<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Paging Network, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] 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 12, 1999
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 Wednesday, May 19, 1999, 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 three directors. Your Board of
Directors urges you to read the accompanying proxy statement and recommends that
you vote "FOR" Proposal No. 1.
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.
On behalf of the Board of Directors, our colleagues and myself, thank you
for being a PageNet shareowner.
Very truly yours,
JOHN P. FRAZEE, JR.
Chairman, President &
Chief Executive Officer
<PAGE> 3
[PAGENET LOGO]
PAGING NETWORK, INC.
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
Dallas, Texas
April 12, 1999
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 Wednesday, May 19, 1999, at 11:00
A.M., Central Daylight Time, for the following purposes:
1. To elect three Class II directors of the Company to serve until the 2002
Annual Meeting of Shareowners.
2. 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 19, 1999, 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
[PAGENET LOGO]
PAGING NETWORK, INC.
14911 QUORUM DRIVE
DALLAS, TEXAS 75240
---------------------
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
19, 1999 (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 12, 1999, and such proxies will be solicited
chiefly by mail, but additional solicitations may be made by telephone or
telegram by the officers or other 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 Innisfree M&A Incorporated,
whose fees are expected to be approximately $10,000 (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 Proposal No. 1 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 19, 1999 are
entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. The Company had outstanding on March 19, 1999, 103,959,140
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. Abstentions and
broker non-votes will have no effect on the outcome of the election of
directors.
<PAGE> 5
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information, as of March 19, 1999 except
where 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, 1998, the other four most
highly compensated executive officers of the Company and its subsidiaries, and
(iii) 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 THREE DIRECTORS" on pages 3-5.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
BENEFICIAL OF OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
------------------------ ------------ --------------
<S> <C> <C>
Capital Research & Management Company....................... 6,730,000(2) 6.5%
333 South Hope Street, Los Angeles, CA 90071
Strong Capital Management, Inc.............................. 6,301,510(3) 6.1%
100 Heritage Reserve, Menomonee Falls, WI 53051
John P. Frazee, Jr.......................................... 672,970(4) *
Mark A. Knickrehm........................................... 133,000(5) *
Edward W. Mullinix, Jr...................................... 134,000(6) *
William G. Scott............................................ 86,642(7) *
Ruth Williams............................................... 73,000(8) *
All present executive officers & directors as a group (21
persons).................................................. 3,141,623(9) 3.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the persons shown have sole voting and
investment power over the shares listed. Includes options vested and
exercisable as of March 19, 1999 or within 60 days after such date.
(2) Information has been obtained from Form 13G filing by Capital Research &
Management Company, as of February 8, 1999.
(3) Information has been obtained from Form 13G filing by Strong Capital
Management, Inc., as of February 11, 1999.
(4) Includes 538,300 shares subject to vested and exercisable options.
(5) Includes 133,000 shares subject to vested and exercisable options.
(6) Includes 133,000 shares subject to vested and exercisable options.
(7) Includes 76,642 shares subject to vested and exercisable options.
(8) Includes 63,000 shares subject to vested and exercisable options.
(9) Includes 1,585,201 shares subject to vested and exercisable options.
2
<PAGE> 6
PROPOSAL NO. 1 -- ELECTION OF THREE DIRECTORS
Three directors are to be elected at the meeting to serve as Class II
directors of the Company until the 2002 Annual Meeting of Shareowners and until
their successors shall have been duly elected and qualified. In the event that
any 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 any of these nominees will be unable to serve.
The directors of the Company, including the nominees for election, their
ages, the year in which each first became a director, the class of director and
expiration of term, 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 March 19, 1999, are set forth below:
NOMINEES:
<TABLE>
<CAPTION>
YEAR AMOUNT AND
FIRST NATURE OF PERCENTAGE OF
BECAME PRINCIPAL OCCUPATION BENEFICIAL OUTSTANDING
DIRECTOR AGE DIRECTOR DURING THE PAST FIVE YEARS OWNERSHIP(1) COMMON STOCK CLASS
-------- --- -------- ---------------------------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Cunningham...... 46 1998 President of Planet Direct, a 18,000(2) * Class II
majority-owned subsidiary of CMGI, (Term
Inc., an internet media company, Expires
since December 1998. Previously 2002)
Mr. Cunningham served as President
and Chief Executive Officer of
Knowledge Universe, an internet
media company, from July 1998
through December 1998. From June
1993 through July 1998, Mr.
Cunningham was the Group Pub-
lisher for Forbes, Inc. He also
serves on the boards of
Countrywide Credit, Inc., Data
General Corp., and Schindler
Holdings.(12)(13)
Robert J. Miller........... 54 1999 From 1989 to January 1999, Mr. 9,000(3) * Class II
Miller served as the Governor of (Term
Nevada. Upon his retirement from Expires
the Office of Governor, Mr. Miller 2002)
became a partner in the law firm
of Jones Vargas in Las Vegas,
Nevada. He is also a member of the
board of Newmont Mining Corpora-
tion and Zenith National Insurance
Corp.
Carl D. Thoma.............. 50 1981 Co-Founder and Managing Partner of 1,418,367(4) 1.4% Class II
Thoma Cressey Equity Partners, (Term
successor to Golder, Thoma, Expires
Cressey, Rauner, Inc., an 2002)
investment firm co-founded by Mr.
Thoma in 1980. Mr. Thoma also
serves as a director of Global
Imaging Systems, Inc. and National
Equipment Services,
Inc.(13)(14)(15)
</TABLE>
3
<PAGE> 7
CONTINUING DIRECTORS:
<TABLE>
<CAPTION>
YEAR AMOUNT AND
FIRST NATURE OF PERCENTAGE OF
BECAME PRINCIPAL OCCUPATION BENEFICIAL OUTSTANDING
DIRECTOR AGE DIRECTOR DURING THE PAST FIVE YEARS OWNERSHIP(1) COMMON STOCK CLASS
-------- --- -------- ---------------------------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Alberding....... 68 1994 Executive Vice President of 38,307(5) * Class III
Hewlett-Packard Co. and other (Term
management positions from Expires
1958-1991. Mr. Alberding also 2000)
serves as a director of Digital
Microwave Corporation, Kennametal,
Inc., Quickturn Design Systems,
Inc., Digital Link Corp., Sybase,
Inc., Walker Interactive Systems,
Inc. and JLK Direct,
Inc.(11)(12)(14)
Hermann Buerger............ 55 1998 Executive Vice President and 41,810(6) * Class I
General Manager of North American (Term
operations for Commerzbank AG Expires
since 1989. Mr. Buerger also 2001)
serves as a director of Security
Capital Group, Inc. and United
Dominion Industries.(11)(14)(15)
Gary J. Fernandes.......... 55 1999 Managing General Partner of 9,000(7) * Class III
Convergent Partners, LLC, a (Term
private equity capital investment Expires
firm, since January 1999. Vice 2000)
Chairman and other management
positions of Electronic Data
Systems Corporation from 1969-
1999. Mr. Fernandes also serves as
a director of 7-Eleven Inc. and
John Wiley & Sons, Inc.
John P. Frazee, Jr......... 54 1995 Chairman, President and Chief 672,970(8) * Class I
Executive Officer of the Company (Term
since August 4, 1997; private Expires
investor from August 1993 to 2001)
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. (14)(15)
John S. Llewellyn, Jr...... 64 1997 Chief Executive Officer of Ocean 18,437(9) * Class I
Spray Cranberries, Inc. and other (Term
positions from 1982-1997, at which Expires
time he retired. Mr. Llewellyn 2001)
also serves as a director of Dean
Foods Company.(13)(15)
Lee M. Mitchell............ 55 1991 Partner in Thoma Cressey Equity 71,621(10) * Class III
Partners, successor to Golder, (Term
Thoma, Cressey, Rauner, Inc., an Expires
investment firm for which Mr. 2000)
Mitchell has served as a principal
since 1994. Mr. Mitchell also
serves as a director of the
Chicago Stock
Exchange.(11)(12)(14)
</TABLE>
4
<PAGE> 8
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the persons shown have sole voting and
investment power over the shares listed. Includes options vested and
exercisable as of March 19, 1999 or within 60 days of such date.
(2) Mr. Cunningham's holdings include 18,000 shares subject to vested and
exercisable options.
(3) Mr. Miller's holdings include 9,000 shares subject to vested and
exercisable options.
(4) Mr. Thoma's holdings include 63,000 shares subject to vested and
exercisable options.
(5) Mr. Alberding's holdings include 36,000 shares subject to vested and
exercisable options.
(6) Mr. Buerger's holdings include 18,000 shares subject to vested and
exercisable options.
(7) Mr. Fernandes' holdings include 9,000 shares subject to vested and
exercisable options.
(8) Mr. Frazee's holdings include 538,300 shares subject to vested and
exercisable options.
(9) Mr. Llewellyn's holdings include 18,000 shares subject to vested and
exercisable options.
(10) Mr. Mitchell's holdings include 63,000 shares subject to vested and
exercisable options.
(11) Member of Audit Committee of the Board of Directors.
(12) Member of Board Affairs Committee of the Board of Directors.
(13) Member of Compensation and Management Development Committee of the Board of
Directors.
(14) Member of the Executive Committee of the Board of Directors.
(15) Member of the Finance Committee of the Board of Directors.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee that consists of 4 members
who are not employees of the Company. The Committee meets regularly with the
Company's financial management, internal auditors and independent public
accountants to oversee the financial reporting process and internal accounting
controls and to serve as a direct line of communication among the Company's
Board of Directors, its financial management, internal auditors and independent
public accountants. The Committee recommends the engagement or termination of
the Company's independent public accountants; reviews the scope of and results
of each external and internal audit of the Company; and reviews and monitors the
compensation and independence of, and the performance of non-audit services by,
the Company's independent public accountants. Both the internal auditors and the
independent public accountants have unrestricted access to the Audit Committee
and meet regularly with the Audit Committee, without senior management
representatives present. The Audit Committee met six times during 1998.
The Board of Directors has a Compensation and Management Development
Committee that consists of 4 members who are not employees of the Company. The
Committee is responsible for granting stock options to the Company's employees
and otherwise administering the Company's stock-based plans, retirement plans
and health and benefit plans. The Committee also is responsible for periodically
reviewing and setting the salary and bonus compensation for the Company's
President and Chief Executive Officer and other executive officers. The
Committee also reviews the Company's compensation and bonus programs and
employee benefit plans to ensure that the Company attracts, retains and develops
well-qualified employees. The Compensation and Management Development Committee
met seven times during 1998.
The Board of Directors has a Board Affairs Committee that consists of 4
members. The Committee is responsible for assisting in the recruitment and
recommendation of candidates for all directorships to be filled by the
shareowners or the Board, including nominees to fill vacancies, and recommending
the number of members of the Board. The Committee also develops plans and
proposals for management succession with respect to the Company's President and
Chief Executive Officer, evaluates individual director performance and overall
Board performance and periodically evaluates the Company's corporate governance
process. The Board Affairs Committee met twice during 1998.
5
<PAGE> 9
The Board of Directors has a Finance Committee that consists of 5 members.
The Committee is responsible for oversight of the Company's financial position
and guidance of financial management with respect to the Company's capital
structure and expenditures; short and long-term financing plans, programs,
budgets and alternatives; investor relations activities; insurance programs; tax
management; and related matters. The Finance Committee met twice during 1998.
The Board of Directors has an Executive Committee that consists of 5
members. The Chairman of this Committee is the Chairman of the Board of
Directors. The Committee manages the business and affairs of the Company with
respect to any matter that may require action prior to the next meeting of the
Board of Directors, if such action is not inconsistent with specific directions
provided to the Committee by the Board of Directors. The Executive Committee did
not meet during 1998.
During 1998, the Board of Directors held six regularly scheduled meetings
and met five times by telephone conference. Each director attended more than
seventy-five percent (75%) of the Board meetings and the meetings of Board
committees on which he served, with the exception of Messrs. Alberding, Cressey
and Wilkens, who attended 63%, 54% and 72% of Board and committee meetings,
respectively. Mr. Cressey retired from the Board of Directors on March 17, 1999.
Mr. Wilkens will retire from service on the Board of Directors when his current
term expires at PageNet's 1999 Annual Meeting of Shareowners.
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. 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 committees of the Board of Directors
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 Director
Compensation Plan (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 Common Stock on the date of grant. The options granted become exercisable in
five equal annual installments so long as the person remains a director of the
Company. In addition to these initial grants, subsequent grants of options to
purchase an additional 45,000 shares of Common Stock are 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 is also the fair market value of the
underlying Common Stock on the date of grant. Such additional options will
become exercisable in five equal annual installments 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 his cash retainer and meeting fees
for that year and receive, in lieu thereof, either: (i) during the year or at a
future date selected by the director, 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 meeting during the year) equal to the dollar amount of the annual
retainer, meeting and other fees due for such year, (ii) at a future date
selected by the director, a cash payment equal to the appreciated value of the
dollar amount of the annual retainer, meeting and other fees due for such year
as if such amounts had been placed in an interest-bearing account, or (iii) an
option to purchase shares having a value under the Black-Scholes pricing model
(see footnote 2 on page 10) 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 1998, each director waived his rights
to cash payments and elected to receive deferred shares of Common Stock, or
phantom stock units, instead. Messrs. Alberding, Buerger, Cressey, Fernandes,
Llewellyn, Mitchell and Thoma have elected to continue to defer their
compensation to phantom stock units in 1999. Messrs. Cunningham and Miller have
elected to receive their 1999 compensation in cash and Mr. Wilkens has elected
to receive shares of Common Stock.
6
<PAGE> 10
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 THREE NAMED
CANDIDATES STANDING FOR ELECTION.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The members of the Compensation Committee for 1998, Messrs. Cunningham,
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;
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.
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 75% of the executive's base
salary 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. 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 that
provides an incentive to build long-term shareowner value.
1998. For 1998, 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 1998 met or exceeded expectations
in most, but not all, categories. This performance was reflected in the level of
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 for 1998 was payable as a bonus based upon his performance and that
of the Company as a whole. In addition, stock options were granted to him along
with other executives.
7
<PAGE> 11
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 were met. 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 1999 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 1998" on page 10, under certain circumstances
all options, including those granted to the five most highly compensated
executive officers of the Company, become immediately vested and exercisable 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.
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
JEFFREY M. CUNNINGHAM
JOHN S. LLEWELLYN, JR.
ROY A. WILKENS
8
<PAGE> 12
RECENT SENIOR MANAGEMENT ADDITIONS AND CHANGES
Mark A. Knickrehm joined the Company as Executive Vice President and Chief
Financial Officer on February 4, 1998. On February 4, 1998, the Board of
Directors elected Edward W. Mullinix, Jr., to the new position of Executive Vice
President of Operations. Lynn A. Bace joined the Company as Senior Vice
President of Marketing on August 19, 1998 and was promoted to Executive Vice
President of Sales & Marketing on December 16, 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 years ended December 31, 1998, 1997 and 1996
of (i) the Company's Chief Executive Officer, (ii) those persons who were, at
December 31, 1998, the other four most highly compensated executive officers of
the Company and its subsidiaries, and (iii) Lynn A. Bace, Executive Vice
President -- Sales and Marketing of the Company (the "Named Officers"). The
Company believes that Ms. Bace would have been one of the Named Officers had she
been employed as an Executive Vice President for the entire year and has chosen
to list her among the Named Officers. Positions indicated are as of March 19,
1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL RESTRICTED SECURITIES
COMPENSATION STOCK UNDERLYING
----------------------------------- AWARDS OPTIONS ALL OTHER
YEAR SALARY BONUS OTHER ($) (SHARES) COMPENSATION(1)
---- ------- ------- ------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Frazee, Jr........... 1998 671,875 430,000 115,246(2) -- 100,000 2,333
Chairman, President 1997 279,571(3) 150,000 50,938(4) 100,000(5) 600,000 20,000(6)
& Chief Executive Officer 1996 -- -- -- -- -- 16,250(6)
Mark A. Knickrehm(7)......... 1998 266,036 230,000(8) -- -- 300,000 --
Executive Vice President
& Chief Financial Officer
Edward W. Mullinix, Jr.(9)... 1998 247,916 120,000 43,158(10) -- 50,000 3,750
Executive Vice President -- 1997 45,337 60,000 -- 250,000
Operations
William G. Scott............. 1998 224,583 72,000 -- -- 20,000 5,000
Senior Vice President 1997 215,000 80,000 -- 55,313(11) 113,464 4,750
Systems and Technology 1996 172,982 75,000 8,942(12) -- -- --
Ruth Williams................ 1998 220,000 74,800 -- -- 20,000 3,123
Senior Vice President 1997 143,333(13) 58,000 115,250(12) -- 125,000 --
& General Counsel
Lynn A. Bace(14)............. 1998 93,750 51,000 -- -- 250,000 --
Executive Vice President --
Sales & Marketing
</TABLE>
- ---------------
(1) Except where noted, represents Company matching contributions to the
Company's 401(k) Plan.
(2) Includes housing allowance of $66,158.
(3) Annual compensation for 1997, represents compensation for the period from
August 4, 1997, when he became Chairman, President & Chief Executive
Officer of the Company, through December 31, 1997.
(4) Includes payment of $23,214 to defray expenses associated with relocation
to the Dallas, Texas area.
(5) Represents the fair market value on the date of grant of 11,510 shares of
the Company's Common Stock awarded to Mr. Frazee on August 4, 1997.
(6) Represents compensation for services rendered as a non-employee director of
the Company.
9
<PAGE> 13
(7) Mr. Knickrehm became an employee and Executive Vice President and Chief
Financial Officer of the Company on February 4, 1998; annual compensation
represents compensation for the period from this date through year-end.
(8) Includes a $100,000 employment bonus and $130,000 paid as an annual bonus
for performance in 1998.
(9) Mr. Mullinix joined the Company on November 3, 1997 as Senior Vice
President of Strategic Planning, and was promoted to Executive Vice
President - Operations of the Company on February 4, 1998.
(10) Includes payment of $41,589 made to Mr. Mullinix to defray expenses
associated with relocation to the Dallas, Texas area.
(11) Represents the fair market value on the date of grant 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.
(12) Represents payments made to defray expenses associated with relocation to
the Dallas, Texas area.
(13) Annual compensation for 1997, represents compensation for the period from
May 1, 1997, when Ms. Williams became Senior Vice President and General
Counsel of the Company, through December 31, 1997.
(14) Annual compensation for 1998 represents compensation for the period from
August 19, 1998 when Ms. Bace became Senior Vice President of Marketing
through December 31, 1998. On December 16, 1998, Ms. Bace was elected to
the position of Executive Vice President -- Sales and Marketing.
OPTION GRANTS IN 1998
The following table sets forth further information on grants of options to
purchase the Company's Common Stock during the year ended December 31, 1998, to
the Named Officers. This information is also reflected in the table entitled
"Summary Compensation Table" on page 9.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SECURITIES OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO OPTION GRANT DATE
GRANTED EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME (SHARES)(1) IN 1998 PRICE DATE VALUE(2)
---- ----------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
John P. Frazee, Jr................... 100,000 2.0% $12.9375 01/29/08 $ 730,000
Mark A. Knickrehm.................... 300,000 5.9% $12.9375 02/04/08 $2,192,100
Edward W. Mullinix, Jr............... 50,000 1.0% $12.9375 01/29/08 $ 365,000
William G. Scott..................... 20,000 * $12.9375 01/29/08 $ 146,000
Ruth Williams........................ 20,000 * $12.9375 01/29/08 $ 146,000
Lynn A. Bace......................... 250,000 4.9% $ 9.5625 08/19/08 $1,372,000
</TABLE>
- ---------------
* Less than 1%.
(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 65% 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. All options vest in five equal annual installments beginning on
the date of grant.
(2) Based on the Black-Scholes pricing model. The estimated values under that
model are based on standard assumptions as to variables in the model such as
stock price volatility, projected future dividend yield and interest rates.
In addition, estimated value is discounted for potential forfeiture due to
vesting schedules. The discount rate is consistent with PageNet's employment
turnover experience over time. The estimated
10
<PAGE> 14
Black-Scholes values above are based on a range of values for the key
variable. The range reflects different values in effect on the grant date of
the option: volatility -- ranged from .559 to .583; dividend yield -- 0%;
turnover -- 8% per year; risk-free interest rate -- yield to maturity of
10-year treasury note at grant date (rates ranged from 5.41% to 5.56%). 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 1998 AND 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 year ended
December 31, 1998, and prior years under the 1991 Stock Option Plan to the Named
Officers and held by them at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John P. Frazee, Jr.......... 0 0 476,000 269,000 0 0
Mark A. Knickrehm........... 0 0 120,000 180,000 0 0
Edward W. Mullinix, Jr...... 0 0 120,000 180,000 0 0
William G. Scott............ 0 0 71,642 61,822 0 0
Ruth Williams............... 0 0 58,000 87,000 0 0
Lynn A. Bace................ 0 0 50,000 200,000 0 0
</TABLE>
- ---------------
(1) Based on the difference between the exercise price of each option and $4.68
the last reported sales price of the Company's Common Stock on the Nasdaq
Stock Market on December 31, 1998, the last trading date in 1998.
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 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. Mr. Frazee
is paid a base salary of $675,000 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. The Employment Agreement provides for a
minimum of 40% of the bonus amounts paid to Mr. Frazee be paid in shares of
PageNet Common Stock. The Board of Directors permitted Mr. Frazee to receive the
bonus amounts paid for 1997 and 1998 in cash, with the understanding that Mr.
Frazee would in turn use 40% or more of the bonus amounts to purchase PageNet
Common Stock in the public market. In 1997, Mr. Frazee purchased shares in
excess of this requirement. 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 vested on each of the effective date of the Employment Agreement
and the first anniversary of the effective date of the Employment Agreement. The
remaining one-third of these options will vest on the second anniversary of the
effective date of the Employment Agreement. Mr. Frazee was also granted a stock
award of 11,510 shares of Common Stock under the Company's 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 11.
11
<PAGE> 15
CHANGE OF CONTROL SEVERANCE PLAN
On January 20, 1999, the Board of Directors approved the creation of a
severance plan (the "Severance Plan") which would provide certain benefits to
substantially all PageNet employees in the event of a "change of control" of the
Company. "Change of control" is defined in the Severance Plan as any merger,
sale or other transaction which results in 35% or more of PageNet's Common Stock
being held by an outsider, or any change in the composition of a majority of the
Board of Directors. This definition is consistent with the change of control
provisions that trigger accelerated vesting under the Company's 1991 Employee
Stock Option Plan. The Severance Plan provides for severance amounts ranging
from 50% to 200% of an employee's annual salary and bonus compensation,
depending upon such employee's position in the Company, to be paid in a lump sum
if the employee suffers an involuntary or deemed termination within the 12 month
period following a change of control.
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, 1993 and ended December 31, 1998. The comparison assumes $100 was
invested on December 31, 1993 in the Company's Common Stock and in each of the
indices and assumes reinvestment of dividends.
[CORPORATE PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Company Index $ 100.0 $ 111.4 $ 159.8 $ 100.0 $ 70.4 $ 30.7
Market Index (Nasdaq) $ 100.0 $ 96.8 $ 135.4 $ 166.1 $ 202.1 $ 282.2
Peer Index (Nasdaq Telecom) $ 100.0 $ 83.9 $ 112.6 $ 116.7 $ 165.7 $ 270.7
</TABLE>
12
<PAGE> 16
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 Securities and Exchange Commission (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 1998. During 1998, to the knowledge of the Company, all of
these filing requirements were satisfied, with the exception of late filings of
Form 3 Initial Statements of Beneficial Ownership of Securities for the
following officers: Mark A. Knickrehm, Timothy Paine and Douglas A. Ritter.
Subsequent Form 4 filings for these individuals have been timely. 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 1999. 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 2000
Annual Meeting of Shareowners of the Company must be received by the Company not
later than December 8, 1999, 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.
13
<PAGE> 17
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 12, 1999
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING FINANCIAL
STATEMENTS AND SCHEDULES) WILL BE SENT WITHOUT CHARGE TO ANY SHAREOWNER
REQUESTING IT IN WRITING FROM: PAGING NETWORK, INC., ATTN: INVESTOR RELATIONS,
14911 QUORUM DRIVE, DALLAS, TEXAS 75240.
The Company's annual report may also be viewed on the Internet by accessing
the Company's home page at http://www.pagenet.com.
14
<PAGE> 18
1076PS99
<PAGE> 19
DETACH HERE
- -------------------------------------------------------------------------------
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
PAGING NETWORK, INC.
FOR THE 1999 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 1999 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 Wednesday, May 19, 1999, 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
<PAGE> 20
DETACH HERE
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PLEASE MARK
VOTES AS
[X] IN THIS EXAMPLE.
SAID PROXIES WILL VOTE THIS PROXY AS DIRECTED, OR IF NO DIRECTION IS INDICATED, FOR THE NAMED NOMINEES
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 2.
1. Election of three Class II Directors. 2. In their discretion to transact such other
business as may properly come before the
NOMINEES: Jeffrey M. Cunningham, Robert J. Miller meeting.
and Carl D. Thoma
FOR WITHHELD
[ ] [ ]
[ ]
------------------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE BE SURE YOUR SHARES ARE REPRESENTED AT THE
MEETING BY PROMPTLY RETURNING YOUR PROXY IN THE
ENCLOSED ENVELOPE.
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>
