<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:
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<PAGE> 2
ARCH COMMUNICATIONS GROUP, INC.
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of Arch
Communications Group, Inc., a Delaware corporation (the "Company"), will be held
on Tuesday, May 18, 1999, 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 amendments to the Company's Non-Employee Directors' Stock
Option Plan (a) increasing the number of shares of Common Stock
issuable under such plan from 80,200 to 140,200 and (b) providing
that all options granted under such plan after May 18, 1999 shall
become fully exercisable on the date of grant, as more fully
described in the accompanying 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, 1999.
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 Wednesday, April
7, 1999 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, 1998, 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 16, 1999
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
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 1999
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 1999 Annual Meeting of Stockholders to be held on
Tuesday, May 18, 1999, 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 7, 1999, 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 21,215,583 shares of Common Stock, $.01 par
value per share ("Common Stock") and 250,000 shares of Series C Convertible
Preferred Stock, $.01 par value per share ("Series C Preferred Stock") of the
Company. Each share of Common Stock entitles the record holder thereof to one
vote, and each share of Series C Preferred Stock currently entitles the record
holder thereof to 19.33 votes on each matter to be voted on at the Meeting.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1998 ARE
BEING MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 16, 1999. 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, 1998, 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 7, 1999 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.
On January 26, 1999, the Company's stockholders approved a reverse stock
split of the Company's Common Stock described in the Company's Proxy
Statement/Prospectus dated December 18, 1998. The information relating to the
Company's Common Stock set forth in the table below and elsewhere in this Proxy
Statement does not reflect the implementation of the reverse stock split. The
Company intends to implement the reverse stock split of its Common Stock in
conjunction with the proposed acquisition of MobileMedia Communications, Inc.
("MobileMedia"). The size of the reverse stock split, which will depend on the
market price of the Company's Common Stock on the Nasdaq National Market prior
to the split, will be announced prior to June 30, 1999. For more information on
the acquisition of MobileMedia, see "Proposed Acquisition of MobileMedia".
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES(1) PERCENTAGE(2)
---- --------- -------------
<S> <C> <C>
Sandler Capital Management(3)....................... 4,840,564 18.6%
Memorial Drive Trust(4)............................. 1,947,990 7.5
State of Wisconsin Investment Board(5).............. 1,808,300 6.9
Salomon Smith Barney Holdings, Inc.(6).............. 1,801,840 6.9
Goldman, Sachs & Co.(7)............................. 1,573,400 6.0
Dimensional Fund Advisors Inc.(8)................... 1,367,900 5.3
C. Edward Baker, Jr................................. 280,337 1.1
Lyndon R. Daniels................................... 47,000 *
John B. Saynor...................................... 207,859 0.8
J. Roy Pottle....................................... 22,500 *
Paul H. Kuzia....................................... 37,772 *
R. Schorr Berman(9)................................. 1,981,740 7.6
James S. Hughes..................................... 85,337 *
John Kornreich(10).................................. 5,080,399 19.5
Allan L. Rayfield................................... 4,750 *
John A. Shane(11)................................... 35,316 *
All current directors and executive officers as a
group (10 persons)(12)............................ 7,783,010 29.5
</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) Assumes the conversion of the Company's Series C Preferred Stock into the
Company's Common Stock at the initial conversion price of $5.50 per share.
(3) The business address of Sandler Capital Management is 767 Fifth Avenue,
45th Floor, New York, New York 10153. Sandler Capital Management has sole
voting and investment power over 348,000 of such shares and shared voting
and investment power over 4,492,564 of such shares.
(4) The business address of Memorial Drive Trust is 125 Cambridge Park 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
2
<PAGE> 5
of Arthur D. Little, Inc., over which Mr. Berman may be deemed to share
voting and investment power. See footnote (9).
(5) 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 February 2, 1999.
(6) The business address of Salomon Smith Barney Holdings, Inc. is 388
Greenwich Street, New York, New York 10013. Salomon Smith Barney Holdings,
Inc. has shared voting and dispositive power over all 1,801,840 shares.
Salomon Smith Barney Holdings, Inc. disclaims beneficial ownership of these
securities. This information is based on the Schedule 13G filed by Salomon
Smith Barney Holdings, Inc. with the Securities and Exchange Commission on
February 12, 1999.
(7) The business address of Goldman, Sachs & Co. is 85 Broad Street, New York,
New York 10004. Goldman, Sachs & Co. has shared dispositive power over
1,573,400 shares and shared voting power over 1,067,000 shares. Goldman,
Sachs & Co. disclaims beneficial ownership of the securities beneficially
owned by (i) certain client accounts and (ii) certain investment entities,
to the extent interests in such entities are held by persons other than
Goldman, Sachs & Co. This information is based on Amendment No. 1 to
Schedule 13G filed by Goldman, Sachs & Co. with the Securities and Exchange
Commission on February 17, 1999.
(8) The business address of Dimensional Fund Advisors Inc. is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401. 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 11, 1999.
(9) 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.
(10) Includes 4,840,564 shares beneficially owned by Sandler Capital Management,
over which Mr. Kornreich may be deemed to have voting and investment power
as Managing Director, and 190,000 shares beneficially owned by two limited
partnerships, over which Mr. Kornreich may be deemed to have voting and
investment power as a general partner. Mr. Kornreich disclaims beneficial
ownership of all such shares.
(11) 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; 478 shares issuable upon conversion of $8,000 principal
amount of the Company's 6 3/4% Convertible Subordinated Debentures due 2003
("Arch Convertible Debentures") held by Palmer Service Corporation; and
1,254 shares issuable upon conversion of $21,000 principal amount of Arch
Convertible Debentures held by Mr. Shane.
(12) Includes (i) 4,840,564 shares beneficially owned by Sandler Capital
Management, and 190,000 shares beneficially owned by two limited
partnerships of which Mr. Kornreich is a general partner, (ii) 1,947,990
shares held by Memorial Drive Trust, (iii) 1,051 shares held by Palmer
Service Corporation, (iv) 478 shares issuable upon conversion of $8,000
principal amount of Arch Convertible Debentures held by Palmer Service
Corporation, (v) 1,254 shares issuable upon conversion of $21,000 principal
amount of Arch Convertible Debentures held by Mr. Shane and (vi) 168,037;
13,935; 33,814; 14,750; 14,750; 1,500; 3,750; 14,750; 35,000; 22,500 and
322,786 shares issuable upon the exercise of outstanding stock options held
by Messrs. Baker, Saynor, Kuzia, Berman, Hughes, Kornreich, Rayfield,
Shane, Daniels, Pottle and all current directors and executive officers of
the Company as a group, respectively, exercisable within 60 days after
April 7, 1999.
3
<PAGE> 6
VOTES REQUIRED
The holders of a majority of the shares of Common Stock and Series C
Preferred Stock (assuming the conversion of the Series C Preferred Stock into
Common Stock), voting together as a single class, (as so calculated, the "Voting
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 and Series C Preferred 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 of Voting
Stock 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 of Voting
Stock present or represented by proxy and voting on the matter is required for
the approval of the amendments to the Company's Non-Employee Directors' Stock
Option Plan (Proposal 2) and the ratification of Arthur Andersen LLP as the
Company's independent public accountants for the year ending December 31, 1999
(Proposal 3).
Shares of Voting Stock which abstain from voting as to a particular matter,
and shares of Voting Stock 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.
PROPOSED ACQUISITION OF MOBILEMEDIA
On August 18, 1998, the Company entered into an Agreement and Plan of
Merger (as amended as of September 3, 1998, December 1, 1998 and February 8,
1999, the "MobileMedia Merger Agreement") providing for a merger (the
"MobileMedia Merger") of MobileMedia with and into a subsidiary of the Company.
The MobileMedia Merger is part of MobileMedia's Plan of Reorganization to emerge
from Chapter 11 bankruptcy (as amended, the "Reorganization Plan"). The
Company's stockholders approved the MobileMedia Merger on January 26, 1999. On
February 5, 1999, the Federal Communications Commission (the "FCC") released an
order approving the transfer of MobileMedia's FCC licenses to the Company in
connection with the MobileMedia Merger, subject to approval and confirmation of
the Reorganization Plan. The order granting the transfer became a final order,
no longer subject to reconsideration or judicial review, on March 7, 1999. The
U.S. Bankruptcy Court for the District of Delaware confirmed the Reorganization
Plan on April 12, 1999. Consummation of the MobileMedia Merger is subject to
performance by third parties of their contractual obligations, the availability
of sufficient financing and other conditions. There can be no assurance that the
MobileMedia Merger will be consummated.
Pursuant to the MobileMedia Merger, the Company will: (i) issue shares of
its Common Stock and warrants; (ii) pay $479.0 million in cash to certain
creditors of MobileMedia; (iii) pay approximately $50.0 million of
administrative, transactional and related costs; (iv) raise at least $217.0
million in cash through rights offerings of its Common Stock (the "Rights
Offerings"); and (v) cause its wholly-owned subsidiary, Arch Communications,
Inc. ("ACI") and ACI's principal operating subsidiary, Arch Paging Inc. ("API"),
to borrow a total of approximately $312.0 million. After consummation of the
transactions in connection with the MobileMedia Merger, which is expected to
occur late in the second quarter of 1999, MobileMedia will become a wholly-owned
subsidiary of API.
Following the consummation of the MobileMedia Merger, the Company will be
the second largest paging operator in the United States as measured by units in
service and net revenues (total revenues less cost of products sold).
4
<PAGE> 7
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 2002 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
James S. Hughes and Allan L. Rayfield, the nominees named below, unless the
proxy is marked otherwise. Messrs. Hughes and Rayfield are currently directors
of the Company. Messrs. Hughes and Rayfield have indicated their willingness to
serve if elected; however, if Messrs. Hughes and/or Rayfield 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 April 7, 1999. 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 WHOSE TERMS EXPIRE IN 2002
James S. Hughes(1)........................ 56 President and Chief Executive Officer of Norwich
Director since 1986 Corporation, a real estate investment and service
firm, since 1987.
Allan L. Rayfield(2)...................... 63 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.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
C. Edward Baker, Jr....................... 48 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).................... 50 President and Chief Executive Officer of MDT
Director since 1986 Advisers, Inc., an investment adviser, since 1987;
director of Mercury Computer Corporation, Inc. as
well as a number of private companies.
John Kornreich............................ 53 Managing Director of Sandler Capital Management
Director since 1998 Co., Inc. since 1988.
</TABLE>
5
<PAGE> 8
<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>
DIRECTORS WHOSE TERMS EXPIRE IN 2000
John B. Saynor............................ 58 Executive Vice President of the Company since 1990;
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)....................... 66 President of Palmer Service Corporation since 1972;
Director since 1988 General Partner of Palmer Partners L.P., a venture
capital firm, since 1981; Trustee of Nvest Funds
and director of the following public companies and
registered investment companies: Gensym
Corporation, Overland Data, Inc., and United Asset
Management Corporation.
</TABLE>
In connection with the MobileMedia Merger, designees of W.R. Huff Asset
Management Co., L.L.C. and Whippoorwill Associates, Inc. are expected to be
elected to the Board of Directors of the Company at the effective time of the
MobileMedia Merger. The expected nominees are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS AND
EMPLOYMENT OVER PAST FIVE
NAME AGE YEARS, AND DIRECTORSHIPS
---- --- -------------------------
<S> <C> <C>
Edwin M. Banks............................ 36 Employed by W.R. Huff Asset Management Co., L.L.C.
since 1988 and currently serves as a portfolio
manager; from 1985 until 1988, employed by Merrill
Lynch & Company; director of Magellan Health
Services, Inc. (formerly Charter Medical
Corporation) and e.spire Communications, Inc.
(formerly American Communications Services, Inc.)
H. Sean Mathis............................ 51 Chairman of the Board and Chief Executive Officer
of Allis Chalmers, Inc. since January 1996 and Vice
President of such company from 1989 until January
1996; from July 1996 to September 1997, Chairman of
the Board of Universal Gym Equipment Inc., a
privately owned company which filed for protection
under the Bankruptcy Code in July 1997; from 1991
to 1993, President of RCL Acquisition Corp., and
from 1993 to 1995, President and a director of RCL
Capital Corporation, which was merged into DISC
Graphics in November 1995; director of Allied
Digital Technologies and Thousand Trails, Inc.
</TABLE>
6
<PAGE> 9
OTHER EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
PRINCIPAL OCCUPATIONS AND
EMPLOYMENT OVER PAST FIVE
NAME AGE YEARS, AND DIRECTORSHIPS
---- --- -------------------------
<S> <C> <C>
Lyndon R. Daniels......................... 46 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............................. 40 Executive Vice President and Chief Financial
Officer of the Company since February 1998; Vice
President and Treasurer of Jones Intercable, Inc.,
a cable television operator, 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............................. 57 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 and Series C Preferred Stock by each current director, see "Security
Ownership of Certain Beneficial Owners and Management".
BOARD AND COMMITTEE MEETINGS
During the year ended December 31, 1998, the Board of Directors held
sixteen meetings, including regular, special and telephonic meetings.
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, 1998. The Audit Committee
has recommended that Arthur
7
<PAGE> 10
Andersen LLP be selected as the independent public accountants for the Company
for the year ending December 31, 1999. 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 ten meetings during
the year ended December 31, 1998.
In 1998, all directors attended at least 75% of the total number of
meetings of the Board of Directors and of the committees on which they serve.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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. Mr. Berman failed to
file a Form 4 required by Section 16(a) of the Exchange Act on a timely basis to
report the purchase of 16,100 shares of Common Stock on March 14, 1997. This
transaction was disclosed on a Form 5 filed in February 1999. Except as
described in the preceding sentence, the Company believes that during the year
ended December 31, 1998 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 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 is the only outside
director who has elected to participate in this plan. Mr. Rayfield elected to
defer all of his 1999 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. Currently, 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
8
<PAGE> 11
Outside Directors' Option Plan do not 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.
Currently, 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 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 Communications Holdings,
Inc.'s ("USA Mobile") 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, (iv) an option to purchase 3,000
shares of Common Stock at an exercise price of $4.5625 per share on December 24,
1997 and (v) an option to purchase 3,000 shares of Common Stock at an exercise
price of $1.4375 per share on December 24, 1998. Mr. Rayfield received, under
the Outside Directors' Stock Option Plan, (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, (ii) an option to purchase 3,000 shares
of Common Stock at an exercise price of $4.5625 per share on December 24, 1997
and (iii) an option to purchase 3,000 shares of Common Stock at an exercise
price of $1.4375 per share on December 24, 1998. Mr. Kornreich received, under
the Outside Directors' Stock Option Plan, (i) an option to purchase 3,000 shares
of Common Stock at an exercise price of $4.125 upon his election to the Board of
Directors on June 29, 1998 and (ii) an option to purchase 3,000 shares of Common
Stock at an exercise price of $1.4375 per share on December 24, 1998. As of
April 7, 1999, options to purchase an aggregate of 60,000 shares of Common Stock
were outstanding and 7,218 options had been exercised under the Outside
Directors' Option Plan. For information relating to proposed amendments to the
Outside Directors' Option Plan, see "Proposal 2 -- Approval of Amendments to the
Company's Non-Employee 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
9
<PAGE> 12
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 7, 1999, 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.
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, 1996, 1997 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ----------------
OPTIONS TO
OTHER ANNUAL PURCHASE COMPANY
NAME AND SALARY BONUS COMPENSATION COMMON STOCK
PRINCIPAL POSITION DURING 1998 YEAR $ ($)(1) ($) (#)(2)
------------------------------ ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
C. Edward Baker, Jr..................... 1998 $373,742(3) $135,000 $ 600(4) 454,655(5)
Chairman and Chief Executive Officer 1997 353,317 227,500 600(4) 49,636
1996 329,050 36,833 600(4) 268,860(6)(7)
Lyndon R. Daniels....................... 1998 295,416 -- 113,905(8) 140,000
President and Chief Operating Officer
(joined Arch in January 1998)
J. Roy Pottle........................... 1998 179,200 -- 99,304(8) 90,000
Executive Vice President and Chief
Financial Officer (joined Arch in
February 1998)
John B. Saynor.......................... 1998 157,646 41,770 600(4) 51,739(9)
Executive Vice President 1997 153,188 72,900 600(4) 15,905
1996 146,867 15,300 600(4) 20,000(7)
Paul H. Kuzia........................... 1998 165,489 58,435 600(4) 88,848(10)
Executive Vice 1997 157,633 77,400 600(4) 16,887
President/Technology and 1996 133,800 14,620 600(4) 8,000(7)
Regulatory Affairs
</TABLE>
- ---------------
(1) Represents bonus paid in such fiscal year with respect to prior year.
(2) No restricted stock awards or stock appreciation rights (SARs) were granted
to any of the Named Executive Officers during the years ended December 31,
1996, 1997 or 1998.
(3) Includes automobile allowance of $3,742.
(4) Represents the Company's matching contributions paid under the Company's
401(k) plan.
(5) Includes options to purchase 409,688 shares granted as part of the January
16, 1998 option repricing program.
10
<PAGE> 13
(6) Includes options to purchase 106,860 shares replaced in connection with the
October 23, 1996 option repricing program.
(7) Option replaced in connection with the January 16, 1998 option repricing
program.
(8) Represents reimbursement for certain relocation costs and associated taxes.
(9) Includes options to purchase 35,905 shares granted as part of the January
16, 1998 option repricing program.
(10) Includes options to purchase 69,687 shares granted as part of the January
16, 1998 option repricing program.
EXECUTIVE RETENTION AGREEMENTS
The Company is a party to Executive Retention Agreements (the "Agreements")
for a total of fourteen executives (the "Executives"), including Messrs. Baker,
Daniels, Pottle, Saynor and Kuzia.
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, Pottle, Saynor and Kuzia 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.
11
<PAGE> 14
STOCK OPTION GRANTS
The following table summarizes certain information regarding options to
purchase shares of Common Stock granted to the Named Executive Officers during
the year ended December 31, 1998. No SARs were granted during the year ended
December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT STOCK PRICE
SECURITIES OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS EXERCISE OPTIONS TERM(3)
OPTIONS GRANTED TO OR BASE ----------------------
GRANTED EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#)(1) FISCAL YEAR ($/SHARE)(2) DATE ($) ($)
---- ---------- ------------ ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr.... 44,967 2.31% $4.5313 03/04/08 $128,143 $ 324,739
409,688(4) 21.00 5.0625 01/16/08 553,600 2,110,041
Lyndon R. Daniels...... 140,000 7.18 4.9375 01/02/08 434,723 1,101,674
J. Roy Pottle.......... 90,000 4.61 3.5625 02/17/08 201,639 510,994
John B. Saynor......... 15,834 0.81 4.5313 03/04/08 45,122 114,349
35,905(4) 1.84 5.0625 01/16/08 48,517 184,924
Paul H. Kuzia.......... 19,161 0.98 4.5313 03/04/08 54,603 138,375
69,687(4) 3.57 5.0625 01/16/08 94,166 358,913
</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. For
information on acceleration of certain stock options, see "Acceleration of
Certain Stock Options".
(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 stockholders of the Company proportionately.
(4) Option granted as part of the January 16, 1998 option repricing program.
12
<PAGE> 15
OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table sets forth certain information regarding the exercise
of options to purchase shares of Common Stock during the year ended December 31,
1998 and such options held as of December 31, 1998 by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
SECURITIES UNDERLYING OPTIONS AT
UNEXERCISED OPTIONS FISCAL YEAR-
SHARES AT FISCAL YEAR-END END
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)
NAME (#) ($)(1) (#) ($)(2)
---- ----------- -------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
C. Edward Baker, Jr................... 94,032 $270,342 113,722 340,933 -- --
Lyndon R. Daniels..................... -- -- -- 140,000 -- --
J. Roy Pottle......................... -- -- -- 90,000 -- --
John B. Saynor........................ -- -- 5,000 46,739 -- --
Paul H. Kuzia......................... -- -- 19,920 68,928 -- --
</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, 1998
($1.4375 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
and 4,480 shares of Common Stock, respectively, then held by Messrs. Baker and
Kuzia.
The Company's Stock Option Plan which was 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 the Company's acquisition of USA Mobile.
13
<PAGE> 16
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, Shane and Rayfield
served on the Compensation Committee throughout 1998.
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 of Directors 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 Compensation 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, 1998, the
Compensation Committee fixed Mr. Baker's annual base salary at $370,000.
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
14
<PAGE> 17
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, 1998, 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 certain executive officers to
review his or her progress in achieving these goals. These executive officers
then meet with other executive officers and key managers. 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 Mr.
Baker's proposals in respect of bonuses for the year ended December 31, 1998. In
recognition of the achievement of corporate and his individual goals, the
Compensation Committee awarded Mr. Baker a bonus of $185,000 in March 1999.
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, 1998, 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, 1998 was equal
to the fair market value of the Company's Common Stock on the date of grant. See
"Executive Compensation--Stock Option Grants".
EXECUTIVE RETENTION AGREEMENTS
The Company is a party to Executive Retention Agreements with a total of
fourteen executives, including Messrs. Baker, Daniels, Pottle, Saynor and Kuzia.
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
Compensation--Executive Retention Agreements".
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code 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
15
<PAGE> 18
certain requirements are met. The Company intends to structure the stock options
granted to its executive officers under the Company's 1989 Option Plan and 1997
Stock Option Plan in a manner that complies with Section 162(m) of the Code so
as to mitigate any disallowance of deductions.
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). The Company does not
currently intend to qualify any compensation granted under the 1994 Option Plan
as performance-based compensation. However, the Compensation Committee will
continue to monitor the impact of Section 162(m) on the Company to determine
whether such plan should be amended to conform to Section 162(m).
THE EXECUTIVE COMPENSATION AND
STOCK OPTION COMMITTEE
R. Schorr Berman, Chairman
Allan L. Rayfield
John A. Shane
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and three other entities have co-founded an offshore
corporation to pursue wireless messaging opportunities in Latin America. The
Company and Mr. Hughes each contributed $250,000 to this offshore corporation
and each currently owns approximately 12% of its equity. The Company's Board of
Directors has approved an additional investment of $200,000 by the Company,
subject to certain conditions, and Mr. Hughes has indicated he intends to invest
an additional $50,000.
Between August 6, 1998 and October 28, 1998, the Company's Board of
Directors approved three full recourse, unsecured demand loans totaling $279,500
from the Company to C. Edward Baker, Jr., Chief Executive Officer and Chairman
of the Board of the Company. The loans bear interest at approximately 5%
annually. As of April 7, 1999, $279,500 was outstanding.
16
<PAGE> 19
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, 1993 through the
year ended December 31, 1998 with the cumulative total return on (i) the Nasdaq
Stock Market -- U.S. Index; (ii) a peer group index (the "New Peer Group Index")
comprised of Metrocall, Inc., SkyTel Communications, Inc., Paging Network, Inc.,
Pagemart Wireless, Inc. and Preferred Networks, Inc. (the "New Peer Group"); and
(iii) a peer group index (the "Old Peer Group Index") comprised of Metrocall,
Inc., SkyTel Communications, Inc. and Paging Network, Inc. (the "Old 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 December 31, 1993 in the Company's Common Stock and in the
Nasdaq Stock Market -- U.S. Index and the investment of $100 on December 31,
1993 in the New Peer Group Index and Old Peer Group Index and, in each case,
assumes reinvestment of all dividends. Measurement points are on December 31,
1993, December 31, 1994, December 31, 1995, December 31, 1996, December 31, 1997
and December 31, 1998.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ARCH COMMUNICATIONS GROUP, INC., THE NASDAQ STOCK MARKET (U.S.)
INDEX, A NEW PEER GROUP AND AN OLD PEER GROUP
[PERFORMANCE CHART]
<TABLE>
CUMULATIVE TOTAL RETURN
---------------------------------------------------------------
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arch Communications Group, Inc. $100.00 $128.00 $175.00 $ 68.00 $ 37.00 $ 10.00
New Peer Group $100.00 $100.00 $131.00 $ 70.00 $ 77.00 $ 56.00
Old Peer Group $100.00 $100.00 $131.00 $ 70.00 $ 79.00 $ 59.00
Nasdaq Stock Market (U.S.) $100.00 $ 98.00 $138.00 $170.00 $209.00 $293.00
</TABLE>
- ---------------
* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX,
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
17
<PAGE> 20
PROPOSAL 2 -- APPROVAL OF AMENDMENTS TO THE
COMPANY'S NON-EMPLOYEE DIRECTORS' STOCK 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 and retain qualified
non-employee directors ("Outside Directors") and that stock option grants under
the Company's Outside Directors' Option Plan have provided and will continue to
provide Outside Directors with an important incentive to continue as directors
of the Company. Accordingly, the Board of Directors has adopted, subject to
stockholder approval, two amendments to the Company's Outside Directors' Option
Plan (i) increasing the number of shares of Common Stock available for issuance
under such Plan from 80,200 to 140,200 and (ii) providing that all options
granted under such plan after May 18, 1999 shall become fully exercisable on the
date of grant. The Board of Directors of the Company believes that the
amendments to the Outside Directors' Option Plan are in the best interests of
the Company and its stockholders and recommends that the stockholders vote FOR
this proposal.
This proposed change in the vesting schedule is in response to a proposed
change in the accounting treatment of options granted to directors which would
impact charges to earnings of the Company. Previously, Outside Directors were
treated as employees for the purpose of determining the charge to earnings
recorded upon the grant of options to Outside Directors. The Financial
Accounting Standards Board has announced that Outside Directors will no longer
be treated as employees for this purpose. Accordingly, under Statement of
Financial Accounting Standards 123, the Company must value all Outside Director
options and record a charge to earnings at their fair value. In order to
minimize the charge relating to these options grants, the Board of Directors of
the Company has approved an amendment modifying the vesting terms of the options
granted pursuant to the Outside Directors' Option Plan. If the Company does not
change the vesting terms of these options to provide that they shall be fully
exercisable on the date of grant, then due to the volatility of the Company's
stock price, the Company will be subject to an undeterminable and variable
charge in the Company's statement of operations relating to these options as
they vest.
The following is a summary of the Outside Directors' Option Plan.
SUMMARY OF THE PLAN
The Outside Directors' Option Plan currently authorizes the issuance of up
to an aggregate of 80,200 shares of Common Stock to Outside Directors. If this
proposal is approved, the number of available shares will be increased to
140,200. The Outside Directors' Option Plan is administered by the Compensation
Committee, which is authorized to make rules and regulations for the
administration and interpretation of the Outside Directors' Option Plan.
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. Fair market value, under the Outside Directors' Option Plan, is the
average of the high and low sales prices per share of Common Stock on the date
of grant as reported in the Wall Street Journal, or, if there was no trading on
such date, the next preceding date on which there was trading. Each option
currently becomes exercisable as to 25% of the shares on the date of grant and
as to an additional 25% 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 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).
18
<PAGE> 21
If this proposal is approved, each option granted after May 18, 1999 under
the Outside Directors' Option Plan will become exercisable with respect to 100%
of the shares on the date of grant, subject to the Company's repurchase option
which would allow the Company to repurchase, at its option, up to 75% of the
total number of shares subject to such option on the date of grant less 25% on
each of the first three anniversaries of the date of grant. All other provisions
of the plan would remain the same.
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
Outside Directors' Option Plan and with respect to the sale of Common Stock
acquired under the Outside Directors' Option Plan.
TAX CONSEQUENCES TO PARTICIPANTS
A participant will not recognize taxable income upon the grant of an option
under the Outside Directors' Option Plan. Nevertheless, a participant generally
will recognize ordinary compensation income upon the exercise of the option in
an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option (the "Option Stock") on the exercise
date over the exercise price.
A participant will have a tax basis for any Option Stock equal to the
exercise price plus any income recognized with respect to the option. Upon
selling Option Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the Option
Stock and the participant's tax basis in the Option Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
Option 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 Option Stock for
a shorter period.
TAX CONSEQUENCES TO THE COMPANY
The grant of an option under the Outside Directors' Option Plan will have
no 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 Outside Directors' Option Plan upon
the exercise of any option.
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,
1999. 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 2000 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 2000 Annual
Meeting of Stockholders 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 17, 1999 in order to be considered for inclusion in the
Proxy Statement relating to that meeting.
19
<PAGE> 22
In addition, the Company's by-laws require that the Company be given
advance notice of stockholder nominations for election to the Company's Board of
Directors and of other matters which stockholders wish to present for action at
an annual meeting of stockholders (other than matters included in the Company's
proxy statement in accordance with Rule 14a-8). The required notice must be made
in writing and delivered or mailed to the Secretary of the Company at the
principal offices of the Company, and received not less than 80 days prior to
the annual meeting of stockholders; provided, however, that if less than 90
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, such nomination may be mailed or delivered to the
Secretary not later than the close of business on the tenth day following the
date on which the notice of the meeting was mailed or such public disclosure was
made, whichever occurs first. The 2000 Annual Meeting of Stockholders is
currently expected to be held on May 16, 2000. Assuming that this date does not
change, in order to comply with the time periods set forth in the Company's
By-laws, appropriate notice would need to be provided to the Secretary no later
than February 25, 2000.
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 $4,500 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 16, 1999
Westborough, Massachusetts
20
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of two FOR the nominees [ ] WITHHOLD AUTHORITY to vote for [ ] *EXCEPTIONS [ ]
Directors listed below all nominees listed below.
Nominees: James S. Hughes, Allan L. Rayfield
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 amendments to the Company's Non-Employee 3. To ratify the selection by the Board of Directors
Directors' Stock Option Plan (a) increasing the of Arthur Andersen LLP as the independent public
number of shares of Common Stock issuable under such accountants for the Company for the fiscal year
plan from 80,200 to 140,200 and (b) providing that ending December 31, 1999.
all options granted under such plan after May 18,
1999 shall become fully exercisable on the date FOR [ ] AGAINST [ ] ABSTAIN [ ]
of grant.
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: ________________________________, 1999
____________________________________________
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 ENVELOPE.)
</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 18, 1999
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 18, 1999, 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, N.Y. 10203-0171
