<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)
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:
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<PAGE> 2
ARCH COMMUNICATIONS GROUP, INC.
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of Arch
Communications Group, Inc., a Delaware corporation (the "Company"), will be held
on Tuesday, May 19, 1998, 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 an amendment to the Company's 1996 Employee Stock
Purchase Plan increasing the number of shares of Common Stock
issuable under such plan from 250,000 to 500,000.
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, 1998.
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 Thursday, April
9, 1998 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, 1997, 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, 1998
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
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1998
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 1998 Annual Meeting of Stockholders to be held on
Tuesday, May 19, 1998, 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 affirmatively
revokes the proxy.
On April 9, 1998, 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 20,958,570 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, 1997 ARE
BEING MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 17, 1998. 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, 1997, 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 April 9, 1998 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>
Franklin Resources, Inc.(2).................... 2,514,080 12.0%
Memorial Drive Trust(3)........................ 1,947,990 9.3
State of Wisconsin Investment Board(4)......... 1,388,000 6.6
Dimensional Fund Advisors Inc.(5).............. 1,304,900 6.2
J. & W. Seligman & Co. Incorporated(6)......... 1,257,372 6.0
Goldman, Sachs & Co.(7)........................ 1,225,500 5.8
C. Edward Baker, Jr............................ 154,839 0.7
John B. Saynor................................. 193,924 0.9
Paul H. Kuzia.................................. 14,760 *
R. Schorr Berman(8)............................ 1,960,890 9.4
James S. Hughes................................ 80,587 *
Allan L. Rayfield.............................. 2,500 *
John A. Shane(9)............................... 94,535 *
William A. Wilson(10).......................... 600 *
All current directors and executive officers as
a group (9 persons)(11)...................... 2,514,035 11.9
</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 Franklin Resources, Inc. is 777 Mariners Island
Boulevard, San Mateo, California 94404. Franklin Advisers, Inc., a
subsidiary of Franklin Resources, Inc., has sole voting power and sole
investment power with respect to 2,493,700 shares. Franklin Management,
Inc., a subsidiary of Franklin Resources, Inc., has sole investment power
with respect to 20,380 shares. Franklin Resources, Inc., the principal
shareholders thereof, Franklin Advisers, Inc. and Franklin Management, Inc.
disclaim beneficial ownership of these securities. This information is
based on Amendment No. 1 to Schedule 13G filed by Franklin Resources, Inc.
with the Securities and Exchange Commission on January 26, 1998.
(3) 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 (8).
(4) The business address of the State of Wisconsin Investment Board is P.O. Box
7842, Madison, Wisconsin 53707. This information is based on the Schedule
13G filed by the State of Wisconsin Investment Board with the Securities
and Exchange Commission on January 27, 1998.
(5) The business address of Dimensional Fund Advisors Inc. is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401. Dimensional Fund
Advisors Inc. has sole voting power with respect to
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<PAGE> 5
860,800 shares and sole investment power with respect to all 1,304,900
shares. Officers of Dimensional Fund Advisors Inc. also serve as officers
of DFA Investment Dimensions Group Inc. and The DFA Investment Trust
Company, each an open-end management investment company. These officers
have sole voting power with respect to 139,100 shares owned by DFA
Investment Dimensions Group Inc. and 305,000 shares owned by The DFA
Investment Trust Company. All of these securities are owned by advisory
clients of Dimensional Fund Advisors Inc., none of which, to the knowledge
of Dimensional Fund Advisors Inc., owns more than 5% of the class.
Dimensional Fund Advisors Inc. disclaims beneficial ownership of such
securities. This information is based on the Schedule 13G filed by
Dimensional Fund Advisors Inc. with the Securities and Exchange Commission
on February 10, 1998.
(6) The business address of J. & W. Seligman & Co. Incorporated is 100 Park
Avenue, New York, New York 10017. J. & W. Seligman & Co. Incorporated has
shared voting power with respect to 1,129,325 of such shares and shared
investment power with respect to all 1,257,372 shares. This information is
based on Amendment No. 1 to Schedule 13G filed by J. & W. Seligman & Co.
Incorporated with the Securities and Exchange Commission on February 12,
1998.
(7) The business address of Goldman, Sachs & Co. and its parent holding
company, The Goldman Sachs Group, L.P. (collectively "Goldman Sachs"), is
85 Broad Street, New York, New York 10004. Goldman Sachs has shared voting
power with respect to 854,100 shares and shared investment power with
respect to all 1,225,500 shares. Goldman Sachs disclaims beneficial
ownership of the shares beneficially owned by (i) managed accounts and (ii)
certain investment limited partnerships, of which a subsidiary of Goldman
Sachs is the general partner or managing general partner, to the extent
partnership interests in such partnerships are held by persons other than
Goldman Sachs or their affiliates. This information is based on the
Schedule 13G filed by Goldman Sachs with the Securities and Exchange
Commission on February 17, 1998.
(8) 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.
(9) Includes 1,051 shares owned by Palmer Service Corporation, over which Mr.
Shane may be deemed to have voting and investment power as President and
sole stockholder of Palmer Service Corporation, and 59,701 shares issuable
upon conversion of $1,000,000 principal amount of the Company's 6 3/4%
Convertible Subordinated Debentures due 2003 (the "Arch Convertible
Debentures") held by Palmer Organization III, L.P., of which Mr. Shane is
the general partner of the general partner.
(10) Consists of 600 shares owned by or jointly with Mr. Wilson's children.
(11) Includes (i) 1,947,990 shares held by Memorial Drive Trust, (ii) 1,051
shares held by Palmer Service Corporation, (iii) 59,701 shares issuable
upon conversion of $1,000,000 principal amount of Arch Convertible
Debentures held by Palmer Organization III, L.P. and (iv) 47,417, 13,440,
10,000, 10,000, 1,500, 10,000 and 92,357 shares issuable upon the exercise
of outstanding stock options held by Messrs. Baker, Kuzia, Berman, Hughes,
Rayfield, Shane and all current directors and executive officers as a
group, respectively, exercisable within 60 days after April 9, 1998.
3
<PAGE> 6
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 voting on the matter is required for the approval of
the amendment to the Company's 1996 Employee Stock Purchase Plan (Proposal 2)
and the ratification of Arthur Andersen LLP as the Company's independent public
accountants for the year ending December 31, 1998 (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.
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 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 2001 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 C.
Edward Baker, Jr. and R. Schorr Berman, the nominees named below, unless the
proxy is marked otherwise. Messrs. Baker and Berman are currently directors of
the Company. Messrs. Baker and Berman have indicated their willingness to serve
if elected; however, if Messrs. Baker and/or Berman 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.
4
<PAGE> 7
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 April 9, 1998. 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
--------------------- --- -------------------------
NOMINEES FOR TERMS EXPIRING IN 2001
<S> <C> <C>
C. Edward Baker, Jr....................... 47 Chief Executive Officer of the Company since 1988
Director since 1988 and Chairman of the Board since May 1989; from 1988
until January 1998, President of the Company; from
1986 until 1988, President and Chief Executive
Officer of US West Paging.
R. Schorr Berman(1)(2).................... 49 President and Chief Executive Officer of MDT
Director since 1986 Advisers, Inc., an investment adviser, since 1987;
director of Mercury Computer Systems, Inc. as well
as a number of private companies.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
John B. Saynor............................ 57 Executive Vice President of the Company; President
Director since 1986 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)....................... 65 President of Palmer Service Corporation since 1972;
Director since 1988 General Partner of Palmer Partners L.P. since 1981;
Trustee of Nvest Funds and director of the
following public companies and registered
investment companies: Gensym Corporation, Overland
Data, Inc., Summa Four, Inc. and United Asset
Management Corporation.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
James S. Hughes(1)........................ 55 President and Chief Executive Officer of Norwich
Director since 1986 Corporation, a real estate investment and service
firm, since 1987; since 1992, President and
Managing Director of Inventa Corporation, an
international business development firm.
Allan L. Rayfield(2)...................... 62 Consultant since 1995; from November 1993 until
Director since 1997 December 1994, Chief Executive Officer of M/A Com
Inc., a microwave electrical manufacturing company;
from April 1991 until November 1993, Chief
Operating Officer of M/A Com Inc; director of
Parker Hannifin Corporation and Acme Metals
Incorporated.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
PRINCIPAL OCCUPATIONS AND
EMPLOYMENT OVER PAST FIVE
NAME AGE YEARS, AND DIRECTORSHIPS
---- --- -------------------------
<S> <C> <C>
OTHER EXECUTIVE OFFICERS OF THE COMPANY
Lyndon R. Daniels......................... 45 President and Chief Operating Officer of the
Company since January 1998; President and Chief
Executive Officer of Pacific Bell Mobile Services,
a subsidiary of SBC Communications Inc., from
November 1993 to January 1998; from May 1988 until
November 1993, Chief Financial Officer of Pactel
Corp., a mobile telephone company.
J. Roy Pottle............................. 39 Executive Vice President and Chief Financial
Officer of the Company since February 1998; Vice
President and Treasurer of Jones Intercable, Inc.
from October 1994 to February 1998; Vice President
and Relationship Manager of the Bank of Nova
Scotia, New York Agency, from September 1989 to
October 1994.
Paul H. Kuzia............................. 56 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.
</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".
BOARD AND COMMITTEE MEETINGS
During the year ended December 31, 1997, the Board of Directors held eight
meetings, including regular, special and telephonic meetings. Each current
director attended at least 75% of the meetings of the Board held during 1997
while he was a director.
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 two meetings during the year ended December 31, 1997; Messrs. Berman and
Shane attended both meetings and
6
<PAGE> 9
Mr. Hughes attended one meeting. 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, 1998. See "Proposal 3 -- Ratification of
Selection of Independent Public Accountants".
Messrs. Berman (Chairman), Rayfield 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 eight meetings during
the year ended December 31, 1997, and each current member of the Compensation
Committee attended at least 75% of the meetings of the Compensation Committee
held during 1997 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, 1997 all officers, directors and holders
of more than 10% of the Company's Common Stock complied with all Section 16(a)
filing requirements.
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.
Under a deferred compensation plan for the Company's outside directors,
each outside director has the right to make an annual election to defer his
compensation as an outside director ("Director Compensation") and to receive the
deferred amounts in cash on a specific calendar date or a date on which a
certain event occurs, such as the date he ceases to be an outside director (the
"Distribution Date"). All deferred compensation is credited, as of the date on
which such compensation would have been paid, at the participant's election in
either cash or shares of Common Stock of the Company based on the market price
of such shares as of the date such compensation would have been paid. On the
Distribution Date, any deferred compensation credited in shares of Common Stock
is converted into cash by valuing each stock unit at the market price of a share
of Common Stock on the Distribution Date. Mr. Rayfield was the only outside
director who elected to participate in this plan for 1998. Mr. Rayfield elected
to defer all of his 1998 Director Compensation, of which 50% will be credited in
cash and 50% will be credited in shares of Common Stock of the Company, until
the date he ceases to be a director of the Company.
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 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
7
<PAGE> 10
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' Option
Plan). Pursuant to the terms of the Outside Directors' 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' 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, (iii) an option to purchase 3,000 shares of Common Stock at an exercise
price of $7.875 per share on December 24, 1996 and (iv) an option to purchase
3,000 shares of Common Stock at an exercise price of $4.5625 per share on
December 24, 1997. Also, under the Outside Directors' Stock Option Plan, Mr.
Rayfield received (i) an option to purchase 3,000 shares of Common Stock at an
exercise price of $7.875 per share upon his election to the Board of Directors
on July 28, 1997 and (ii) an option to purchase 3,000 shares of Common Stock at
an exercise price of $4.5625 per share on December 24, 1997. As of April 9,
1998, options to purchase an aggregate of 42,000 shares of Common Stock were
outstanding and 7,218 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 January 30, 1995 ($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 April 9, 1998, options to purchase
an aggregate of 15,000 shares of Common Stock were outstanding and no options
had been exercised under the 1995 Directors' Plan.
8
<PAGE> 11
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
certain other executive officers (the "Named Executive Officers") for the years
ended December 31, 1995, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ---------------
OTHER ANNUAL
NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS(3)
PRINCIPAL POSITION DURING 1997 YEAR $ ($)(1) ($)(2) (#)
------------------------------ ---- ------ ------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
C. Edward Baker, Jr.............. 1997 $353,317 $227,500 $600 459,324(4)
Chairman, President and 1996 329,050 36,833 600 268,860(5)(6)
Chief Executive Officer 1995 281,650 106,000 600 40,000(7)
John B. Saynor................... 1997 153,188 72,900 600 51,810(8)
Executive Vice President 1996 146,867 15,300 600 20,000(6)
1995 131,870 50,000 600 20,000(7)
Paul H. Kuzia.................... 1997 157,633 77,400 600 86,574(9)
Executive Vice President/ 1996 133,800 14,620 600 8,000(6)
Technology and Regulatory 1995 123,300 46,000 600 8,000(7)
Affairs
William A. Wilson................ 1997 133,599 150,500 600 32,836
Former Executive Vice 1996 203,133 19,833 600 170,000(10)
President/Finance and Chief 1995 157,300 58,000 600 20,000(7)
Financial Officer(11)
</TABLE>
- ---------------
(1) Represents bonus paid in such year with respect to prior year.
(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,
1995, 1996 or 1997.
(4) Includes options to purchase 409,688 shares granted as part of the January
16, 1998 option repricing program. See "Repricing of Options".
(5) Includes options to purchase 106,860 shares replaced in connection with the
October 23, 1996 option repricing program. See "Repricing of Options".
(6) Option replaced in connection with the January 16, 1998 option repricing
program. See "Repricing of Options".
(7) Option replaced in connection with the October 23, 1996 option repricing
program. See "Repricing of Options".
(8) Includes options to purchase 35,905 shares granted as part of the January
16, 1998 option repricing program. See "Repricing of Options".
(9) Includes options to purchase 69,687 shares granted as part of the January
16, 1998 option repricing program. See "Repricing of Options".
(10) Includes options to purchase 75,000 shares replaced in connection with the
October 23, 1996 option repricing program. See "Repricing of Options".
(11) Mr. Wilson resigned on June 30, 1997.
9
<PAGE> 12
EXECUTIVE RETENTION AGREEMENTS
In January 1998, the Board of Directors of the Company approved Executive
Retention Agreements (the "Agreements") for a total of eighteen executives (the
"Executives"), including Messrs. Baker, Daniels, Kuzia, Pottle and Saynor.
The purpose of the Agreements is to assure the continued employment and
dedication of the Executives without distraction from the possibility of a
Change in Control (as defined in the Agreements) of the Company. In the event of
a Change in Control, and the termination of the Executive's employment at any
time within the 12-month period thereafter by the Company (other than for cause,
disability or death) or by the Executive for Good Reason (as defined in the
Agreements), the Executive shall be eligible to receive (i) a cash severance
payment equal to the Executive's base salary plus any other amounts earned
through the date of termination (to the extent not previously paid), (ii) an
additional lump sum cash payment equal to a specified multiple (the "Multiple")
of the sum of (a) the Executive's annual base salary in effect at the time of
the Change in Control and (b) the average bonus paid for the three calendar
years immediately preceding the calendar year during which the Change in Control
occurs, and (iii) any amounts or benefits required to be paid or provided to the
Executive or which the Executive is eligible to receive following the
Executive's termination under any plan, program, policy, practice, contract or
agreement of the Company. In addition, until the earlier of (a) 12 months after
termination or (b) the Executive becomes reemployed with another employer and is
eligible to receive substantially equivalent benefits, the Company shall arrange
to provide the Executive with life, disability, accident and health insurance
benefits similar to those previously maintained. The Multiple for Messrs. Baker,
Daniels, Kuzia, Pottle and Saynor is three, and the Multiple for the other
Executives is one or two. Good Reason is defined to include, among other things,
a material reduction in employment responsibilities, compensation or benefits
or, in the case of Mr. Baker, the failure to become the Chief Executive of any
entity succeeding or controlling the Company.
10
<PAGE> 13
STOCK OPTION GRANTS
The following table summarizes certain information regarding options
granted to the Named Executive Officers during the year ended December 31, 1997.
No SARs were granted during the year ended December 31, 1997.
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.... 49,636(4) 2.89 $6.875 03/05/07 $214,609 $ 543,861
409,688(5) 23.89 5.0625 01/16/08 553,600 2,110,041
John B. Saynor......... 15,905(4) 0.93 6.875 03/05/07 68,768 174,271
35,905(5) 2.09 5.0625 01/16/08 48,517 184,924
Paul H. Kuzia.......... 16,887(4) 0.98 6.875 03/05/07 73,013 185,031
69,687(5) 4.06 5.0625 01/16/08 94,166 358,913
William A. Wilson...... 32,836 1.92 6.875 03/05/07 141,971 359,783
</TABLE>
- ---------------
(1) Options generally become exercisable at a rate of 20% of the shares subject
to the option on the first anniversary of the date of grant and 5% of the
shares subject to the option per calendar quarter thereafter.
(2) The exercise price is equal to the fair market value of 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 the January 16, 1998 option repricing program.
See "Repricing of Options".
(5) Option granted as part of the January 16, 1998 option repricing program. See
"Repricing of Options".
11
<PAGE> 14
OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table sets forth certain information regarding the exercise
of stock options during the year ended December 31, 1997 and stock options held
as of December 31, 1997 by the Named Executive Officers.
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............. -- -- 314,904(3) 188,816 $188,064 --
John B. Saynor.................. -- -- 4,000 31,905 -- --
Paul H. Kuzia................... -- -- 46,400 23,287 -- --
William A. Wilson............... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise.
(2) Based on the fair market value of the Common Stock on December 31, 1997
($5.125 per share) less the option exercise price.
(3) Subsequent to December 31, 1997, Mr. Baker exercised an option for 94,032
shares.
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.
12
<PAGE> 15
REPRICING OF OPTIONS
The following table sets forth certain information concerning the repricing
of stock options held by the Named Executive Officers since January 17, 1992:
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
Chairman, President and 10/23/96 12,000 12.50 23.75 12.50 111
Chief Executive Officer 10/23/96 54,860 12.50 20.63 12.50 116
1/16/98 43,792 3.94 5.94 5.06 16
1/16/98 71,760 3.94 8.09 5.06 38
1/16/98 17,500 3.94 7.55 5.06 58
1/16/98 12,500 3.94 14.10 5.06 71
1/16/98 12,500 3.94 18.85 5.06 83
1/16/98 95,140 3.94 20.63 5.06 101
1/16/98 12,000 3.94 12.50 5.06 105
1/16/98 40,000 3.94 12.50 5.06 105
1/16/98 54,860 3.94 12.50 5.06 105
1/16/98 49,636 3.94 6.88 5.06 110
John B. Saynor.................. 10/23/96 20,000 12.50 23.75 12.50 110
Executive Vice President 1/16/98 20,000 3.94 12.50 5.06 105
1/16/98 15,905 3.94 6.88 5.06 110
Paul H. Kuzia................... 10/23/96 8,000 12.50 23.75 12.50 110
Executive Vice President/ 1/16/98 19,200 3.94 5.94 5.06 7
Technology and Regulatory Affairs 1/16/98 12,800 3.94 7.66 5.06 20
1/16/98 6,400 3.94 8.09 5.06 44
1/16/98 6,400 3.94 7.05 5.06 56
1/16/98 8,000 3.94 12.50 5.06 105
1/16/98 16,887 3.94 6.88 5.06 110
William A. Wilson............... 10/23/96 20,000 12.50 23.75 12.50 110
Former Executive Vice 10/23/96 75,000 12.50 20.63 12.50 116
President/Finance and Chief
Financial Officer
</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.
13
<PAGE> 16
On December 16, 1997, the Compensation Committee approved the repricing of
certain outstanding stock options, including certain options held by the Named
Executive Officers who were employed as of December 16, 1997. The repricing
became effective on January 16, 1998. See "Repricing of Options". Because of a
decline in the market price of the Company's Common Stock since October 23, 1996
(the date on which the Company's only prior option repricing program had become
effective), many outstanding options were exercisable at prices that far
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 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, approximately 90% of all outstanding
options (other than options under the Company's outside directors' option plans)
with exercise prices in excess of $5.0625 per share ("Existing Options") were
replaced with options exercisable at $5.0625 per share ("New Options"). The
exercise price of the New Options was equal to the higher of the market price of
the Common Stock on December 16, 1997 (the date of approval by the Compensation
Committee) and the market price on January 16, 1998 (the effective date of the
repricing). As a condition to repricing, the vesting of Existing Options which
had been outstanding for less than one year as of January 16, 1998 was restarted
to commence as of January 16, 1998, as follows: 20% will vest on January 16,
1999 and 5% will vest quarterly thereafter. As a condition to repricing, the
vesting of Existing Options which had been outstanding for more than one year as
of January 16, 1998 was restarted as of January 16, 1998 with 25% credit in
terms of time; for example, an Existing Option which had been outstanding for
two years was treated as if it had been outstanding for six months, so that such
option will now vest the first 20% after an additional six months and will 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 80 option holders, holding Existing Options to purchase an
aggregate of 1,083,216 shares of Common Stock with exercise prices ranging from
$5.9375 to $20.625 per share, were granted New Options on the terms described
above. The holders of Existing Options to purchase an aggregate of 113,337
shares of Common Stock with exercise prices ranging from $5.9375 to $7.125 per
share elected not to have such options repriced.
THE EXECUTIVE COMPENSATION AND
STOCK OPTION COMMITTEE
R. Schorr Berman, Chairman
Allan L. Rayfield
John A. Shane
14
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are R. Schorr
Berman, Allan L. Rayfield and John A. Shane. Messrs. Berman and Shane served on
the Compensation Committee throughout 1997, and Mr. Rayfield joined the
Compensation Committee upon his election as a director in July 1997.
C. Edward Baker, Jr., the Chairman and Chief Executive Officer of 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.
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 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 and the
performance of the Company.
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, 1997, the
Compensation Committee fixed Mr. Baker's annual base salary at $353,317.
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
15
<PAGE> 18
of responsibility. For the year ended December 31, 1997, 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.
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, 1997. In recognition of the achievement of his individual
goals, the Compensation Committee awarded Mr. Baker a bonus of $135,000 in March
1998.
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, 1997, 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, 1997 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".
EXECUTIVE RETENTION AGREEMENTS
In January 1998, the Board of Directors approved Executive Retention
Agreements with a total of eighteen executives, including Messrs. Baker,
Daniels, Kuzia, Pottle and Saynor. The purpose of these Agreements is to assure
the continued employment and dedication of the Executives without distraction
from the possibility of a Change in Control (as defined in the Agreements) of
the Company. See "Executive Retention Agreements".
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
16
<PAGE> 19
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 the Company's
1997 Stock Option Plan in a manner that complies with the performance-based
requirements of Section 162(m). 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
Allan L. Rayfield
John A. Shane
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 $250,000 to this offshore corporation and each owns 18.56% of
this offshore corporation. During 1997, the Company did not pay any fees to this
offshore corporation.
17
<PAGE> 20
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the period from December 31, 1992 through the
year ended December 31, 1997 with the cumulative total return on (i) the Nasdaq
Stock Market -- U.S. Index and (ii) a peer group index (the "Peer Group Index")
comprised of Metrocall, Inc., MobileMedia Corporation, Mobile Telecommunications
Technologies Corp., Paging Network, Inc. and Pronet Inc. (the "Peer Group"). The
comparison below assumes the investment of $100 on December 31, 1992 in the
Company's Common Stock and in the Nasdaq Stock Market -- U.S. Index and the
investment of $100 on December 31, 1992 in the Peer Group Index and, in each
case, assumes reinvestment of all dividends. Measurement points are on December
31, 1992, December 31, 1993, December 31, 1994, December 31, 1995, December 31,
1996 and December 31, 1997.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ARCH COMMUNICATIONS GROUP, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX AND
A PEER GROUP
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------------------
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arch Communications Group, Inc. $100.00 $141.03 $180.77 $246.15 $ 96.15 $ 52.56
Nasdaq Stock Market (U.S.) $100.00 $114.80 $112.21 $158.70 $195.19 $239.53
Peer Group $100.00 $158.89 $159.91 $212.29 $109.34 $118.91
</TABLE>
- ---------------
* $100 INVESTED ON 12/31/92 IN STOCK OR INDEX,
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
18
<PAGE> 21
PROPOSAL 2 - APPROVAL OF AN AMENDMENT TO THE
COMPANY'S 1996 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors believes that the future growth and success of the
Company depends, in large part, upon the ability of the Company to maintain a
competitive position in attracting and retaining key personnel. Accordingly, the
Board of Directors has adopted, subject to stockholder approval, an amendment to
the Company's 1996 Employee Stock Purchase Plan (the "1996 Purchase Plan") that
increased the number of shares of Common Stock available for issuance under such
Plan from 250,000 to 500,000. The Board of Directors of the Company believes
that the amendment to the 1996 Purchase Plan is in the best interests of the
Company and its stockholders and recommends that the stockholders vote FOR this
proposal. The following is a summary of the 1996 Purchase Plan.
SUMMARY OF THE PLAN
The 1996 Purchase Plan, as amended, authorizes the issuance of up to an
aggregate of 500,000 shares of Common Stock to participating employees
("participants"). The 1996 Purchase Plan is administered by the Compensation
Committee, which is authorized to make rules and regulations for the
administration and interpretation of the 1996 Purchase Plan. Employees
(including executive officers) who have completed three months of employment
with the Company (or any eligible subsidiary of the Company) and who are
regularly employed by the Company prior to the applicable offering commencement
date generally are eligible to participate in the 1996 Purchase Plan. As of
April 9, 1998, the Company had approximately 2,778 eligible employees.
The Company makes offerings ("Offerings") to participants to purchase
Common Stock under the 1996 Purchase Plan. The maximum number of shares which
may be purchased annually by a participant is determined by dividing $25,000 by
the fair market value of a share of the Company's Common Stock on the date such
Offering is commenced (the "Grant Date"). A participant may elect to have up to
10% deducted from his or her regular salary for this purpose. The price at which
a participant's option is exercised is the lower of (i) 85% of the last sales
price of the Common Stock on the Nasdaq National Market (the "last sales price")
on the Grant Date or (ii) 85% of the last sales price on the day that the
Offering terminates.
Offerings under the 1996 Purchase Plan commence on January 1 and July 1 and
terminate, respectively, on June 30 and December 31. The first Offering under
the 1996 Purchase Plan commenced on July 1, 1996 and the current Offering
commenced on January 1, 1998. The market value of the total number of shares
which may be issued under the 1996 Purchase Plan is $1,880,250, based upon the
last sales price as reported on the Nasdaq National Market on April 9, 1998.
In the event of a "continuity of control" merger or consolidation (a merger
or consolidation whereby the holders of capital stock of the Company immediately
prior to such merger or consolidation continue to hold at least 80% of the
voting power of the capital stock of the surviving corporation) with another
corporation, each participant holding an outstanding purchase option will be
entitled to receive, at the end of the Offering, the equivalent number of
securities or property which holders of Common Stock were entitled to receive
upon consummation of such merger. In the event of a non-continuity of control
merger or a sale of all or substantially all of the assets of the Company, the
Compensation Committee may (i) terminate all outstanding purchase options and
refund all payroll deductions, (ii) provide notice to all participants and allow
them to exercise their purchase option prior to the effective date of such
transaction, or (iii) provide that participants shall receive such stock or
securities as holders of shares of Common Stock received pursuant to the terms
of the transaction.
The Board of Directors may at any time terminate or amend the 1996 Purchase
Plan. However, if stockholder approval of an amendment is required by Section
423 of the Code, such amendment may not be
19
<PAGE> 22
effected without such stockholder approval. The 1996 Purchase Plan requires that
all amounts in the accounts of participants be promptly refunded upon
termination of the 1996 Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The 1996 Purchase Plan is intended to qualify as an "employee stock
purchase plan" as defined in Section 423 of the Code.
TAX CONSEQUENCES TO PARTICIPANTS
In general, a participant will not recognize taxable income upon enrolling
in the 1996 Purchase Plan or upon purchasing shares of Common Stock at the end
of an Offering. Instead, if a participant sells Common Stock acquired under the
1996 Purchase Plan at a sale price that exceeds the price at which the
participant purchased the Common Stock, then the participant will recognize
taxable income in an amount equal to the excess of the sale price of the Common
Stock over the price at which the participant purchased the Common Stock. A
portion of that taxable income will be ordinary income, and a portion may be
capital gain.
If the participant sells the Common Stock more than one year after
acquiring it and more than two years after the Grant Date, then the participant
will be taxed as follows. If the sale price of the Common Stock is higher than
the price at which the participant purchased the Common Stock, then the
participant will recognize ordinary compensation income in an amount equal to
the lesser of: (i) 15% of the fair market value of the Common Stock on the Grant
Date; and (ii) the excess of the sale price of the Common Stock over the price
at which the participant purchased the Common Stock. Any further income will be
long-term capital gain. If the sale price of the Common Stock is less than the
price at which the participant purchased the Common Stock, then the participant
will recognize long-term capital loss in an amount equal to the excess of the
price at which the participant purchased the Common Stock over the sale price of
the Common Stock.
If the participant sells the Common Stock within one year after acquiring
it or within two years after the Grant Date (a "Disqualifying Disposition"),
then the participant will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the Common Stock on the date
that it was purchased over the price at which the participant purchased the
Common Stock. The participant will also recognize capital gain in an amount
equal to the excess of the sale price of the Common Stock over the fair market
value of the Common Stock on the date that it was purchased, or capital loss in
an amount equal to the excess of the fair market value of the Common Stock on
the date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the participant
has held the Common Stock for more than one year prior to the date of the sale
and will be a short-term capital gain or loss if the participant has held the
Common Stock for a shorter period.
TAX CONSEQUENCES TO THE COMPANY
The Offering of Common Stock under the 1996 Purchase Plan will have no tax
consequences to the Company. Moreover, in general, neither the purchase nor the
sale of Common Stock acquired under the 1996 Purchase Plan will have any tax
consequences to the Company except that the Company will be entitled to a
business-expense deduction with respect to any ordinary compensation income
recognized by a participant upon making a Disqualifying Disposition. Any such
deduction will be subject to the limitations of Section 162(m) of the Code.
20
<PAGE> 23
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,
1998. 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.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1999 Annual
Meeting of Stockholders to be held following the Company's year ending December
31, 1998 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 19, 1998 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. For these services the
Company will pay a fee of approximately $3,500 plus expenses. 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, 1998
Westborough, Massachusetts
21
<PAGE> 24
<TABLE>
<S> <C>
1. Election of two Directors FOR the nominees WITHHOLD AUTHORITY to vote EXCEPTIONS
listed below [ ] for all nominee listed below. [ ] [ ]
Nominees: C. Edward Baker, Jr., R. Schorr Berman
(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
-----------------------------------------------------------------------------------------------------------------------
2. To approve an amendment to the Company's 1996 3. To ratify the selection by the Board of Directors of Arthur Andersen LLP
Employee Stock Purchase Plan increasing the as independent public accountants for the Company for the fiscal year
number of shares of Common Stock issuable under ending December 31, 1998.
such plan from 250,000 to 500,000.
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: , 1998
-----------------------------------------------------
-----------------------------------------------------------------
Please print name of Stockholder here.
-----------------------------------------------------------------
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 ENVELOPS.)
- -------------------------------------------------------------------------------------------------------------------------------
</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 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints C. Edward Baker, Jr., Gerald J. Cimmino,
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 19, 1998, 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.)
ARCH COMMUNICATIONS GROUP, INC.
P.O. BOX 11171
NEW YORK, NY 10203-0171
