Owner" shall have the meaning set forth in Rule 12d-3 under the
Exchange Act.
11. TERMINATION OR AMENDMENT OF PLAN. The Board may at any time
suspend or terminate the Plan, or make such changes in or additions to the Plan
as it deems advisable without further action on the part of the shareowners of
the Company, provided:
(a) that no such termination or amendment will adversely
affect or impair any then outstanding option or any shares at the time subject
to options without the consent of the optionee holding such option; and
(b) that any such amendment which requires shareowner
approval in order to comply with applicable provisions of the Code, rules
promulgated pursuant to Section 16 of the Exchange Act, applicable state law, or
the National Association of Securities Dealers or exchange listing requirements
will be subject to approval by the shareowners of PageNet within one year from
the effective date of such amendment and will be null and void if such approval
is not obtained.
6
<PAGE> 28
12. MISCELLANEOUS PROVISIONS.
(a) GOVERNING LAW. The validity, construction,
interpretation, administration and effect of the Plan, and of its rules and
regulations, and rights relating to the Plan, will be governed by the
substantive laws, but not the choice of law rules, of the State of Delaware.
(b) NO GUARANTEE OF EMPLOYMENT. Neither the Plan, not any
action taken hereunder, including the granting of options, shall be construed
as giving any employee any right to continue to be employed by the Company, and
the right to terminate the employment of any such employee is hereby
specifically reserved.
7
<PAGE> 29
DETACH HERE
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
PAGING NETWORK, INC.
FOR THE 1998 ANNUAL MEETING OF SHAREOWNERS
The undersigned hereby appoints John P. Frazee, Jr. and Ruth Williams, and
each of them, proxies with several powers of substitution, to vote for the
undersigned at the 1998 Annual Meeting of Shareowners of PAGING NETWORK, INC.
(the "Company"), to be held at Bank of America-Illinois, 231 South La Salle
Street, 21st Floor, Chicago, Illinois 60601 at 11:00 A.M., Central Daylight
Time, on Thursday, May 21, 1998, notice of which meeting and the Proxy
Statement accompanying the same have been received by the undersigned or at
any adjournment or postponement thereof upon the following matters set forth
on the reverse side as described in the Notice of Meeting and accompanying
Proxy Statement.
- ------------ -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------ -------------
<PAGE> 30
Please be sure your shares are represented at the meeting by promptly returning
your proxy in the enclosed envelope.
DETACH HERE
[X] Please mark
votes as in
this example.
SAID PROXIES WILL VOTE THIS PROXY AS DIRECTED, OR IF NO DIRECTION IS
INDICATED, FOR THE NAMED NOMINEES AND ITEM 2 UNLESS AUTHORITY TO DO SO IS
SPECIFICALLY WITHHELD IN THE MANNER PROVIDED, AND WILL USE THEIR DISCRETION
WITH RESPECT TO ANY MATTERS REFERRED TO IN ITEM 3.
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. Election of two Class 1 Directors. 2. To consider and approve the [ ] [ ] [ ]
NOMINEES: John P. Frazee, Jr. and John S. Llewellyn, Jr. adoption of the Company's
Amended & Restated 1991 Stock
FOR WITHHELD Option Plan.
[ ] [ ]
[ ] _________________________________________________ 3. In their discretion to transact such other business as may
For all nominees except as noted above properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign exactly as your name or names appear at left.
Corporate proxies should be signed by an authorized officer.
Signature: ____________________________ Date: ______________ Signature: ____________________________ Date: ________________
</TABLE>
