<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))
Arch Communications Group, 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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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
ARCH COMMUNICATIONS GROUP, INC.
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of Arch
Communications Group, Inc., a Delaware corporation (the "Company"), will be held
on Tuesday, May 20, 1997, at 11:00 a.m. (local time) at Hale and Dorr LLP, 26th
Floor, 60 State Street, Boston, Massachusetts 02109 (the "Meeting"), for the
purpose of considering and voting upon the following matters:
1. To elect two directors of the Company.
2. To approve the Company's 1997 Stock Option Plan, as described in the
Proxy Statement.
3. To ratify the selection by the Board of Directors of Arthur Andersen
LLP as the independent public accountants for the Company for the
fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the
Meeting.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting or at any adjournments thereof.
The Board of Directors has fixed the close of business on Monday, March 24,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Meeting and at any adjournments thereof. The list of the
Company's stockholders entitled to vote at the Meeting will be available for
examination by any stockholder, for any purpose germane to the Meeting, during
ordinary business hours for ten days prior to the Meeting at the principal
executive offices of the Company, 1800 West Park Drive, Suite 250, Westborough,
Massachusetts 01581, and at the place of the Meeting.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1996, which contains consolidated financial statements and other
information of interest to stockholders, accompanies this Notice of Meeting and
the enclosed Proxy Statement.
By order of the Board of Directors,
GARRY B. WATZKE, Secretary
April 17, 1997
Westborough, Massachusetts
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED
STATES.
<PAGE> 3
ARCH COMMUNICATIONS GROUP, INC.
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Arch Communications Group, Inc. (the
"Company") for use at the 1997 Annual Meeting of Stockholders to be held on
Tuesday, May 20, 1997, at 11:00 a.m. (local time) at Hale and Dorr LLP, 26th
Floor, 60 State Street, Boston, Massachusetts 02109, and at any adjournments
thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation to the Secretary of the Company. Attendance at the Meeting
will not itself be deemed to revoke a Proxy unless the stockholder gives
affirmative notice at the Meeting that the stockholder intends to revoke the
Proxy and vote in person.
On March 24, 1997, the record date for determination of stockholders
entitled to notice of and to vote at the Meeting, there were issued and
outstanding and entitled to vote 20,713,045 shares of Common Stock, $.01 par
value per share ("Common Stock"). Each share entitles the record holder to one
vote on each matter.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996 ARE
BEING MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 17, 1997. THE COMPANY WILL, UPON
WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS. PLEASE ADDRESS ALL SUCH
REQUESTS TO THE COMPANY, 1800 WEST PARK DRIVE, SUITE 250, WESTBOROUGH,
MASSACHUSETTS 01581, ATTENTION: INVESTOR RELATIONS. EXHIBITS WILL BE PROVIDED
UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock as of March 24, 1997 by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each current director of the Company, (iii) the
Company's Chief Executive Officer and the other executive officers listed in the
Summary Compensation Table below and (iv) all current directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES(1) PERCENTAGE
---- --------- ----------
<S> <C> <C>
Memorial Drive Trust(2)........................ 1,947,990 9.4%
J. & W. Seligman & Co. Incorporated(3)......... 1,810,932 8.7
FMR Corp.(4)................................... 1,505,696 7.3
Travelers Group Inc.(5)........................ 1,084,557 5.2
C. Edward Baker, Jr............................ 265,743 1.3
John B. Saynor................................. 183,215 0.9
William A. Wilson(6)........................... 24,453 *
Paul H. Kuzia.................................. 45,204 *
R. Schorr Berman(7)............................ 1,956,890 9.4
James S. Hughes................................ 76,587 *
John A. Shane(8)............................... 26,834 *
All current directors and executive officers
as a group (7 persons)(9).................... 2,578,926 12.3%
</TABLE>
- - ---------------
* Less than 0.5%
(1) Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.
(2) The business address of Memorial Drive Trust is 125 CambridgePark Drive,
Cambridge, Massachusetts 02140. All shares listed in the above table as held
by Memorial Drive Trust are held by MD Co. as nominee for Memorial Drive
Trust, a trust holding assets of a qualified profit sharing plan for
employees of Arthur D. Little, Inc., over which Mr. Berman may be deemed to
share voting and investment power. See footnote (7).
(3) The business address of J. & W. Seligman & Co. Incorporated is 100 Park
Avenue, New York, New York 10017. J. & W. Seligman & Co. Incorporated has
sole voting power with respect to 1,564,025 of such shares and sole
investment power with respect to all 1,810,932 shares. This information is
based on the Amendment No. 2 to Schedule 13G filed by J. & W. Seligman & Co.
Incorporated with the Securities and Exchange Commission on February 12,
1997.
(4) The business address of FMR Corp. is 82 Devonshire Street, Boston,
Massachusetts 02109. FMR Corp. has sole voting power with respect to 163,616
of such shares and sole investment power with respect to all 1,505,696
shares.
(5) The business address of Travelers Group Inc. is 338 Greenwich Street, New
York, New York 10013. Travelers Group Inc. has shared voting and investment
power with respect to all 1,084,557 shares. This information is based on the
Schedule 13G filed by Travelers Group Inc. with the Securities and Exchange
Commission on February 6, 1997.
(6) Includes 3,540 shares owned by or jointly with Mr. Wilson's spouse and
children; Mr. Wilson disclaims beneficial ownership of such shares.
2
<PAGE> 5
(7) Includes 1,947,990 shares held by Memorial Drive Trust, over which Mr.
Berman may be deemed to share voting and investment power as Administrator
and Chief Executive Officer of Memorial Drive Trust. Mr. Berman disclaims
beneficial ownership of such shares held by Memorial Drive Trust.
(8) Includes 1,051 shares owned by Palmer Service Corporation, over which Mr.
Shane may be deemed to have voting and investment power as president and
sole stockholder of Palmer Service Corporation.
(9) Includes (i) 1,947,990 shares held by Memorial Drive Trust, (ii) 1,051
shares held by Palmer Service Corporation and (iii) 246,459, 44,800, 6,000,
6,000, 6,000 and 309,259 shares issuable upon the exercise of outstanding
stock options held by Messrs. Baker, Kuzia, Berman, Hughes, Shane and all
current directors and executive officers as a group, respectively,
exercisable within 60 days after March 24, 1997.
VOTES REQUIRED
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented at the Meeting) will be
counted for purposes of determining whether a quorum exists at the Meeting.
The affirmative vote of the holders of a plurality of the shares voting on
the matter is required for the election of directors (Proposal 1). The
affirmative vote of the holders of a majority of the shares present or
represented by proxy and entitled to vote is required for the approval of the
Company's 1997 Stock Option Plan (Proposal 2). The affirmative vote of the
holders of a majority of the shares present or represented by proxy and voting
on the matter is required for the ratification of Arthur Andersen LLP as the
Company's independent public accountants for the year ending December 31, 1997
(Proposal 3).
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter ("broker non-votes"), will not be counted as shares voted in favor of
such matter and will not be counted as shares voting on such matter.
Accordingly, abstentions and "broker non-votes" will have no effect on the
voting on a matter that requires the affirmative vote of a certain percentage of
the shares voting on a matter.
However, abstentions will be treated as shares that are present, or
represented, and entitled to vote for purposes of determining the number of
shares that are present and entitled to vote with respect to any particular
matter, but will not be counted as shares voted in favor of such matter.
Accordingly, an abstention with respect to a matter requiring the vote of a
certain percentage of the shares present, or represented, and entitled to vote
has the same effect as a vote "against" the matter. Broker non-votes will not be
considered as present and entitled to vote with respect to such a matter and
will thus have no effect on the voting on such a matter.
ACQUISITION OF USA MOBILE
On September 7, 1995, Arch Communications Group, Inc., a Delaware
corporation ("Old Arch"), completed its acquisition of USA Mobile Communications
Holdings, Inc., a Delaware corporation ("USA Mobile"), through the merger (the
"Merger") of Old Arch with and into USA Mobile, which simultaneously changed its
name to Arch Communications Group, Inc. In accordance with generally accepted
accounting principles, Old Arch was treated as the acquirer in the Merger for
accounting and financial reporting purposes, and the Company reports the
historical financial statements of Old Arch as the historical financial
statements of the Company. As used herein, unless the context otherwise
requires, the terms "Arch" or the "Company" refer to Arch Communications Group,
Inc. from and after the Merger and Old Arch prior to the Merger, in
3
<PAGE> 6
each case together with its wholly-owned direct and indirect subsidiaries, and
the term "USA Mobile" refers to USA Mobile Communications Holdings, Inc. prior
to the Merger together with its wholly-owned direct and indirect subsidiaries.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes. The term of
each class of directors is three years and the terms of the three classes are
staggered in such a manner that only one class is elected each year. At each
annual meeting of stockholders, directors are elected for a term of three years
to succeed those whose terms are expiring. This year's nominees are to be
elected to serve until the sooner of the 2000 annual meeting of stockholders or
until their respective successors are elected and qualified.
The persons named in the enclosed proxy will vote to elect as directors
John B. Saynor and John A. Shane, the nominees named below, unless the proxy is
marked otherwise. Messrs. Saynor and Shane are currently directors of the
Company. Messrs. Saynor and Shane have indicated their willingness to serve if
elected; however, if Messrs. Saynor and/or Shane should be unable to serve, the
proxies may be voted for substitute nominees selected by the Board of Directors
or for a reduction in the number of directors, as determined by the Board of
Directors.
Set forth below are the names of the current directors of the Company and
the nominees for election at the Meeting, their ages, the year in which each
first became a director of the Company, their principal occupations and
employment during the past five years and the names of other public companies of
which they are a director as of March 24, 1997. Also set forth below are the
names of the other current executive officers of the Company, their ages and
their principal occupations and employment during the past five years.
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
PRINCIPAL OCCUPATIONS AND
NAME AND PERIOD OF EMPLOYMENT OVER PAST FIVE
SERVICE AS A DIRECTOR AGE YEARS, AND DIRECTORSHIPS
--------------------- ---- -------------------------
<S> <C> <C>
NOMINEES FOR TERMS EXPIRING IN 2000
John B. Saynor............................ 56 Executive Vice President of the Company;
Director since 1986 President and Chief Executive Officer of
the Company from 1986 to March 1988;
Chairman of the Board of the Company from
1986 until May 1989.
John A. Shane(1)(2)....................... 64 President of Palmer Service Corporation
Director since 1988 and a general partner of The Palmer
Organization, a venture capital firm,
since 1972; General Partner of Palmer
Partners L.P. since 1981; Trustee of New
England Funds and director of the
following public companies and registered
investment companies: Eastern Bank, Gensym
Corporation, Overland Data, Inc., Summa
Four, Inc. and United Asset Management
Corporation.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
PRINCIPAL OCCUPATIONS AND
NAME AND PERIOD OF EMPLOYMENT OVER PAST FIVE
SERVICE AS A DIRECTOR AGE YEARS, AND DIRECTORSHIPS
--------------------- ---- -------------------------
<S> <C> <C>
DIRECTOR WHOSE TERM EXPIRES IN 1999
James S. Hughes(1)........................ 54 President and Chief Executive Officer of
Director since 1986 Norwich Corporation, a real estate
investment and service firm, since 1987;
since 1992, President and Managing
Director of Inventa Corporation, an
international business development firm.
DIRECTORS WHOSE TERMS EXPIRE IN 1998
C. Edward Baker, Jr....................... 46 President and Chief Executive Officer of
Director since 1988 the Company since 1988 and Chairman of the
Board since May 1989; from 1986 until
1988, President and Chief Executive
Officer of US West Paging; prior to 1986,
Vice President and Regional General Manager
for Gencom, the paging subsidiary of
Communications Industries Inc.
R. Schorr Berman(1)(2).................... 48 President and Chief Executive Officer of
Director since 1986 MDT Advisers, Inc., an investment adviser,
since 1987; director of Helix Technology
Corporation as well as a number of private
companies.
OTHER EXECUTIVE OFFICERS OF THE COMPANY
William A. Wilson......................... 51 Executive Vice President/Finance of the
Company since June 1996 and Chief
Financial Officer since October 1989; Vice
President/Finance from February 1989 to
June 1996; Treasurer from February 1989 to
December 1994; director of PSINet Inc.;
certified public accountant.
Paul H. Kuzia............................. 54 Executive Vice President/Technology and
Regulatory Affairs of the Company since
September 1996; Vice President/Engineering
and Regulatory Affairs from 1988 to
September 1996; prior to 1988, director of
operations at Message Center Inc.;
formerly Senior Vice President for
Business Development with Gencom.
</TABLE>
- - ---------------
(1) Member of the Audit Committee.
(2) Member of the Executive Compensation and Stock Option Committee.
For information regarding beneficial ownership of the Company's Common
Stock by each current director, see "Stock Ownership of Certain Beneficial
Owners and Management".
5
<PAGE> 8
BOARD AND COMMITTEE MEETINGS
During the year ended December 31, 1996, the Board of Directors held eleven
meetings, including regular, special and telephonic meetings. Each current
director attended at least 75% of the meetings of the Board held during 1996.
In order to facilitate the various functions of the Board of Directors, the
Board has created an Audit Committee and an Executive Compensation and Stock
Option Committee (the "Compensation Committee"). There is no standing nominating
committee of the Board.
Messrs. Shane (Chairman), Berman and Hughes currently serve on the Audit
Committee. The Audit Committee reviews the annual financial statements of the
Company prior to their submission to the Board of Directors and consults with
the Company's independent public accountants to review financial results,
internal financial controls and procedures, audit plans and recommendations. The
Audit Committee also recommends the selection, retention or termination of
independent public accountants and approves services provided by independent
public accountants prior to the provision of such services. The Audit Committee
held three meetings during the year ended December 31, 1996; Messrs. Hughes and
Shane attended all three meetings and Mr. Berman attended two of the three
meetings. The Audit Committee has recommended that Arthur Andersen LLP be
selected as the independent public accountants for the Company for the year
ending December 31, 1997. See "Proposal 3 -- Ratification of Selection of
Independent Public Accountants".
Messrs. Berman (Chairman) and Shane currently serve on the Compensation
Committee. The Compensation Committee recommends to the Board the compensation
of executive officers, key managers and directors and administers the Company's
stock plans. The Compensation Committee held four meetings during the year ended
December 31, 1996, and each current member of the Compensation Committee
attended at least 75% of the meetings of the Compensation Committee held during
1996 while he was a member.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the Common Stock of the Company. The Company believes
that during the year ended December 31, 1996 all officers, directors and holders
of more than 10% of the Company's Common Stock complied with all Section 16(a)
filing requirements, except that C. Edward Baker, Jr. filed a Form 5 on February
14, 1997 to report the exercise of an option for 12,000 shares at $3.125 per
share on May 8, 1996.
DIRECTOR COMPENSATION
FEES AND EXPENSES
The Company pays its non-employee ("outside") directors an annual fee of
$5,000, an additional annual fee of $1,000 for serving as Chairs of Board
Committees, $2,000 for each meeting of the Board of Directors attended and $750
for each Board Committee meeting attended. The Company also reimburses all
directors for customary and reasonable expenses incurred in attending Board and
Board Committee meetings.
OUTSIDE DIRECTORS' STOCK OPTION PLANS
Non-Employee Directors' Stock Option Plan. A total of 80,200 shares of
Common Stock may be issued upon the exercise of options granted under the
Company's Non-Employee Directors' Stock Option Plan (the "Outside Directors'
Option Plan"). Only directors of the Company who are not employees of the
Company are eligible to receive options under the Outside Directors' Option
Plan. Options granted under the Outside
6
<PAGE> 9
Directors' Option Plan are not intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Under the Outside Directors' Option Plan, outside directors receive annual
grants (on the first business day following December 23 of each year) of options
to purchase 3,000 shares of Common Stock. In addition, newly elected or
appointed outside directors receive options to purchase 3,000 shares of Common
Stock as of the date of their initial appointment or election. All options have
an exercise price equal to the fair market value of the Common Stock on the date
of grant.
Each option under the Outside Directors' Option Plan becomes exercisable
with respect to 25% of the shares subject to the option on the date of grant and
an additional 25% of the shares subject to the option on each of the first three
anniversaries of the date of grant. In general, an optionee may exercise his or
her option, to the extent vested, only while he or she is a director of the
Company and for 90 days after he or she ceases to be a director of the Company
(one year if due to death or permanent and total disability). In addition,
options expire immediately if service as a director is terminated for "cause".
Unexercised options expire ten years after the date of grant. Options are not
transferable or assignable other than upon the death of the optionee or pursuant
to a qualified domestic relations order (as defined in the Code).
An optionee's options become fully exercisable and vested upon his or her
death and all options become fully exercisable and vested in the event of a
"change in control" of the Company (as defined in the Outside Directors' Stock
Option Plan). Pursuant to the terms of the Outside Directors' Stock Option Plan,
all options outstanding on May 16, 1995, covering a total of 7,218 shares of
Common Stock exercisable at $12.47 per share and none of which was held by the
Company's current directors, became fully exercisable and vested as a result of
the Company's purchase of approximately 37% of USA Mobile's then outstanding
capital stock in the first step of the Company's acquisition of USA Mobile.
Under the Outside Directors' Stock Option Plan, Messrs. Berman, Hughes and
Shane have each received (i) an option to purchase 3,000 shares of Common Stock
at an exercise price of $27.56 per share upon the completion of the Company's
acquisition of USA Mobile on September 7, 1995, (ii) an option to purchase 3,000
shares of Common Stock at an exercise price of $23.50 per share on December 26,
1995 and (iii) an option to purchase 3,000 shares of Common Stock at an exercise
price of $7.875 per share on December 24, 1996. As of March 24, 1997, options to
purchase an aggregate of 27,000 shares of Common Stock were outstanding and no
options had been exercised under the Outside Directors' Stock Option Plan.
1995 Outside Directors' Stock Option Plan. Under the Company's 1995
Outside Directors' Stock Option Plan (the "1995 Directors' Plan"), Messrs.
Berman, Hughes and Shane each received an option to purchase 5,000 shares of
Common Stock at an exercise price equal to the fair market value of the Common
Stock on such date ($18.50 per share). Each option under the 1995 Directors'
Plan becomes exercisable at the rate of 20% of the shares subject to the option
on the first anniversary of the date of grant and 5% of the shares subject to
the option per calendar quarter thereafter. In the event of a "change in
control" of the Company (as defined therein), all outstanding options will
become fully exercisable and vested. In general, an optionee may exercise his
option, to the extent vested, only while he is a director of the Company and for
one year after he ceases to be a director of the Company. Unexercised options
expire ten years after the date of grant. Options are not transferable or
assignable other than upon the death of the optionee or pursuant to a qualified
domestic relations order (as defined in the Code). The 1995 Directors' Plan was
terminated on September 7, 1995, but outstanding options continue to vest on the
same terms as in effect prior thereto. As of March 24, 1997, no options had been
exercised under the 1995 Directors' Plan.
7
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
annual and long-term compensation of the Company's Chief Executive Officer and
other executive officers (the "Named Executive Officers") for the years ended
December 31, 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------------------------- COMPENSATION
OTHER ANNUAL ---------------
NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS(3)
PRINCIPAL POSITION YEAR $ ($)(1) ($)(2) (#)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
C. Edward Baker, Jr.............. 1996 $329,050 $ 36,833 $600 268,860(4)
Chairman, President and Chief 1995 281,650 106,000 600 40,000(5)
Executive Officer 1994 254,150 91,875 600 12,500(5)
William A. Wilson................ 1996 203,133 19,833 600 170,000(6)
Executive Vice 1995 157,300 58,000 600 20,000(5)
President/Finance and Chief 1994 142,300 52,650 600 --
Financial Officer
John B. Saynor................... 1996 146,867 15,300 600 20,000
Executive Vice President 1995 131,870 50,000 600 20,000(5)
1994 116,047 44,850 600 --
Paul H. Kuzia.................... 1996 133,800 14,620 600 8,000
Executive Vice 1995 123,300 46,000 600 8,000(5)
President/Technology and 1994 113,800 41,730 600 --
Regulatory Affairs
</TABLE>
- - ---------------
(1) Represents bonus paid in such year with respect to prior period.
(2) Represents the Company's matching contributions paid under the Company's
401(k) plan.
(3) No restricted stock awards or stock appreciation rights (SARs) were granted
to any of the Named Executive Officers during the years ended December 31,
1994, 1995 or 1996.
(4) Includes options to purchase 106,860 shares forfeited in connection with
option repricing program. See "Repricing of Options".
(5) Option forfeited in connection with option repricing program. See "Repricing
of Options".
(6) Includes options to purchase 75,000 shares forfeited in connection with
option repricing program. See "Repricing of Options".
8
<PAGE> 11
STOCK OPTION GRANTS
The following table summarizes certain information regarding options
granted to the Named Executive Officers during the year ended December 31, 1996.
No SARs were granted during the year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
----------------------------------------------------------- STOCK PRICE
PERCENT APPRECIATION
OF TOTAL FOR OPTIONS
OPTIONS/SARS EXERCISE TERM(3)
OPTIONS/SARS GRANTED TO OR BASE ------------------------
GRANTED EMPLOYEE IN PRICE EXPIRATION 5% 10%
(#)(1) FISCAL YEAR ($/SHARE)(2) DATE ($) ($)
------------ ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr.... 12,000(4) 1.7% $ 23.75 1/30/06 $ 140,142 $ 391,967
150,000(5) 21.9 20.625 6/18/06 1,945,643 4,930,641
12,000 1.7 12.50 10/23/06 94,334 239,061
40,000 5.8 12.50 10/23/06 314,447 796,871
54,860 8.0 12.50 10/23/06 431,264 1,092,909
William A. Wilson...... 75,000(4) 10.9 20.625 6/18/06 972,821 2,465,320
75,000 10.9 12.50 10/23/06 589,589 1,494,134
20,000 2.9 12.50 10/23/06 157,224 398,436
John B. Saynor......... 20,000 2.9 12.50 10/23/06 157,224 398,436
Paul H. Kuzia.......... 8,000 1.2 12.50 10/23/06 62,889 159,374
</TABLE>
- - ---------------
(1) Options generally become exercisable at a rate of 20% of the shares subject
to the option on the first anniversary of the date of grant and 5% of the
shares subject to the option per calendar quarter thereafter.
(2) The exercise price is equal to the fair market value of the Common Stock on
the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for the options
if exercised at the end of the option terms. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from
the date the respective options were granted and are not intended to
forecast future appreciation of the price of the Common Stock. The Named
Executive Officers will realize no gain upon the exercise of these options
without an increase in the price of the Common Stock, which increase will
benefit all Company stockholders proportionately.
(4) Option replaced as part of option repricing program. See "Repricing of
Options".
(5) Option replaced with respect to 54,860 shares as part of option repricing
program. See "Repricing of Options".
9
<PAGE> 12
OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table sets forth certain information regarding the exercise
of stock options during the year ended December 31, 1996 and stock options held
as of December 31, 1996 by the Named Executive Officers.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)(2)
(#) ($)(1) (#) ($)
----------- -------- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr............ 12,000 $219,000 245,834 208,250 $862,384 --
William A. Wilson.............. 36,260 500,431 -- 95,000 -- --
John B. Saynor................. -- -- -- 20,000 -- --
Paul H. Kuzia.................. -- -- 44,800 8,000 111,056 --
</TABLE>
- - ---------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise.
(2) Based on the fair market value of the Common Stock on December 31, 1996
($9.375 per share) less the option exercise price.
ACCELERATION OF CERTAIN STOCK OPTIONS
The Company's 1989 Stock Option Plan, as amended (the "1989 Option Plan"),
provides that all options granted thereunder become fully exercisable and vested
upon the occurrence of any of the following events: (i) the acquisition by any
person of 20% or more of the Company's Common Stock if, within 24 months
thereafter, a majority of the persons elected to the Company's Board of
Directors is not approved by vote of two-thirds of the directors in office at
the time of the acquisition; (ii) a merger, consolidation or sale of all or
substantially all of the Company's assets; or (iii) the adoption of a proposal
to liquidate or dissolve the Company. As a result of the completion of the
Company's acquisition of USA Mobile, all options outstanding as of September 7,
1995 under the 1989 Option Plan, covering a total of 156,259 shares of Common
Stock, became fully exercisable and vested, including options to purchase
39,889, 19,200 and 4,480 shares of Common Stock, respectively, then held by
Messrs. Baker, Wilson and Kuzia.
The Company's Stock Option Plan originally adopted in 1994 and amended and
restated on January 26, 1995 (the "1994 Option Plan") provides that all options
granted thereunder become fully exercisable and vested in the event of a "change
in control" of the Company (as defined therein). Pursuant to the terms of the
1994 Option Plan, all options outstanding on May 16, 1995, covering a total of
563,806 shares of Common Stock, became fully exercisable and vested as a result
of the Company's purchase of approximately 37% of USA Mobile's then outstanding
capital stock in the first step of Arch's acquisition of USA Mobile.
10
<PAGE> 13
REPRICING OF OPTIONS
The following table sets forth certain information concerning the repricing
of stock options held by the Named Executive Officers during the year ended
December 31, 1996:
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
MARKET LENGTH OF
NUMBER OF PRICE OF ORIGINAL
SECURITIES STOCK AT EXERCISE OPTION TERM
UNDERLYING TIME OF PRICE AT REMAINING AT
OPTIONS REPRICING TIME OF NEW DATE OF
REPRICED OR OR REPRICING OR EXERCISE REPRICING OR
AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
NAME DATE (#) ($) ($) ($) (IN MONTHS)
---- -------- ----------- --------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr.............. 10/23/96 40,000 $12.50 $23.75 $12.50 110
Chief Executive Officer 10/23/96 12,000 $12.50 $23.75 $12.50 111
10/23/96 54,860 $12.50 $20.625 $12.50 116
William A. Wilson................ 10/23/96 20,000 $12.50 $23.75 $12.50 110
Executive Vice
President/Finance 10/23/96 75,000 $12.50 $20.625 $12.50 116
and Chief Financial Officer
John B. Saynor................... 10/23/96 20,000 $12.50 $23.75 $12.50 110
Executive Vice President
Paul H. Kuzia.................... 10/23/96 8,000 $12.50 $23.75 $12.50 110
Executive Vice President/
Technology and Regulatory Affairs
</TABLE>
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
The Compensation Committee believes stock options provide important
incentives for officers and other employees to remain with, and to continue to
make significant contributions to, the Company. The Compensation Committee also
believes that stock options should be granted with exercise prices equal to the
fair market value of the Company's Common Stock on the date of grant, and that
option exercise prices ordinarily should not be reduced simply because the
market price of the Company's Common Stock declines. However, the Compensation
Committee recognizes that under appropriate circumstances it may be necessary to
reprice stock options in order to restore the performance incentives intended to
be provided by options.
Effective October 23, 1996, the Compensation Committee approved the
repricing of certain outstanding stock options, including certain options held
by the Named Executive Officers. See "Repricing of Options". Because of a
decline in the market price of the Company's Common Stock, many outstanding
options were exercisable at prices that exceeded the market price of the Common
Stock, thereby substantially impairing the effectiveness of such options as
performance incentives. The Compensation Committee believed that the decline in
the market price of the Company's Common Stock was largely attributable to
reductions in valuations throughout the paging sector by the financial markets,
rather than the Company's own performance, and took into account the fact that
the decline had persisted for an extended period of time. In view of this price
decline, and consistent with the Company's philosophy of utilizing equity
incentives to motivate and retain management and employees, the Compensation
Committee felt that it was important to restore the performance incentives
intended to be provided by options through the repricing of options with
exercise prices in excess of the market price at the time of repricing. At the
same time, the Compensation Committee considered it appropriate, as part of the
repricing, to require that a portion of each repriced option be subjected
11
<PAGE> 14
to additional vesting requirements so that the holders would not be entirely
insulated from the impact of the declining market price.
Pursuant to the repricing program, substantially all outstanding options
(other than options to purchase 120,140 shares held by Mr. Baker and other than
options under the Company's outside directors' option plans) with exercise
prices in excess of $12.50 per share ("Existing Options") were replaced with
options exercisable at $12.50 per share ("New Options"). Mr. Baker's options to
purchase 107,640 shares with exercise prices in excess of $12.50 per share were
not repriced during 1996 because of certain annual limitations contained in the
Company's 1989 Option Plan, and Mr. Baker elected not to have an additional
option for 12,500 shares repriced. The exercise price of the New Options was
equal to the market price of the Common Stock on October 23, 1996, the effective
date of the repricing. Existing Options granted prior to October 1, 1995 were
already fully vested; as a condition to repricing, 50% of each such Existing
Option was subjected to quarterly vesting over a five-year period commencing
October 23, 1996. Existing Options granted on or after October 1, 1995 would
have vested 20% on the first anniversary of the date of grant and 5% quarterly
thereafter; as a condition to repricing, the vesting of such Existing Options
was extended so that the first 20% would not vest until October 23, 1997 and the
remainder would vest 5% quarterly thereafter. Other than these changes to the
vesting provisions, the terms of the New Options are the same as the terms of
the Existing Options they replaced. A total of 55 option holders, holding
Existing Options to purchase an aggregate of 424,206 shares of Common Stock with
exercise prices ranging from $14.30 to $25.00 per share, were granted New
Options on the terms described above.
THE EXECUTIVE COMPENSATION AND
STOCK OPTION COMMITTEE
R. Schorr Berman, Chairman
John A. Shane
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are R. Schorr
Berman and John A. Shane. Mr. Berman served on the Compensation Committee
throughout 1996. Mr. Shane rejoined the Compensation Committee on May 28, 1996,
having previously served from January 1992 until September 1995. James S. Hughes
served on the Compensation Committee until May 28, 1996. Janice B. Fuellhart,
the former Chairman and Chief Executive Office of USA Mobile, served on the
Company's Compensation Committee from the date of the Company's acquisition of
USA Mobile (September 7, 1995) until her resignation as a director of the
Company effective March 21, 1996.
C. Edward Baker, Jr., the President and Chief Executive Director of the
Company, makes recommendations and participates in discussions regarding
executive compensation, but he does not participate directly in discussions
regarding his own compensation. No current executive officer of the Company has
served as a director or member of the Compensation Committee (or other committee
serving an equivalent function) of any other entity, any of whose executive
officers has served as a director of the Company or as a member of the
Compensation Committee of the Company.
During 1996, the Company paid an entity principally owned by James S.
Hughes, a director of the Company, consulting fees of approximately $72,000 to
study the potential market for wireless messaging services in Latin America. The
Company has formed an offshore corporation to pursue wireless messaging
opportunities in Latin America. The Company and an entity owned by Mr. Hughes
each contributed $125,000 to this offshore corporation and each owns a one-third
interest in it.
12
<PAGE> 15
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee recommends to the Board the compensation of
executive officers, key managers and directors and administers the Company's
stock plans. The Compensation Committee currently consists of two non-employee
directors: R. Schorr Berman and John A. Shane.
The Company's executive compensation program is intended to promote the
achievement of the Company's business goals and, thereby, to maximize corporate
performance and stockholder returns. Compensation consists of a mixture of base
salary, performance bonuses and stock-based incentives. The Compensation
Committee believes it is important to have bonuses constitute a portion of each
person's compensation package in order to tie an individual's compensation level
to individual and corporate performance, and believes it is important to have
stock incentives constitute a portion of each person's compensation package in
order to help align the interests of executives and stockholders.
In determining levels of compensation, the Compensation Committee considers
a number of factors such as: (i) competitive positioning, including compensation
of executives and managers at comparable companies; (ii) present compensation
levels; (iii) individual performance, including expected future contributions to
the Company; and (iv) the Company's need to attract, retain and reward key
management personnel. The Committee, in determining Mr. Baker's compensation,
reviewed compensation for chief executives of publicly-held companies of similar
size, particularly those in paging and similar businesses, Mr. Baker's
individual performance against quantitative and qualitative goals, the
performance of the Company and the fact that the Company continued to increase
significantly in size during 1996 as a result of acquisitions and internal
growth.
BASE SALARY
The base salary of each executive officer and key manager is reviewed
annually. In setting base salaries, the Compensation Committee considers the
factors described above. During the year ended December 31, 1996, the
Compensation Committee fixed Mr. Baker's annual base salary at $325,000.
PERFORMANCE BONUSES
The payment of bonuses to executive officers and key managers is directly
related to their achievement of corporate and individual performance goals and
the Company's performance in relation to an industry peer group. The amount of
the bonus paid, if any, varies among the executive officers and managers
depending on their success in achieving individual performance goals, their
contribution to the achievement of corporate performance goals and the Company's
performance compared to its peers.
At the beginning of each year, Mr. Baker proposes base salary and bonus
parameters for the year to the Compensation Committee for consideration and
approval. This proposal incorporates corporate-wide goals as well as goals
jointly established by Mr. Baker and each of the bonus plan participants for
their individual areas of responsibility. For the year ended December 31, 1996,
the Compensation Committee and the Board of Directors approved a target bonus
equal to approximately 30% of the base salaries of all eligible bonus
participants, which included all executive officers and other key managers.
Depending upon each person's performance during the year, actual bonuses may
range from 0% to 40% of base salaries, and depending on the Company's
performance in relation to an industry peer group, actual bonuses may further
range up to a maximum of 70% of base salaries. The individual and corporate
goals included in the budget generally represent objective measures of
performance. These goals include quantifiable financial objectives, such as the
achievement of revenue or operating cash flow targets, and milestones in asset
management, marketing and other areas. The Company's performance in relation to
industry peers is based on quantifiable financial measures and stock price
information.
13
<PAGE> 16
Throughout the year, Mr. Baker meets with each executive officer and key
manager to review his or her progress in achieving these goals. After the end of
the year, Mr. Baker performs a final performance review with the Compensation
Committee and presents proposed bonus award levels to the Compensation Committee
for consideration and approval. The Compensation Committee has approved (or
modified and approved) Mr. Baker's proposals in respect of bonuses for the year
ended December 31, 1996. In recognition of the achievement of his individual
goals and the fact that the Company exceeded its performance goals during 1996,
the Compensation Committee awarded Mr. Baker a bonus of $227,500 in February
1997.
EQUITY-BASED COMPENSATION
Grants of options under the Company's stock option plans are intended to
relate executive compensation to corporate performance and to help align
long-term interests of the Company's executive officers, key managers and
stockholders. The Compensation Committee considers options to be an important
method of providing an incentive for executive officers and key managers to
remain with, and to continue to make significant contributions to, the Company.
Therefore, in granting options the Compensation Committee considers the number
and value of options held by each executive officer or key manager which will
vest in future periods, in addition to the other factors described above. The
Compensation Committee also seeks to maintain equitable relationships among
executive officers and key managers who have similar levels of responsibility.
During the year ended December 31, 1996, options were granted to Mr. Baker
and the other Named Executive Officers. The exercise price of all options
granted to executive officers during the year ended December 31, 1996 was equal
to the fair market value of the Company's Common Stock on the date of grant. See
"Stock Option Grants", "Repricing of Options" and "Compensation Committee Report
on Option Repricing".
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to the
corporation's Chief Executive Officer and four other most highly compensated
executive officers. Qualifying "performance-based" compensation is not subject
to the deduction limit if certain requirements are met.
The Company has limited the number of shares subject to stock options which
may be granted to Company employees under the 1989 Option Plan and its proposed
1997 Option Plan in a manner that complies with the performance-based
requirements of Section 162(m). See "Proposal 2 -- Approval of 1997 Stock Option
Plan". The 1994 Option Plan (which was adopted by USA Mobile prior to its
acquisition by the Company) does not contain the necessary limitations to comply
with the performance-based requirements of Section 162(m). However, based on the
compensation paid and options granted to Mr. Baker and the Company's other
executive officers, the Compensation Committee does not believe that Section
162(m) will have any significant impact on the Company in the near term.
Accordingly, although the Compensation Committee does not currently intend to
qualify bonus payments or option grants under the 1994 Option Plan as
performance-based compensation, the Compensation Committee will continue to
monitor the impact of Section 162(m) on the Company.
THE EXECUTIVE COMPENSATION AND
STOCK OPTION COMMITTEE
R. Schorr Berman, Chairman
John A. Shane
14
<PAGE> 17
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the period from January 17, 1992 (the date on
which the Company's Common Stock was first registered under Section 12 of the
Exchange Act) through the year ended December 31, 1996 with the cumulative total
return on (i) the Nasdaq Stock Market -- U.S. Index, (ii) a peer group index
(the "Old Peer Group Index") comprised of PageAmerica Group, Inc., Paging
Network, Inc. and Pronet Inc. (the "Old Peer Group") and (iii) a peer group
index (the "New Peer Group Index") comprised of Metrocall, Inc., MobileMedia
Corporation, Mobile Telecommunications Technologies Corp., Paging Network, Inc.
and Pronet Inc. (the "New Peer Group"). Beginning this year, the Company has
selected the New Peer Group because it believes the New Peer Group is broader
and more representative of the paging industry than the Old Peer Group. The
comparison below assumes the investment of $100 on January 17, 1992 in the
Company's Common Stock and in the Nasdaq Stock Market -- U.S. Index, the
investment of $100 on January 17, 1992 in the Old Peer Group Index and the
investment of $100 on January 17, 1992 in the New Peer Group Index and, in each
case, assumes reinvestment of all dividends. Measurement points are on January
17, 1992, December 31, 1992, December 31, 1993, December 31, 1994, December 31,
1995 and December 31, 1996.
<TABLE>
[PERFORMANCE GRAPH]
<CAPTION>
Cumulative Total Return
-------------------------------------------------------------------
1/17/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C> <C>
ARCH COMMUNICATIONS GROUP APGR 100 89 125 160 218 85
NEW PEER GROUP PPEER1 100 118 187 188 250 104
OLD PEER GROUP PPEER3 100 123 187 208 305 180
NASDAQ STOCK MARKET-US INAS 100 109 125 122 173 212
</TABLE>
15
<PAGE> 18
PROPOSAL 2 - APPROVAL OF 1997 STOCK OPTION PLAN
The Board of Directors has adopted the Company's 1997 Stock Option Plan
(the "1997 Option Plan"). The Board of Directors believes that the future growth
and success of the Company depends, in large part, on its ability to attract,
retain and motivate key employees, consultants and advisors and that stock
option grants under the 1997 Option Plan will be an important compensation
element in attracting, retaining and motivating such persons. Accordingly, the
Board of Directors of the Company believes that the approval of the 1997 Option
Plan is in the best interests of the Company and its stockholders and recommends
that the stockholders vote FOR this proposal. The following summary is qualified
in all respects by reference to the full text of the 1997 Option Plan which
appears as Exhibit A to this Proxy Statement.
SUMMARY OF THE PLAN
The 1997 Option Plan provides for the granting of incentive stock options
(within the meaning of the Code) to the Company's employees (including officers)
and for the granting of non-statutory stock options to the Company's employees,
officers, directors, consultants and advisors. A maximum of 1,500,000 shares of
Common Stock may be issued under the 1997 Option Plan, and no employee may be
granted options for more than 500,000 shares in any calendar year. No options
may be granted under the 1997 Option Plan with an exercise price below the fair
market value of the Common Stock on the date of grant. No options may be granted
under the 1997 Option Plan after February 10, 2007, but options previously
granted may extend beyond that date.
The 1997 Option Plan is administered by the Board of Directors. The Board
of Directors has the authority to select the optionees and determine (i) the
number of shares subject to each option, (ii) when the option becomes
exercisable (generally at the rate of 20% of the shares subject to the option on
the first anniversary of the date of grant and 5% of the shares subject to the
option per calendar quarter thereafter), (iii) the exercise price, which cannot
be less than 100% of the fair market value of the Common Stock on the date of
grant, and (iv) the duration of the option, which cannot exceed ten years in the
case of incentive stock options. The Board of Directors may amend, modify or
terminate any outstanding option under the 1997 Option Plan, subject to the
consent of the option holder if such action materially and adversely affects the
option holder. The Board of Directors may delegate its authority under the 1997
Option Plan to one or more committees of the Board or, subject to certain
limitations, to one or more executive officers.
The 1997 Option Plan provides that all options granted thereunder will
become immediately exercisable upon the occurrence of any of the following
events: (i) any merger or consolidation which results in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (ii) any sale of all or substantially all of the assets
of the Company; (iii) the complete liquidation of the Company; or (iv) with
certain exceptions, the acquisition of "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act) of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities by any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act).
Options may be granted under the 1997 Option Plan in substitution for
options and other stock-based awards held by employees of another corporation
who become employees of the Company as a result of a merger or consolidation of
the employing corporation with the Company or the acquisition by the Company of
property or stock of the employing corporation. The substitute options shall be
granted on such terms and conditions as the Board considers appropriate in the
circumstances.
Except as otherwise provided with respect to an option, options granted
under the 1997 Option Plan are not transferable by the option holder except by
will or the laws of descent and distribution. Vested options are
16
<PAGE> 19
generally exercisable during the lifetime of the optionee only by such optionee
while such optionee is employed by the Company or within three months following
termination of employment. In the event that termination is due to death or
disability, or if death occurs within three months after termination, the vested
option is exercisable for a maximum of one year thereafter.
As of December 31, 1996, approximately 3,000 persons were eligible for
option grants under the 1997 Option Plan, including the Named Executive
Officers. As of March 24, 1997, options for 461,394 shares were outstanding
under the 1997 Option Plan at exercise prices ranging from $6.25 to $6.875 per
share, including (i) options to purchase 49,636, 32,836, 15,905 and 16,887
shares held by Messrs. Baker, Wilson, Saynor and Kuzia, respectively, (ii)
options to purchase 115,264 shares held by all current executive officers as a
group and (iii) options to purchase 346,130 shares held by all employees
(including current officers who are not executive officers) as a group. As of
March 24, 1997, no options had been exercised under the 1997 Option Plan. The
granting of options is discretionary, and the Company cannot now determine the
number of additional options to be granted to any particular Named Executive
Officers or to all Named Executive Officers as a group under the 1997 Option
Plan. For information regarding option grants to Named Executive Officers during
1996, see "Executive Compensation -- Stock Option Grants".
On April 11, 1997, the closing sale price of the Company's Common Stock on
the Nasdaq National Market was $4.375 per share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
1997 Option Plan and with respect to the sale of Common Stock acquired under the
1997 Option Plan.
INCENTIVE STOCK OPTIONS
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will generally
recognize taxable income with respect to an incentive stock option only upon the
sale of Common Stock acquired through the exercise of the option ("ISO Stock").
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock prior to having owned it for at least
two years from the Grant Date and one year from the Exercise Date (a
"Disqualifying Disposition"), then generally all or a portion of the gain
recognized will be ordinary compensation income and the remaining gain will be a
capital gain, long-term if the participant has held the ISO Stock for more than
one year prior to the date of the sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of the sale.
NON-STATUTORY OPTIONS
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a non-statutory option. Unlike the
case of an incentive stock option, however, a participant who exercises a
17
<PAGE> 20
non-statutory option generally will recognize ordinary compensation income in an
amount equal to the excess of the fair market value of the Common Stock acquired
through the exercise of the option (the "NSO Stock") on the Exercise Date over
the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term capital gain or loss if the participant has held the NSO Stock for
more than one year prior to the date of the sale.
TAX CONSEQUENCES TO THE COMPANY
The grant of a stock option under the 1997 Option Plan will have no tax
consequences to the Company. Moreover, in general, neither the exercise of an
incentive stock option acquired under the 1997 Option Plan nor the sale of any
Common Stock acquired under the 1997 Option Plan will have any tax consequences
to the Company. The Company generally will be entitled to a business-expense
deduction, however, with respect to any ordinary compensation income recognized
by a participant under the 1997 Option Plan. Any such deduction will be subject
to the limitations of Section 162(m) of the Code.
PROPOSAL 3 - RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Arthur Andersen LLP as the
Company's independent public accountants for the fiscal year ending December 31,
1997. The Board of Directors recommends that the stockholders vote FOR
ratification of that appointment. If the stockholders do not ratify the
selection of Arthur Andersen LLP as the Company's independent public
accountants, the Board of Directors will reconsider the matter. Representatives
of Arthur Andersen LLP are expected to be present at the Meeting and will have
the opportunity to make a statement, if desired, and will be available to
respond to appropriate questions from stockholders.
On September 7, 1995, the Board of Directors of the Company, including the
members of its Audit Committee, approved the engagement of Arthur Andersen LLP
as the Company's independent accountants to replace the firm of Price Waterhouse
LLP, whose engagement as independent accountants of USA Mobile was terminated
upon the completion of the Company's acquisition of USA Mobile. Prior to
September 7, 1995, Arthur Andersen LLP served as the Company's independent
accountants and Price Waterhouse LLP served as USA Mobile's independent
accountants. The reports of Price Waterhouse LLP on USA Mobile's financial
statements for the fiscal years ended December 31, 1993 and 1994 did not contain
an adverse opinion or a disclaimer of opinion and were not qualified as to
uncertainty, audit scope or accounting principles.
During USA Mobile's fiscal years ended December 31, 1993 and 1994 and
through September 7, 1995, (i) there were no disagreements between USA Mobile
and Price Waterhouse LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which
disagreements, if not resolved to the satisfaction of Price Waterhouse LLP,
would have caused it to make a reference to the subject matter of the
disagreement in connection with its reports, and (ii) USA Mobile did not consult
Arthur Andersen LLP regarding (a) the application of accounting principles to a
specified transaction, either completed or proposed, (b) the type of audit
opinion that might be rendered on USA Mobile's financial statements or (c) items
which concerned the subject matter of any disagreement with Price Waterhouse LLP
or reportable events as described in subparagraph (a)(2) of Item 304 of
Regulation S-K under the Exchange Act. Representatives of Price Waterhouse LLP
are not expected to be present at the Meeting.
18
<PAGE> 21
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1998 Annual
Meeting of Stockholders to be held following the Company's year ending December
31, 1997 must be submitted to the Secretary of the Company at its offices, 1800
West Park Drive, Suite 250, Westborough, Massachusetts 01581, no later than
December 18, 1997 in order to be considered for inclusion in the Proxy Statement
relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitation by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews. Corporate Investor Communications, Inc. has
been hired by the Company to act as a distribution agent and solicitor only with
respect to record holders who are brokers, dealers, banks or other entities that
exercise fiduciary powers in nominee name or otherwise. The Company will also
request brokerage houses, custodians, nominees and fiduciaries to forward copies
of the proxy material to those persons for whom they hold shares and request
instructions for voting the Proxies. The Company will reimburse such brokerage
houses and other persons for their reasonable expenses in connection with this
distribution.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
AFTER DELIVERY OF WRITTEN REVOCATION OF THEIR PROXY TO THE SECRETARY OF THE
COMPANY.
By Order of the Board of Directors,
GARRY B. WATZKE, Secretary
April 17, 1997
Westborough, Massachusetts
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EXHIBIT A
ARCH COMMUNICATIONS GROUP, INC.
1997 STOCK OPTION PLAN
1. Purpose
The purpose of this 1997 Stock Option Plan (the "Plan") of Arch
Communications Group, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and incentives in order to better align the
interests of such persons with those of the Company's stockholders. Except where
the context otherwise requires, the term "Company" shall include any present or
future subsidiary corporations of Arch Communications Group, Inc. as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options ("Options") under the Plan. Any
person who has been granted an Option under the Plan shall be deemed a
"Participant".
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Options and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable
from time to time to interpret and correct the provisions of the Plan and any
Option. No member of the Board shall be liable for any action or determination
relating to the Plan. All decisions by the Board shall be made in the sole
discretion of the Board and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Option.
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to grant Options and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Options and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean a Committee or the Board or the executive officer
referred to in Section 3(b) to the extent of such delegation.
4. Stock Available for Options
(a) Number of Shares. Subject to adjustment under Section 4(c), Options
may be granted under the Plan for up to 1,500,000 shares of common stock, $.01
par value per share, of the Company (the "Common Stock"). If any Option expires
or is terminated, surrendered or canceled without having been fully exercised,
the unused Common Stock covered by such Option shall again be available for the
grant of Options under the Plan, subject, however, in the case of Incentive
Stock Options (as defined hereinafter) to any limitation
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required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c), the
maximum number of shares with respect to which an Option may be granted to any
Participant under the Plan shall be 500,000 shares per calendar year. The
per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan and (ii) the number and class of security and exercise price per
share subject to each outstanding Option shall be appropriately adjusted by the
Company (or substituted Options may be granted, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate. If this Section 4(c) applies and Section 6(e)(1)
also applies to any event, Section 6(e)(1) shall be applicable to such event,
and this Section 4(c) shall not be applicable to such event.
5. Stock Options
(a) General. The Board may grant Options to purchase Common Stock and
determine the number of shares of Common Stock to be covered by each Option, the
exercise price of each Option and the conditions and limitations applicable to
the exercise of each Option, including conditions relating to applicable federal
or state securities laws, as it considers necessary or advisable. An Option
which is not intended to be an Incentive Stock Option (as hereinafter defined)
shall be designated a "Nonstatutory Stock Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted; provided, however, that in no event shall Options
be granted with an exercise price below the fair market value of the Common
Stock at the date of grant ("Fair Market Value") as determined by the Board in
good faith.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify.
(e) Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(i) in cash or by check, payable to the order of the Company;
(ii) except as the Board may otherwise provide with respect to an
Option, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds (in
cash or by check) to pay the exercise price, or delivery by the Participant
to the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company sufficient funds (in
cash or by check) to pay the exercise price;
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(iii) to the extent permitted by the Board and explicitly provided in
the agreement evidencing the Option (i) by delivery of shares of Common
Stock owned by the Participant valued at their fair market value as
determined by the Board in good faith ("Fair Market Value"), which Common
Stock was owned by the Participant at least six months prior to such
delivery, (ii) by delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (iii) by payment of such other
lawful consideration as the Board may determine; or
(iv) any combination of the above permitted forms of payment.
6. General Provisions Applicable to Options
(a) Transferability of Options. Except as the Board may otherwise
determine or provide with respect to an Option, Options shall not be sold,
assigned, transferred, pledged or otherwise encumbered by the person to whom
they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution, and, during the life of the Participant,
shall be exercisable only by the Participant. References to Participant, to the
extent relevant in the context, shall include references to authorized
transferees.
(b) Documentation. Each Option under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Option may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. The terms of each Option need not be identical, and
the Board need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Option of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or the beneficiary designated by a
Participant in the event of the Participant's death (the "Designated
Beneficiary"). In the absence of an effective designation by a Participant,
Designated Beneficiary shall mean the Participant's estate.
(e) Acquisition Events.
(i) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company of
any agreement with respect to an Acquisition Event, the Board shall provide
written notice to the Participants that all Options then outstanding shall
become immediately exercisable in full as of a specified date (the
"Acceleration Date") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to
the extent exercised by the Participants between the Acceleration Date and
the consummation of such Acquisition Event. An "Acquisition Event" shall
mean: (a) any merger or consolidation which results in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving or acquiring entity) less than 50% of
the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of
the Company; (c) the complete liquidation of the Company; or (d) the
acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
securities of the Company representing 50% or more of the combined voting
power of the Company's then outstanding securities (other than through a
merger or consolidation or an acquisition of securities directly from the
Company) by any "person", as such term is used in Sections 13(d) and 14(d)
of the Exchange Act other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
corporation owned
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directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company.
(ii) Assumption of Options Upon Certain Events. The Board may grant
Options under the Plan in substitution for options and other stock-based
awards held by employees of another corporation who become employees of the
Company as a result of a merger or consolidation of the employing
corporation with the Company or the acquisition by the Company of property
or stock of the employing corporation. The substitute Options shall be
granted on such terms and conditions as the Board considers appropriate in
the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld in connection with such Participant's Option no later than the
date of the event creating the tax liability. The Board may allow Participants
to satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Option creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Option. The Board may amend, modify or terminate any
outstanding Option, including but not limited to substituting therefor another
Option, changing the date of exercise or converting an Incentive Stock Option to
a Nonstatutory Stock Option, provided that the Participant's consent to such
action shall be required unless the Board determines that the action, taking
into account any related action, would not materially and adversely affect the
Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan until (i) all conditions
of the Option have been met or removed to the satisfaction of the Company, (ii)
in the opinion of the Company's counsel, all other legal matters in connection
with the issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market
rules and regulations, and (iii) the Participant has executed and delivered to
the Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.
7. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Option, and the grant of an Option shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Option agreement.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Option agreement, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock issuable upon
exercise of an Option until becoming the record holder thereof.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Option granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable unless and until the Plan has been approved by the Company's
stockholders. No Options shall be granted under the Plan after the completion of
ten years from the earlier of (i) the date on which the Plan was adopted by the
Board or (ii) the date the Plan was approved by the Company's stockholders, but
Options previously granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that no Option granted to a
Participant designated as subject to Section 162(m) by the
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Board after the date of such amendment shall become exercisable, to the extent
that such amendment to the Plan was required to grant such Option to a
particular Participant, unless and until such amendment shall have been approved
by the Company's stockholders.
(e) Stockholder Approval. For purposes of this Plan, stockholder approval
shall mean approval by a vote of the stockholders in accordance with the
requirements of Section 162(m) of the Code.
(f) Governing Law. The provisions of the Plan and all Options granted
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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<TABLE>
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<S> <C>
1. Election of two Directors FOR the nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
listed below [ ] for all nominee listed below. [ ] [ ]
Nominees: John B. Saynor, John A. Shane
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN
THE SPACE PROVIDED BELOW.)
*Exceptions
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2. To approve the Company's 1997 Stock Option Plan, as 3. To ratify the selection by the Board of Directors of
described in the Proxy Statement. Arthur Andersen LLP as independent public accountants
for the Company for the fiscal year ending December 31, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
FOR [ ] AGAINST [ ] ABSTAIN [ ]
CHANGE OF ADDRESS AND
OR COMMENTS MARK HERE [ ]
The signature on this Proxy should correspond exactly with
stockholder's name as printed to the left. In the case of joint
tenancies, co-executors, or co-trustees, both should sign. Persons
signing as Attorney, Executor, Administrator, Trustee or Guardian
should give their full title.
Dated: ,1997
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Please print name of Stockholder here.
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Please sign here.
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [X]
(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.)
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</TABLE>
ARCH COMMUNICATIONS GROUP, INC.
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
P R O X Y
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 20, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints C. Edward Baker, Jr., William A. Wilson,
Garry B. Watzke and David A. Westenberg, and each of them, the proxies of the
undersigned with power of substitution to each of them, to vote all shares of
Arch Communications Group, Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be held
on Tuesday, May 20, 1997, at 11:00 a.m. (local time) at Hale and Dorr LLP, 26th
Floor, 60 State Street, Boston, Massachusetts 02109 (the "Meeting").
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Meeting or any adjournment thereof.
(Continued and to be dated and signed on the reverse side.)
