SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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ARCH WIRELESS, INC.
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[ARCH LOGO]
April [ ], 2003
Dear Stockholder:
You are cordially invited to attend our 2003 annual meeting of
stockholders, which will be held at the offices of Hale and Dorr LLP, 26th
floor, 60 State Street, Boston, Massachusetts 02109, on Thursday, May 8, 2003,
at 11:00 a.m. local time.
At this year's annual meeting, you are asked to elect nine directors, to
approve an increase in the number of shares available for issuance under our
2002 stock incentive plan and to ratify the appointment of our independent
auditors. The accompanying proxy statement includes additional important
information about these proposals.
You are also asked to approve our merger with a wholly-owned subsidiary
that will result in the imposition of new transfer restrictions on our common
stock. We believe that these new transfer restrictions will help protect the tax
benefits associated with our federal income tax attributes, including net
operating losses (NOLs) that may be used to offset future federal taxable
income. The new transfer restrictions will generally not apply to transfers by
stockholders who hold 5% or more of our outstanding stock at the time of the
merger.
Your board of directors encourages you to vote in favor of each proposal.
Please vote your shares promptly. You may exercise your proxy and mail it
in the prepaid envelope to ensure that your shares are represented at the
meeting. Alternatively, most of our stockholders will also be able to vote by
telephone or through the Internet. If you have any questions or need assistance
in voting your shares electronically, you may call MacKenzie Partners, Inc. at
(800) 322-2885 (toll-free) or at (212) 929-5500 (collect).
Thank you for your continued support.
Sincerely,
C. Edward Baker, Jr.
Chairman of the Board and
Chief Executive Officer
PRELIMINARY COPIES
ARCH WIRELESS, INC.
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 2003
You are hereby notified that the 2003 annual meeting of stockholders of
Arch Wireless, Inc. will be held at the offices of Hale and Dorr LLP, 26th
floor, 60 State Street, Boston, Massachusetts 02109, on Thursday, May 8, 2003,
at 11:00 a.m., local time, for the purpose of considering and voting upon the
following matters:
1. To elect nine directors for terms of one year each.
2. To approve an amendment to our 2002 stock incentive plan
increasing the number of shares of common stock authorized for issuance
under the plan from 950,000 to 1,550,000 and providing for the issuance of
an aggregate of 450,000 shares of restricted stock for $.001 per share to
our non-employee directors.
3. To approve our merger with a wholly-owned subsidiary that will
result in the imposition of transfer restrictions on our common stock to
maintain certain tax benefits as described herein.
4. To ratify the appointment by the board of directors of
PricewaterhouseCoopers LLP as our independent public accountants for the
year ending December 31, 2003.
5. To transact such other business as may properly come before the
meeting.
These items of business are more fully described in the proxy statement
accompanying this notice. The board of directors does not know of any other
business to be transacted at the annual meeting.
The board of directors has fixed the close of business on Friday, March 28,
2003 as the record date for the determination of stockholders entitled to notice
of and to vote at the annual meeting. A list of our stockholders entitled to
notice of and 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 our principal executive offices, 1800
West Park Drive, Suite 250, Westborough, Massachusetts 01581, telephone (508)
870-6700, and at the time and place of the annual meeting.
A copy of our annual report to stockholders for the year ended December 31,
2002 accompanies this notice of meeting and the enclosed proxy statement. Our
annual report contains consolidated financial statements and other information
of interest to stockholders.
By order of the board of directors,
Patricia A. Gray, Secretary
April 1, 2003
Westborough, Massachusetts
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
SUMMARY OF PROPOSAL TO EFFECT A MERGER TO IMPLEMENT TRANSFER
RESTRICTIONS ON OUR COMMON STOCK
(PROPOSAL 3)
The following is a summary of the proposal to approve our merger with a
wholly-owned subsidiary that will result in the imposition of transfer
restrictions on our common stock (Proposal 3). This summary does not contain all
of the information you should consider before voting on the proposal. You should
read the entire proxy statement, including the attached appendices, carefully
because the information in this summary is not complete.
- Reason for the Merger (page 21). Our board of directors has approved the
merger, subject to stockholder approval, to help protect the tax benefits
associated with our federal income tax attributes, including tax
attributes that may be used to offset future federal taxable income. The
merger will result in the imposition of restrictions on the transfer of
our common stock that our board believes may enable us to avoid
significant limitations on the amount and timing of the use of our tax
attributes.
- Terms of the Merger and Class A Common Stock; New Transfer Restrictions
(page 22). In the merger, Arch Wireless, Inc. will be merged with a
wholly-owned subsidiary that was formed for the specific purpose of the
merger. Arch Wireless, Inc. will be the surviving entity. Upon the
effectiveness of the merger, each of our issued and outstanding shares of
common stock will be converted into the right to receive one share of a
new class of security called Class A common stock. The new Class A common
stock will be identical in all respects to the common stock, except that
it will be subject to restrictions which prohibit the following
transfers: (1) transfers of Class A common stock by stockholders to a
stockholder that holds 5% or more of our outstanding stock, (2) transfers
of Class A common stock by stockholders who hold 5% or more of our
outstanding stock to any person, entity or group and (3) transfers of
Class A common stock to any person, entity or group that, if consummated,
would result in their ownership of 5% or more of our outstanding stock.
Transfers by holders of 5% or more of our outstanding stock as of the
time the merger generally will be exempted. Any merger approved by the
board of directors, as well as any tender offer to acquire all of our
outstanding stock where a majority of the shares have been tendered, will
be exempt from these restrictions. Once the transfer restrictions are no
longer necessary to protect the intended tax benefits, the Class A common
stock will automatically convert back into common stock on a
share-for-share basis.
- Tax and Accounting Consequences of the Merger (pages 22-23). The merger
will not be a taxable event for stockholders. The tax basis and holding
period for the shares of Class A common stock received by stockholders
will be the same as the tax basis and holding period of the shares of
common stock exchanged in the merger. The merger will not have any
significant accounting consequences to us and will not have any
significant tax consequences to us other than the intended tax benefits
described above.
- Required Approvals (page 23). The merger must be approved by the
affirmative vote of holders of a majority of the issued and outstanding
shares of our common stock. The merger must also be approved by the
holders of a majority in principal amount of the outstanding 10% notes
and 12% notes issued by our wholly-owned subsidiary, Arch Wireless
Holdings, Inc, and will require certain approvals from the Federal
Communications Commission.
- Possible Anti-Takeover Effects (page 23). If the merger is approved, the
transfer restrictions on new shares of Class A common stock could have
the effect of preventing or delaying a change in control of our company.
However, the transfer restrictions are not being proposed in response to
any specific effort to acquire control of our company and should not
interfere with any merger or any other business combination approved by
the board of directors or any tender or exchange offer for all of our
stock.
- No Appraisal Rights (page 23). Stockholders do not have appraisal rights
in connection with the merger.
- Exchange of Stock Certificates (page 23). We will send instructions to
stockholders of record of how to exchange their stock certificates
representing shares of common stock for new certificates representing
Class A common stock after completion of the merger. Please do not submit
any stock certificates at this time.
- Completion of the Merger (page 23). If we obtain the required
stockholder approval, we plan to complete the merger promptly following
receipt of the other approvals required for the merger.
- Board Recommendation (page 21). The board unanimously recommends that
you vote FOR the approval of the merger.
PRELIMINARY COPIES
ARCH WIRELESS, INC.
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
PROXY STATEMENT
2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 2003
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors for use at the 2003 annual meeting of
stockholders to be held on Tuesday, May 8, 2003, at 11:00 a.m., local time, at
the offices of Hale and Dorr LLP, 26th Floor, 60 State Street, Boston,
Massachusetts 02109.
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. A stockholder may
revoke any proxy at any time before its exercise by delivery of a written
revocation to our corporate secretary. Attendance at the meeting will not itself
be deemed to revoke a proxy unless the stockholder affirmatively revokes the
proxy.
A copy of our annual report on Form 10-K for the year ended December 31,
2002, as filed with the Securities and Exchange Commission, excluding exhibits,
will be furnished without charge to any stockholder upon written request to us.
Please address requests to Arch Wireless, Inc., 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.
VOTING SECURITIES AND VOTES REQUIRED
On March 28, 2003, the record date for determination of stockholders
entitled to notice of and to vote at the meeting, there were -- shares of common
stock issued, outstanding and entitled to vote. Each share of common stock
entitles the record holder thereof to one vote on each of the matters to be
voted upon at the meeting.
The holders of a majority of the outstanding common stock will constitute a
quorum for the transaction of business at the annual meeting. Shares of common
stock present in person or represented by proxy, including shares that abstain
or do not vote with respect to any of the matters presented at the annual
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 voting on the matter
is required for the approval of the amendment to our 2002 stock incentive plan
(Proposal 2) and the ratification of PricewaterhouseCoopers LLP as our
independent public accountants for the year ending December 31, 2003 (Proposal
4). The affirmative vote of the holders of a majority of the outstanding shares
is required for the approval of our merger with a wholly-owned subsidiary that
will result in the imposition of transfer restrictions on our common stock
(Proposal 3).
Shares held by stockholders who 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, 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 matters
that require the affirmative vote of a plurality or majority of the shares
voting on a matter (Proposals 1, 2 and 4) but will have the same effect as a
vote against the matter that requires the affirmative vote of a majority of the
outstanding shares (Proposal 3).
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information about the beneficial
ownership of our common stock as of March 14, 2003 by:
- each person known by us to own beneficially more than 5% of the voting
power of our outstanding common stock;
- each of our current directors;
- our chief executive officer and the other named executive officers; and
- all of our current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission based upon voting or investment power over
the securities.
Unless otherwise indicated, each person or entity listed 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. The inclusion of shares in the table does not constitute an admission
that the named stockholder is a direct or indirect beneficial owner of the
shares.
SHARES
OUTSTANDING
AT MARCH 14,
NAME 2003 PERCENTAGE(1)
---- -------------- -------------
C. Edward Baker, Jr....................................... 254,700 1.3%
Lyndon R. Daniels......................................... 149,400 *
J. Roy Pottle............................................. 120,600 *
Paul H. Kuzia............................................. 74,700 *
Patricia A. Gray.......................................... 29,700 *
William C. Bousquette..................................... -- *
James V. Continenza....................................... -- *
Eric Gold................................................. -- *
Carroll D. McHenry........................................ -- *
Matthew Oristano(2)....................................... 4,979 *
William E. Redmond, Jr.................................... -- *
Samme L. Thompson......................................... -- *
Carroll R. Wetzel, Jr..................................... -- *
David C. Abrams(3)........................................ 1,148,719 5.7%
Contrarian Capital Management L.L.C.(4)................... 1,665,263 8.3%
Credit Suisse First Boston(5)............................. 1,186,989 5.9%
Franklin Resources, Inc.(6)............................... 1,619,719 8.1%
Putnam, LLC(7)............................................ 1,065,624 5.3%
All current directors and executive officers as a group
(13 persons).............................................. 631,949 3.2%
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* Less than 1%
(1) Until all shares reserved for issuance pursuant to our plan of
reorganization are allocated, outstanding shares not yet definitively
allocated among those former creditors who are their beneficial owners may
not, as a practical matter, be likely to be voted by anyone. In that case,
the percentage voting power of the stockholders named above would be
effectively increased by a factor of 1.06 to 1.
2
(2) The shares listed are owned by the Oristano Foundation, a charitable trust
the trustees of which are members of the Oristano family, and by Alda
Limited Partnership, the general partner of which is a corporation
controlled by Mr. Oristano.
(3) Based on a Schedule 13G, dated December 12, 2002, filed with the Securities
and Exchange Commission. The Schedule 13G was filed on behalf of David C.
Abrams and Abrams Capital, LLC. Abrams Capital, LLC is reported to be the
beneficial owner of 1,092,135 of the shares, which includes shares
beneficially owned by private investment partnerships of which Abrams
Capital, LLC is the general partner. David C. Abrams is reported to be the
beneficial owner of 1,148,719 shares, which includes shares beneficially
owned by private investment partnerships and a private investment
corporation that may be deemed to be controlled by Mr. Abrams, who is the
managing member of the sole general partner of such partnerships and the
managing member of the investment adviser to the private investment
corporation.
(4) Based on a Schedule 13G/A, dated February 14, 2003, filed with the
Securities and Exchange Commission.
(5) Based on a Schedule 13G/A, dated February 14, 2003, filed with the
Securities and Exchange Commission.
(6) Based on a Schedule 13G/A, dated January 30, 2003, filed with the Securities
and Exchange Commission. The Schedule 13G/A was filed on behalf of Franklin
Resources, Inc., the parent holding company, Charles B. Johnson, the
principal stockholder of the parent holding company; Rupert H. Johnson, the
principal stockholder of the parent holding company; and Franklin Advisors,
Inc., investment adviser, all of which disclaim beneficial ownership of the
shares. The shares are reported to be beneficially owned by one or more open
or close-ended investment companies or other managed accounts which are
advised by direct and indirect investment advisory subsidiaries of Franklin
Resources, Inc.
(7) Based on a Schedule 13G, dated February 14, 2003, filed with the Securities
and Exchange Commission. The Schedule 13G was filed on behalf of Putnam,
LLC, its parent holding company, Marsh & McLennan Companies, Inc., and its
investment advisors and subsidiaries, Putnam Investment Management, LLC,
which is the investment advisor to the Putnam family of mutual funds, and
The Putnam Advisory Company, LLC, which is the investment advisor to
Putnam's institutional clients, each of which disclaim beneficial ownership
of the shares. Both Putnam Investment Management, LLC and The Putnam
Advisory Company, LLC are reported to have dispository powers over the
shares as investment managers, but each of the trustees of the Putnam family
of mutual funds have voting power over the shares held by each fund, and The
Putnam Advisory Company, LLC has shared voting power over the shares held by
institutional clients.
The address of each person or entity listed in the table is: c/o Arch
Wireless, Inc., 1800 West Park Drive, Westborough, Massachusetts 01581, except
for David C. Abrams, which is 222 Berkeley Street, 22nd Floor, Boston,
Massachusetts 02116, Contrarian Capital Management, L.L.C., which is 411 West
Putnam Avenue, Suite 225, Greenwich, Connecticut 06830, Credit Suisse First
Boston, which is 11 Madison Avenue, New York, New York 10010, Putnam, LLC, which
is One Post Office Square, Boston, Massachusetts 02109, and Franklin Resources,
Inc., which is One Franklin Parkway, San Mateo, California 94403.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and holders of more than 10% of our common stock
to file initial reports of ownership and reports of changes in ownership of our
common stock with the Securities and Exchange Commission. We believe that during
2002 our reporting persons complied with all section 16(a) filing requirements,
except that Messrs. Baker, Daniels, Pottle and Kuzia and Ms. Gray each filed a
late Form 4 to report their acquisition of common stock on November 5, 2002.
3
PROPOSAL 1 -- ELECTION OF DIRECTORS
Pursuant to our by-laws, the board of directors has fixed at nine the
number of directors to be elected at the annual meeting. Our directors are
elected annually by the stockholders and hold office until the next annual
meeting and until successors are elected and qualified or until death,
resignation or removal. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled until the next
annual meeting of stockholders by a majority of directors then in office.
The board of directors, based on the recommendation of its nominating and
governance committee, proposes the election of the persons listed below as our
directors. Each of our current directors has been nominated for reelection. This
year's nominees are to be elected to serve for a term expiring at the 2004
annual meeting of stockholders.
The persons named in the enclosed proxy card will vote to elect each of the
director nominees listed below, unless the proxy is marked otherwise. Each has
indicated his willingness to serve as a director if elected, but if any of the
nominees becomes 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. The board of directors
believes each of the nominees will be able to serve if elected.
Set forth below are the names of each nominee for director, their ages, the
year in which each first became one of our directors, their principal
occupations and employment during the past five years and the names of other
public companies of which they serve as a director. Also set forth below are the
names of our current executive officers, their ages and their principal
occupations and employment during the past five years.
POSITIONS WITH ARCH, PRINCIPAL OCCUPATIONS AND
NAME AND PERIOD OF SERVICE AS A DIRECTOR AGE EMPLOYMENT OVER PAST FIVE YEARS, AND DIRECTORSHIPS
---------------------------------------- --- --------------------------------------------------
C. Edward Baker, Jr.................... 52 Chief executive officer of Arch since 1988 and
Director since 1986 chairman of the board of Arch since 1989.
William C. Bousquette(1)(3)............ 66 Senior vice president and chief financial officer of
Director since 2002 Texaco, Inc. from January 1995 until retiring in
December 1996; director of InterTAN, Inc., and
Gadzooks, Inc.
James V. Continenza(2)................. 40 President and chief executive officer of Teligent,
Director since 2002 Inc. since September 2002, chief operating officer of
Teligent, Inc. from May 2001 to September 2002 and its
senior vice president of strategic operations from
September 2000 to May 2001; president and chief
executive officer of Lucent Technologies Product
Finance, a CIT Company, from April 1999 to September
2000; senior vice president -- worldwide sales and
marketing of Lucent Technologies Product Finance from
September 1997 to April 1999; director of Teligent,
Inc.
Eric Gold(2)........................... 40 Telecommunications analyst at Dresdner Kleinwort
Director since 2002 Wasserstein since May 1997.
Carroll D. McHenry(2)(3)............... 60 Chairman of the board, president, chief executive
Director since 2002 officer of Heartland Wireless Communications, Inc. and
Heartland's successor company, Nucentrix Broadband
Networks, Inc., since April 1997; Heartland Wireless
Communications filed for bankruptcy protection in
December 1998.
4
POSITIONS WITH ARCH, PRINCIPAL OCCUPATIONS AND
NAME AND PERIOD OF SERVICE AS A DIRECTOR AGE EMPLOYMENT OVER PAST FIVE YEARS, AND DIRECTORSHIPS
---------------------------------------- --- --------------------------------------------------
Matthew Oristano(1).................... 46 President and chief executive officer of Alda Inc.
Director since 2002 since 1995; chairman of the board, chief executive
officer of People's Choice TV Corp. from April 1993 to
September 1999.
William E. Redmond, Jr.(2)............. 43 President and chief executive officer from December
Director since 2002 1996 to February 2003 and chairman of the board since
1999 of Gardenway, Inc., which filed for bankruptcy
protection in July 2001; director of Tokheim
Corporation since November 2000 and chairman of the
oversight committee of the board of Tokheim since
November 2002; director of WKI Holding Company, Inc.,
which operates principally through its subsidiary
World Kitchen, Inc., since January 2003.
Samme L. Thompson(1)(3)................ 57 President of Telit Associates, Inc. since April 2002;
Director since 2002 senior vice president of Motorola Corporation from
July 1999 until April 2002; chief financial officer of
NetCom Solutions, Inc. from April 1998 to June 1999;
president of Telit Associates, Inc. from 1994 to 1999;
director of Conseco, Inc.
Carroll R. Wetzel, Jr.(1)(3)........... 59 Vice chairman of Arch since May 2002; chairman of the
Director since 2002 board of Safety Components International, Inc. since
October 2000; managing director of Chemical Bank/Chase
Manhattan from 1988 until retiring in 1996; has agreed
to become a director of Laidlaw Inc. upon its
emergence from bankruptcy protection.
---------------
(1) Member of our audit committee.
(2) Member of our compensation committee.
(3) Member of our nominating and governance committee.
All of our current directors, other than Mr. Baker, were appointed by our
secured lenders as part of our reorganization proceedings under chapter 11 of
the bankruptcy code.
The board of directors recommends a vote "FOR" the election of each of the
nominees for directors named above.
5
CORPORATE GOVERNANCE
GENERAL PHILOSOPHY
We believe that good corporate governance is important to ensure that our
company is managed for the long-term benefit of our stockholders. During the
past year, we have been reviewing our corporate governance policies and
practices and comparing them to those suggested by various authorities in
corporate governance and the practices of other public companies. We have also
been reviewing the provisions of the Sarbanes-Oxley Act of 2002 and the new and
proposed rules of the Securities and Exchange Commission. In addition, even
though we are not subject to them, we have been reviewing the proposed new
listing standards of the Nasdaq Stock Market and the New York Stock Exchange.
Based on our review, we have taken steps to enhance our corporate
governance policies and practices and to implement voluntarily many of the
proposed new rules and listing standards. In particular, we:
- reconstituted our nominating committee as the nominating and governance
committee and adopted a new charter for this committee;
- adopted corporate governance guidelines;
- adopted a new charter for our audit committee,
- increased the number of our independent directors from seven at the
beginning of 2002 to eight at the end of 2002;
- plan to adopt a code of business conduct and ethics applying to all
officers, directors and employees;
- are seeking stockholder approval of the proposed amendment to our 2002
stock incentive plan (Proposal 2 below) even though such approval is not
required by law; and
- are seeking stockholder ratification of the appointment of
PricewaterhouseCoopers LLP as our independent public accountants for the
year ending December 31, 2003 (Proposal 4 below) even though such
ratification is not required by law.
You can access our current committee charters and corporate governance
guidelines in the "Investor Relations" section of www.arch.com, or receive
copies by writing to Arch Wireless, Inc., 1800 West Park Drive, Suite 250,
Westborough, Massachusetts 01581, Attention: Investors Relations.
BOARD AND COMMITTEE MEETINGS
The board of directors held 16 meetings during 2002, including regular,
special and telephonic meetings. During 2002, each director attended at least
75% of the total number of board meetings held during the period in which he was
a director and at least 75% of the total number of meetings held by each board
committee on which he served during the period in which he was a member of such
committee, except that Mr. Wetzel attended two of the three meetings of the
audit committee held while he was a member.
The board of directors has an audit committee, a compensation committee and
a nominating and governance committee.
AUDIT COMMITTEE
Messrs. Bousquette, Oristano, Thompson and Wetzel currently serve on our
audit committee. The audit committee assists the board in fulfilling its
oversight responsibilities by reviewing the financial information that will be
provided to our stockholders, the systems of internal controls that management
and the board of directors have established, the independence of our auditors
and all audit processes. The audit committee:
- consults with our independent public accountants to review our annual
financial statements and related footnotes prior to their submission to
the board of directors;
6
- discusses with the independent public accountants our internal financial
controls, the audit scope and procedural plans, and recommendations by
the auditors;
- assesses and confirms the independence of the independent public
accountants selected as auditor; and
- coordinates our internal and external audits.
The audit committee has the sole authority and responsibility to select,
evaluate and, where appropriate, replace the independent public accountants. In
addition, the audit committee reviews all services provided by the independent
public accountants and all fees paid to them. The audit committee held six
meetings during 2002, including regular, special and telephonic meetings. The
audit committee has recommended that PricewaterhouseCoopers LLP be selected as
our independent public accountants for the year ending December 31, 2003.
COMPENSATION COMMITTEE
Messrs. Continenza, Gold, McHenry and Redmond currently serve on our
compensation committee. The compensation committee is responsible for our
compensation strategy and structure on a company-wide basis and, in particular,
for the compensation of our executive officer and key managers. The compensation
committee administers our management bonus plan and our stock incentive plan,
and recommends the implementation of new plans or changes to existing plans, and
recommends compensation for our non-employee directors. The compensation
committee is also responsible for oversight of executive development initiatives
and succession planning for our key executive officers. The compensation
committee held four meetings during 2002.
NOMINATING AND GOVERNANCE COMMITTEE
Messrs. Bousquette, McHenry, Thompson and Wetzel currently serve on our
nominating and governance committee. The nominating and governance committee
recommends nominees for election as directors, leads the annual review of the
board's performance, recommends board committee members, recommends governance
guidelines and procedures and reviews management recommendations for officers to
be elected by the board. The nominating and governance committee, which was
formed on November 6, 2002, held one meeting during 2002.
The nominating and governance committee will consider nominees recommended
by stockholders if such nominations are submitted in compliance with the
procedures described below under "Stockholder Proposals for 2004 Annual
Meeting."
REPORT OF THE AUDIT COMMITTEE
The audit committee of the board of directors is composed of four members
and acts under a written charter adopted by the audit committee on November 5,
2002 and ratified by the board of directors on December 12, 2002. A copy of this
charter is attached to this proxy statement as Appendix A. Each member of the
audit committee is an independent director, as defined by its charter, the
current and proposed rules of the Nasdaq Stock Market and the proposed
Securities and Exchange Commission rules. Mr. Bousquette qualifies as an "audit
committee financial expert" under the new rules of the Securities and Exchange
Commission.
The audit committee reviewed our audited financial statements for the year
ended December 31, 2002 and discussed these financial statements with our
management. Management is responsible for our internal controls and the
financial reporting process. Our independent accountants are responsible for
performing an independent audit of our financial statements, in accordance with
generally accepted accounting principles, and to issue a report on those
financial statements. The audit committee is responsible for monitoring and
overseeing these processes. As appropriate, the audit committee reviews and
evaluates, and discusses with
7
our management, internal accounting, financial and auditing personnel and the
independent auditors, the following:
- the plan for, and the independent auditors' report on, each audit of our
financial statements;
- our financial disclosure documents, including all financial statements
and reports filed with the Securities and Exchange Commission or sent to
stockholders;
- changes in our accounting practices, principles, controls or
methodologies;
- significant developments or changes in accounting rules and laws
applicable to us; and
- the adequacy of our internal controls and accounting, financial and
auditing personnel.
The audit committee also reviewed and discussed the audited financial
statements and the matters required by Statement on Auditing Standards 61
(entitled "Communication with Audit Committees") with PricewaterhouseCoopers
LLP, our independent auditors. This statement requires our independent auditors
to discuss with our audit committee, among other things, the following:
- methods to account for significant unusual transactions;
- the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
- the process used by management in formulating particularly sensitive
accounting estimates and the basis for the auditors' conclusions
regarding the reasonableness of those estimates; and
- disagreements with management over the application of accounting
principles, the basis for management's accounting estimates and the
disclosures in the financial statements.
Our independent auditors also provided the audit committee with the written
disclosures and the letter required by Independence Standards Board Standard No.
1 (entitled "Independence Discussions with Audit Committees"). Independence
Standards Board Standard No. 1 requires auditors annually to disclose in writing
all relationships that in the auditor's professional opinion may reasonably be
thought to bear on independence, confirm their perceived independence and engage
in a discussion of independence. Accordingly, the audit committee discussed with
the independent auditors their independence from us. The audit committee also
considered whether the independent auditors' provision of other, non-audit
related services to us is compatible with maintaining such auditors'
independence.
Based on its discussions with management and the independent auditors, and
its review of the representations and information provided by management and the
independent auditors, the audit committee recommended to the board of directors
that the audited financial statements be included in our Annual Report on Form
10-K for the year ended December 31, 2002.
By the audit committee,
William C. Bousquette,
Chairman
Matthew Oristno
Samme L. Thompson
Carroll R. Wetzel, Jr.
DIRECTOR COMPENSATION
FEES AND EXPENSES
We pay our vice chairman of the board an annual fee of $90,000 and our
other non-employee directors an annual fee of $25,000. We pay the chairman of
the audit committee an additional annual fee
8
of $15,000 and the chairman of the compensation committee an additional annual
fee of $7,500 in light of their additional duties. We pay each non-employee
director $2,000 for attendance and participation at each meeting of the board of
directors at which corporate action is considered or taken. Each board committee
chair is paid $2,000 and each board committee member is paid $1,000 for
attendance and participation at each board committee meeting. We also reimburse
all directors for customary and reasonable expenses incurred in attending board
and board committee meetings.
RESTRICTED STOCK AWARDS
Subject to stockholder approval (Proposal 2 below), we will issue an
aggregate of 450,000 shares of common stock to our non-employee directors,
consisting of 100,000 shares to our vice chairman of the board, Carroll R.
Wetzel, Jr., and 50,000 shares to each of our other non-employee directors, for
a purchase price of $.001 per share and vesting over three years. The other
terms of these awards are summarized below under the caption "Information About
Executive Compensation -- Restricted Stock Grants."
9
INFORMATION ABOUT EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
Our current executive officers are as follows:
C. Edward Baker, Jr.................. 52 Chief executive officer of Arch since 1988 and chairman
of the board of Arch since 1989.
Lyndon R. Daniels.................... 50 President and chief operating officer of Arch since
January 1998; president and chief executive officer of
Pacific Bell Mobile Services, a subsidiary of SBC
Communications Inc., from November 1993 to December
1998.
J. Roy Pottle........................ 44 Executive vice president and chief financial officer of
Arch since February 1998; vice president and treasurer
of Jones Intercable, Inc., a cable television operator,
from October 1994 to February 1998.
Paul H. Kuzia........................ 60 Executive vice president, technology and regulatory
affairs of Arch since September 1996; vice president,
engineering and regulatory affairs of Arch from 1988 to
September 1996.
Patricia A. Gray..................... 48 Senior vice president, general counsel and secretary of
Arch since May 2000; vice president, general counsel and
secretary of Arch from January 2000 to May 2000; vice
president and general counsel of Arch from June 1999 to
January 2000; prior to June 1999, vice president,
general counsel and secretary of MobileMedia
Corporation, which filed for bankruptcy protection in
January 1997.
The foregoing individuals were our executive officers at the time that our
Chapter 11 bankruptcy proceedings commenced on December 6, 2001.
Our executive officers are elected by the board of directors and hold
office until their successors are elected or until their earlier death,
resignation or removal.
10
SUMMARY COMPENSATION
The annual and long-term compensation of our chief executive officer and
other executive officers named below was as follows for the years ended December
31, 2000, 2001 and 2002:
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION OPTIONS
-------------------------------------- TO ALL
OTHER RESTRICTED PURCHASE OTHER
ANNUAL STOCK COMMON COMPEN-
NAME AND PRINCIPAL POSITION COMPEN- AWARDS STOCK SATION
DURING 2002 YEAR SALARY($) BONUS($)(1) SATION($)(2) (#)(3) (#)(4) ($)(5)
--------------------------- ---- --------- ----------- ------------ ---------- -------- ---------
C. Edward Baker, Jr...... 2002 $607,200 $1,023,000 $4,584 249,663 -- $427,766
Chairman and chief 2001 601,431 230,000 3,400 -- -- --
executive officer 2000 532,200 371,250 4,990 -- 951,000 --
Lyndon R. Daniels........ 2002 379,000 527,400 3,666 146,445 -- --
President and chief 2001 383,277 160,000 3,400 -- -- --
operating officer 2000 348,200 224,130 3,500 -- 607,000 --
J. Roy Pottle............ 2002 312,200 452,500 2,200 118,215 -- --
Executive vice president 2001 309,892 130,000 2,100 -- -- --
and chief financial 2000 282,200 166,290 3,191 -- 452,000 --
officer
Paul H Kuzia............. 2002 236,000 215,000 3,666 73,223 -- --
Executive vice president, 2001 234,461 80,000 3,400 -- -- --
technology and 2000 216,000 121,485 3,509 -- 322,300 --
regulatory affairs
Patricia A. Gray......... 2002 229,000 189,200 4,125 29,113 -- --
Senior vice president, 2001 227,461 60,000 3,037 -- -- --
general counsel 2000 206,773 100,620 1,516 -- 232,500 --
and secretary
---------------
(1) Represents bonus paid in such fiscal year with respect to prior year.
Information for bonus compensation paid in 2002 includes retention bonuses
paid to Messrs. Baker, Daniels, Pottle and Kuzia and Ms. Gray pursuant to
our retention plan in the amounts of $363,000, $300,000, $300,000, $100,000
and $100,000, respectively. See "-- Retention Plan" below. Information for
bonus compensation paid in 2002 to Mr. Baker also includes $210,000
reimbursed during 2002 for the payment of taxes in connection with the
cancellation of $427,766 of indebtedness owed by Mr. Baker to us in
connection with our chapter 11 reorganization. See "-- Executive Employment
Agreements and Loans" below.
(2) Represents matching contributions paid under our 401(k) plan, except as
otherwise indicated.
(3) Represents shares of restricted stock issued upon the effective date of our
plan of reorganization. See "-- Equity Compensation Plan Information and
Restricted Stock Grants" below.
(4) No stock appreciation rights were granted to any of the named executive
officers during 2000, 2001 or 2002.
(5) Represents indebtedness owed to us by Mr. Baker that was cancelled in
connection with our chapter 11 reorganization. See "-- Executive Employment
Agreements and Loans" below.
11
EXECUTIVE EMPLOYMENT AGREEMENTS AND LOANS
We are a party to executive employment agreements with each of Messrs.
Baker, Daniels and Pottle. Each of the executive employment agreements has a
term of three years expiring on May 29, 2005 and will automatically renew from
year to year thereafter unless terminated by either party at least 90 days prior
to any renewal date. Under these agreements, Messrs. Baker, Daniels and Pottle
are entitled to receive annual base salaries of $600,000, $379,000 and $305,000,
respectively, subject to review and adjustment after 2002 by the board of
directors, and other bonuses and benefits.
In the event that the employment of an executive is terminated by us prior
to a change in control other than for cause, disability or death, or by the
executive for good reason, the executive will be entitled to receive:
- a lump sum cash payment equal to the executive's annual base salary in
effect at the time of the termination;
- a lump sum cash payment of a pro rata portion of the annual bonus for
which the executive would have been eligible for the fiscal year in which
the executive's employment is terminated;
- for a period of nine months from the first anniversary of the date of
termination, continuation payments equal to the amount by which the
executive's monthly base salary immediately prior to his termination
exceeds the executive's new monthly base salary; and
- for the period during which cash benefits are available, continuation of
family medical benefits similar to those received prior to termination,
unless the executive becomes entitled to receive substantially equivalent
benefits from another employer.
In the event that the employment of an executive is terminated by us
following a change in control but prior to January 1, 2004 without cause or by
the executive for good reason, the executive will be entitled to receive:
- a lump sum cash payment equal to 21 months of the executive's monthly
base salary at the highest monthly rate paid during the term of the
agreement;
- a lump sum cash payment of a pro rata portion of the annual bonus for
which the executive would have been eligible for the fiscal year in which
the executive's employment is terminated; and
- for a period of 21 months from the date of termination, employee
benefits, including family benefits, similar to those received prior to
termination, unless the executive becomes entitled to receive
substantially equivalent benefits from another employer.
In the event an executive resigns without good reason, he will be entitled
to receive a lump sum cash payment equal to the amount of unpaid base salary,
deferred compensation and accrued vacation pay through the termination date.
Good reason is defined to include, among other things, a material reduction
in employment position or responsibilities, the inability of the executive to
perform his duties as a result of disability, the relocation of the executive
more than 50 miles from his regular place of business or, in the case of Mr.
Baker, ceasing to be our chief executive officer or a member of our board of
directors. Following termination of employment without good reason or for cause,
each executive has agreed not to compete with us or solicit our employees or
business for one year.
All restricted stock and options, if any, held by the executive will become
immediately exercisable or vested in full upon a change of control, as defined
in the agreement. Additionally, if the executive would receive benefits upon a
change of control that would be qualified as "excess parachute payments" under
the "golden parachute provision" of the Internal Revenue Code, payments that we
are required to pay to the executive will be reduced if such a reduction would
result in a larger after tax benefit to the executive.
Prior to our chapter 11 reorganization and before the enactment of the
Sarbanes-Oxley Act, we had made a loan to Mr. Baker bearing interest at 4.99%
annually. Upon the effective date of our plan of
12
reorganization on May 29, 2002, the unpaid amount of this indebtedness,
approximately $428,000, was cancelled.
RETENTION PLAN
We adopted a retention plan to assist in retaining the services of key
employees and in focusing key employees on our chapter 11 reorganization
efforts. Retention bonuses are being paid to Messrs. Baker, Daniels, Pottle and
Kuzia and Ms. Gray in the amounts of $726,000, $600,000, $600,000, $200,000 and
$200,000, respectively.
Each retention bonus is payable in three installments if the eligible
employee is employed on the date each installment is due; provided that if any
eligible employee's employment is terminated by us other than for cause,
disability or death, each as defined in the retention plan, then all unpaid
installments of the retention bonus payments will be immediately due and payable
to the employee as of his or her termination of employment. Similarly, if a
change in control, as defined in the retention plan, occurs prior to the payment
of the final installment then all unpaid installments will be immediately due
and payable to all eligible employees. If we are liquidated or commence a plan
of liquidation prior to a change in control, then all installments not yet
payable shall be forfeited.
The first and second installments of 25% each of the retention bonus were
paid on May 29, 2002, the effective date of our plan of reorganization. The
third installment of 50% of each retention bonus will be paid on June 30, 2003.
SEVERANCE PLAN
We also have a severance plan that provides severance benefits to our
employees, including the named executive officers other than Messrs. Baker,
Daniels and Pottle. Severance benefits will be paid if the executive officer is
terminated by us, without cause.
If eligible for benefits, the terminated executive officer will receive a
lump sum payment of his or her base salary for a period of six months plus an
additional two weeks for each year of service, as defined in the severance plan,
up to a maximum of 12 months total base salary plus any pro rata portion of any
targeted bonus that the executive officer was eligible to receive. Each
terminated executive officer eligible for severance payments shall also be
eligible for continued participation in our sponsored employee health programs
in effect, if any, during the period which is used to calculate severance
payments if the executive officer continues the same payments for such benefits
as made immediately prior to employment termination and as adjusted after that
time for our active employees. Participation in the health programs will cease,
except to the extent required by law, whenever other comparable benefits are
available to the terminated executive officer.
RESTRICTED STOCK GRANTS
Our only equity compensation plan is our 2002 stock incentive plan, which
was established in connection with our emergence from bankruptcy in May 2002.
Under the 2002 plan, restricted stock awards, stock options and other
stock-based awards may be granted to our employees, officers, directors,
consultants and advisors.
The 2002 plan is administered by the board of directors. The board is
authorized to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 2002 plan and to interpret the provisions of the 2002
plan. The board may amend, suspend or terminate the 2002 plan at any time. The
board has delegated to the compensation committee authority to administer
certain aspects of the 2002 plan.
The board of directors or the compensation committee selects the recipients
of awards under the 2002 plan and determines (1) the number of shares of common
stock covered by awards under the plan, (2) the dates upon which awards vest or
become exercisable, (3) the issue price of restricted stock awards, which may be
less than the fair market value of the common stock on the date of grant, (4)
the
13
exercise price of stock options, which may not be less than the fair market
value of our common stock on the date of grant, and (5) the duration of the
options, which may not exceed 10 years.
The 2002 plan permits the following forms of payment of the exercise price
of stock options, some of which are in our discretion: (1) payment by cash,
check or in connection with a "cashless exercise" through a broker, (2)
surrender to us of shares of common stock, (3) delivery to us of a promissory
note, (4) any other lawful means or (5) any combination of these forms of
payment.
If any option granted under the 2002 plan expires or is terminated,
surrendered, canceled or forfeited, the unused shares of common stock covered by
such option will again be available for grant under the 2002 plan. No awards may
be granted under the 2002 plan after May 29, 2012, but awards previously granted
may extend beyond that date.
The 2002 plan provided that all 950,000 shares of common stock initially
available under the plan would be issued as restricted stock to certain members
of our senior management in connection with our emergence from bankruptcy. Upon
the effective date of our plan of reorganization, we issued a total of 882,200
shares of common stock for $.001 per share to ten members of our senior
management, including 249,663 shares to Mr. Baker, 146,445 shares to Mr.
Daniels, 118,215 shares to Mr. Pottle, 73,223 shares to Mr. Kuzia and 29,113
shares to Ms. Gray. Subject to continued employment on the applicable vesting
dates, these shares will vest 35.222% on the first anniversary of the effective
date, 35.222% on the second anniversary of the effective date and 29.556% on the
third anniversary of the effective date. On March --, 2003, an additional 17,800
shares were issued for $.001 per share to members of our senior management when
it was determined that the general unsecured claims, excluding secured creditor
deficiency claims, of our intermediate holding company, Arch Wireless Holdings,
Inc., would not exceed $120 million. These shares, of which 5,037 were issued to
Mr. Baker, 2,955 were issued to Mr. Daniels, 2,385 were issued to Mr. Pottle,
1,477 were issued to Mr. Kuzia and 587 were issued to Ms. Gray, vest in the same
manner as the initial 882,200 shares. In addition, if and as general unsecured
claims of our intermediate holding company are reduced below $120 million, we
will issue up to 50,000 additional shares at a rate of approximately 10,000
shares for every $10 million of claims reduced below $120 million, vesting on
the third anniversary of the effective date. To the extent these additional
50,000 shares are issued, they will be issued for $.001 per share to our senior
management, including our executive officers named above.
All shares issued to Messrs. Baker, Daniels and Pottle will become
immediately vested if:
- a change in control occurs while the executive is employed by us;
- the employment of the executive is terminated without cause following the
announcement of a change in control;
- the employment of the executive is terminated within 90 days prior to a
change in control or the announcement of a change in control; or
- the employment of the executive is terminated more than 90 days prior to
a change in control or the announcement of a change in control and the
executive can reasonably demonstrate that such termination was in
connection with or anticipation of the change in control.
As of December 31, 2002, no securities remained available for future
issuance under the 2002 plan except as described above. In March 2003, and
subject to stockholder approval, our board of directors increased the size of
the 2002 plan from 950,000 shares to 1,550,000 shares and authorized the
issuance of an aggregate of 450,000 shares of common stock to our non-employee
directors, consisting of 100,000 shares to our vice chairman of the board,
Carroll R. Wetzel, Jr., and 50,000 shares to each of our other non-employee
directors, for a purchase price of $.001 per share. Subject to continued service
as a director, these shares will vest 35.222% on May 29, 2003, 35.222% on May
29, 2004 and 29.556% on May 29, 2005 and will become immediately vested upon a
change in control of our company. The purchase price and vesting provisions of
the restricted stock awards made to our non-employee directors are intended to
be substantially similar to the purchase price and vesting provisions of the
restricted stock awards made to Messrs. Baker, Daniels and Pottle in May 2002.
14
CANCELLED RESTRICTED STOCK GRANTS AND STOCK OPTIONS
In March 2001, 27 key executives, including the named executive officers,
were granted the right to receive a total of up to 12,400,000 shares of our old
common stock without payment of cash consideration based on the achievement of
company-wide performance criteria relating to advanced wireless messaging net
revenue, average revenue per advanced messaging unit and growth in the number of
advanced messaging units in service in 2001 and 2002. These stock rights were
cancelled on May 29, 2002 pursuant to our plan of reorganization.
During 2001 and 2002, no options to purchase shares of our common stock
were granted to, or exercised by, our named executive officers. All outstanding
stock options were cancelled on May 29, 2002 pursuant to our plan of
reorganization.
INDEMNIFICATION AGREEMENTS
In January 2003, we entered into indemnification agreements with 18
persons, including each director and executive officer, requiring us to
indemnify such persons to the fullest extent permitted by the Delaware
corporation statute.
REPORT OF THE COMPENSATION COMMITTEE
OVERVIEW
The compensation committee is responsible for our overall compensation
strategy and program structure, the compensation of executive officers
(including base salaries, merit increases and bonuses), the compensation of
directors and the administration of our stock plans. Our executive compensation
program is intended to promote the achievement of our business goals and,
thereby, to maximize corporate performance and stockholder returns. Compensation
consists of a combination of base salary, performance bonuses and long-term
incentives. The compensation committee believes it is important to have bonuses
constitute a portion of each executive's compensation package in order to tie
his or her compensation level to corporate performance, and believes it is
important to have long-term incentives constitute a portion of each executive's
compensation package in order to help align the interests of executives and
stockholders.
In determining levels of compensation, the compensation committee considers
factors such as:
- competitive positioning, including compensation of executives at
comparable companies;
- present compensation levels;
- individual performance, including expected future contributions;
- our need to attract, retain and reward key executives;
- existing contractual obligations, including the 2002 performance bonus
plan and executive employment agreements referred to below.
The compensation committee, in determining Mr. Baker's compensation,
reviews compensation for chief executives of publicly-held companies of similar
size, including those in wireless messaging and similar businesses, Mr. Baker's
individual performance against quantitative and qualitative goals, and our
company's performance.
In addition, executive compensation for 2002 reflected certain agreements
and plans established in connection with our reorganization process. These
agreements and plans, as described below, were approved by our former creditors
and were assumed as part of our bankruptcy plan with the approval of the
bankruptcy court prior to the time the current members of the compensation
committee joined the board of directors or compensation committee.
15
BASE SALARIES
The base salary of each executive officer is reviewed annually. In setting
base salaries, the compensation committee considers the factors described above.
No executive officer received an increase in base salary in 2002 or 2003, except
that Mr. Pottle's base salary for 2003 was increased from $305,000 to $324,000.
Pursuant to his executive employment agreement, Mr. Baker's base salary for 2003
is $600,000.
PERFORMANCE BONUSES
In general, at the beginning of each year Mr. Baker proposes bonus
parameters for the year to the compensation committee. The proposal incorporates
corporate-wide goals as well as goals jointly established by Mr. Baker and each
of the bonus plan participants for their individual areas of responsibility. The
individual and corporate goals included in the bonus plan generally represent
objective measures of performance and quantifiable financial objectives.
Throughout the year, Mr. Baker meets with executive officers to review their
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
bonuses to the compensation committee for consideration and approval.
For 2002, performance bonuses were awarded pursuant to a management bonus
plan adopted in connection with our reorganization process and were based on our
levels of cash flow available for debt service and earnings before interest,
taxes, depreciation and amortization. For 2002, target bonuses were 40-75% of
the base salaries of the eligible executive officers and maximum bonuses were
90% to 225% of base salaries. Based on the achievement of the company
performance measures contained in the 2002 bonus plan, the compensation
committee has approved the payment of the maximum available bonuses for 2002 to
our executive officers, including bonuses of $1,350,000, $682,200, $457,500,
$345,000 and $267,600 for Messrs. Baker, Daniels, Pottle and Kuzia and Ms. Gray,
respectively.
LONG-TERM INCENTIVES
Long-term incentives, including stock-based awards, are intended to relate
executive compensation to corporate performance, to help retain the service of
our executive officers and directors and to help align the long-term interests
of our executive officers and directors with those of our stockholders.
In connection with our emergence from bankruptcy in May 2002, restricted
stock awards to purchase up to an aggregate of 950,000 shares of common stock
for $.001 per share, vesting over three years, were granted to our senior
management, including 268,850 shares to Mr. Baker, 157,700 shares to Mr.
Daniels, 127,300 shares to Mr. Pottle, 78,850 shares to Mr. Kuzia and 31,350
shares to Ms. Gray. These grants were approved by our former creditors and the
bankruptcy court. Subject to stockholder approval (Proposal 2 below) and
consistent with discussions between our former creditors and director candidates
during our reorganization process, the compensation committee and board of
directors have approved the issuance of an aggregate of 450,000 shares of common
stock to our non-employee directors, consisting of 100,000 shares to our vice
chairman of the board, Carroll R. Wetzel, Jr., and 50,000 shares to each of our
other non-employee directors, for a purchase price of $.001 per share and
vesting over three years. The other terms of these awards are summarized above
under the caption "Information About Executive Compensation -- Restricted Stock
Grants."
The compensation committee is in the process of developing a long-term
incentive program for its executive officers. As part of this process, the
compensation committee has retained a compensation consultant to benchmark our
current executive compensation programs and make recommendations. The
compensation committee believes a long-term incentive program will provide an
important incentive for executive officers to remain with us, and to continue to
make significant contributions to us.
16
EXECUTIVE EMPLOYMENT AGREEMENTS
We are a party to the executive employment agreements with Messrs. Baker,
Daniels and Pottle summarized above under the caption "-- Executive Employment
Agreements and Loans." The executive employment agreements were approved by our
former creditors and the bankruptcy court.
RETENTION PLAN
Pursuant to the retention plan summarized above under the caption
"-- Retention Plan," retention bonuses are being paid to approximately 60
executives, including $726,000, $600,000, $600,000, $200,000 and $200,000,
respectively, to Messrs. Baker, Daniels, Pottle and Kuzia and Ms. Gray. The
retention plan was established because of the critical need to retain key
executives during our chapter 11 reorganization process and was approved by our
former creditors and the bankruptcy court.
SEVERANCE PLAN
The severance plan summarized above under the caption "-- Severance Plan"
provides severance benefits to our employees, including the named executive
officers other than Messrs. Baker, Daniels and Pottle. The severance plan was
approved by our former creditors and the bankruptcy court. Messrs. Baker,
Daniels and Pottle are entitled to severance benefits under their executive
employment agreements.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction for compensation over $1,000,000 paid by a public company to its chief
executive officer and its four other most highly compensated executive officers.
Qualifying "performance-based" compensation is not subject to the deduction
limit if specified requirements are met. The restricted stock issuances to
senior management as part of our chapter 11 reorganization proceedings did not
qualify as performance-based compensation under section 162(m) of the Internal
Revenue Code. The compensation committee generally intends to structure future
stock options, if any, granted to our executive officers in a manner to qualify
as performance-based compensation but does not currently intend to qualify cash
compensation, cash-based long-term incentives or stock-based awards other than
stock options as performance-based compensation. The compensation committee will
continue to monitor the impact of section 162(m) on our company.
By the compensation committee,
William C. Redmond, Jr., Chairman
James V. Continenza
Eric Gold
Carroll D. McHenry
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of our compensation committee are James V. Continenza,
Eric Gold, Carroll D. McHenry and William E. Redmond, Jr.
C. Edward Baker, Jr., our chairman and chief executive officer, makes
recommendations and participates in discussions regarding executive
compensation, but he does not participate directly in discussions regarding his
own compensation. None of our current executive officers 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 one of our directors or as a member of our compensation committee.
17
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on our
common stock for the period from May 30, 2002 (the first trading day following
the effectiveness of our plan of reorganization) through December 31, 2002 with
the cumulative total return on the Nasdaq Stock Market (U.S.) Index and the
Nasdaq Telecommunications Index, consisting of 303 telecommunications companies
whose stock is traded on Nasdaq.
The comparison below assumes $100 was invested on May 30, 2002 in our
common stock and in each of the above indices and, in each case, assumes
reinvestment of all dividends. Measurement points are on May 30, 2002, June 30,
2002, September 30, 2002 and December 31, 2002.
COMPARISON OF CUMULATIVE TOTAL RETURN* SINCE MAY 30, 2002
AMONG ARCH WIRELESS, INC., THE NASDAQ STOCK
MARKET (U.S.) INDEX AND THE NASDAQ TELECOMMUNICATIONS INDEX
[PERFORMANCE CHART]
----------------------------------------------------------------------------------------------------
5/30/02 6/30/02 9/30/02 12/31/02
----------------------------------------------------------------------------------------------------
Arch Wireless, Inc $100.00 $40.00 $22.00 $82.00
----------------------------------------------------------------------------------------------------
Nasdaq Stock Market (U.S.) $100.00 $86.93 $69.75 $79.57
----------------------------------------------------------------------------------------------------
Nasdaq Telecommunications $100.00 $75.83 $69.64 $81.31
----------------------------------------------------------------------------------------------------
* Assume $100 was invested on 5/30/02 in stock or index, including reinvestment
of dividends.
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO 2002 STOCK INCENTIVE PLAN
The 2002 stock incentive plan was established in connection with our
emergence from bankruptcy in May 2002. The 2002 plan provided that all 950,000
shares of common stock initially available under the plan would be issued as
restricted stock to certain members of our senior management in connection with
18
our emergence from bankruptcy, as summarized above under the caption
"Information About Executive Compensation -- Restricted Stock Grants." As of
December 31, 2002, no shares remained available for future issuance under the
2002 plan. In order to provide equity incentives for the retention of our
outside directors and other key employees, in March 2003 the board of directors
approved an amendment to our 2002 plan increasing the number of shares of common
stock authorized for issuance under the plan from 950,000 to 1,550,000 and
providing for the issuance of an aggregate of 450,000 shares of restricted stock
for $.001 per share to our non-employee directors.
Although stockholder approval of the amendment to our 2002 plan is not
required by law, we will not be able to grant incentive stock options under
section 422 of the Internal Revenue Code unless stockholder approval is
received. In addition, the board of directors believes that stockholders should
have an opportunity to approve the amendment. If the stockholders do not approve
the amendment, the compensation committee and board of directors will reconsider
the matter. However, since the compensation committee and board of directors
consider it advisable to provide the outside directors with equity incentives to
incent them to continue to make significant contributions to our company, it is
likely that stock-based awards will be made to the outside directors.
The board of directors believes that this amendment is in the best
interests of our company and stockholders and recommends that stockholders vote
FOR this proposal.
SUMMARY OF THE 2002 STOCK INCENTIVE PLAN
The 2002 stock incentive plan provides for the grant of the following types
of awards:
- restricted stock awards;
- incentive stock options intended to qualify under section 422 of the
Internal Revenue Code;
- nonstatutory stock options; and
- other stock-based awards, including the grant of shares based upon
specified conditions, the grant of securities convertible into common
stock and the grant of stock appreciation rights.
DESCRIPTION OF AWARDS
Restricted Stock Awards. Restricted stock awards entitle recipients to
acquire shares of common stock, subject to our right to repurchase all or part
of such shares from the recipient in the event that the conditions specified in
the applicable award are not satisfied prior to the end of the applicable
restriction period established for such award. The purchase price for restricted
stock awards may be less than the fair market value of the common stock on the
date of grant.
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of common stock at a
specified option price and subject to the other terms and conditions specified
in connection with the option grant. Options must be granted at an exercise
price not less than the fair market value of the common stock on the date of
grant. Options may not be granted for a term in excess of ten years. The 2002
plan permits the board of directors to determine the manner of payment of the
exercise price of options, including through payment by cash, check or in
connection with a "cashless exercise" through a broker, by surrender to us of
shares of common stock (which shares are owned for at least six months), by
delivery to us of a promissory note, or by any other lawful means.
Other Stock-Based Awards. Under the 2002 plan, the board of directors has
the right to grant other awards based upon the common stock having such terms
and conditions as the board of directors may determine. This may include the
grant of shares based upon specified conditions, the grant of securities
convertible into common stock and the grant of stock appreciation rights.
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ELIGIBILITY TO RECEIVE AWARDS
Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to be granted awards under the 2002 plan. Under
present law, however, incentive stock options may only be granted to our
employees and employees of our subsidiaries. The maximum number of shares with
respect to which awards may be granted to any participant under the 2002 plan
may not exceed 400,000 shares during any calendar year.
As of March 14, 2003, approximately 3,300 persons were eligible to receive
awards under the 2002 plan, including our executive officers and non-employee
directors. Except as described in the preceding paragraph, the granting of
awards under the 2002 plan is discretionary, and we cannot now determine the
number or type of awards to be granted in the future to any particular person or
group.
On March 14, 2003, the last reported sale price of our common stock on the
OTC Bulletin Board was $2.65 per share.
RESTRICTED STOCK GRANTS TO NON-EMPLOYEE DIRECTORS UPON STOCKHOLDER APPROVAL
If the amendment to the 2002 plan is approved by stockholders, an aggregate
of 450,000 shares of common stock will be issued to our non-employee directors,
consisting of 100,000 shares to our vice chairman of the board, Carroll R.
Wetzel, Jr., and 50,000 shares to each of our other non-employee directors, for
a purchase price of $.001 per share. Subject to continued service as a director,
these shares will vest 35.222% on May 29, 2003, 35.222% on May 29, 2004 and
29.556% on May 29, 2005 and will become immediately vested upon a change in
control of our company. These issuances are consistent with discussions between
our former creditors and director candidates during our reorganization process.
The purchase price and vesting provisions of the restricted stock awards made to
our non-employee directors are intended to be substantially similar to the
purchase price and vesting provisions of the restricted stock awards made to our
chief executive officer, chief operating officer and chief financial officer in
May 2002.
If the amendment to the 2002 plan is approved by stockholders, the
remaining 150,000 shares will be available for issuance from time to time to
eligible participants in the form of restricted stock, incentive stock options,
nonstatutory stock options or other stock-based awards.
ADMINISTRATION
The board of directors administers the 2002 plan. The board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the 2002 plan and to interpret the
provisions of the 2002 plan. Pursuant to the terms of the 2002 stock incentive
plan, the board of directors has authorized the compensation committee to
administer certain aspects of the 2002 stock plan, including the granting of
awards to executive officers. Subject to any applicable limitations in the 2002
plan, the board of directors, the compensation committee or any other committee
or subcommittee to whom the board delegates authority selects the recipients of
awards and determines:
- the number of shares of common stock subject to restricted stock awards,
including conditions for repurchase, issue price and repurchase price;
- the number of shares of common stock subject to options and the related
exercise price, vesting provisions and duration; and
- the number of shares of common stock subject to other stock-based awards
and the terms and conditions of such awards, including conditions for
repurchase, issue price and repurchase price.
The board of directors is required to make appropriate adjustments in
outstanding awards to reflect stock dividends, stock splits and certain other
events. In the event of our acquisition or liquidation, the board of directors
is authorized to provide for awards to be assumed or substituted for, to
accelerate the awards to make them fully exercisable prior to consummation of
the event or to provide for a cash-out of their value. If any option award
expires or is terminated, surrendered or canceled without having been fully
exercised, the unused shares of common stock covered by such option award will
again be available for
20
grant under the 2002 plan, subject in the case of incentive stock options to any
limitation required under the Internal Revenue Code.
AMENDMENT OR TERMINATION
No award may be made under the 2002 plan after May 29, 2012, but awards
previously granted may extend beyond that date. The board of directors may at
any time amend, suspend or terminate the 2002 plan, except that to the extent
required by section 162(m) of the Internal Revenue Code, no award intended to
comply with section 162(m) by the board of directors after the date of such
amendment shall become exercisable, realizable or vested unless and until such
amendment shall have been approved by our stockholders.
FEDERAL INCOME TAX CONSEQUENCES
The following summarizes the United States federal income tax consequences
that generally will arise with respect to awards granted under the 2002 plan.
This summary is based on the tax laws in effect as of the date of this proxy
statement. Changes to these laws could alter the tax consequences described
below.
RESTRICTED STOCK AWARDS
A participant will not have income upon the grant of restricted stock
unless an election under section 83(b) of the Internal Revenue Code is made
within 30 days of the date of grant. If a timely 83(b) election is made, then a
participant will have compensation income equal to the value of the stock less
the purchase price. When the stock is sold, the participant will have capital
gain or loss equal to the difference between the sales proceeds and the value of
the stock on the date of grant. If the participant does not make an 83(b)
election, then when the stock vests the participant will have compensation
income equal to the value of the stock on the vesting date less the purchase
price. When the stock is sold, the participant will have capital gain or loss
equal to the sales proceeds less the value of the stock on the vesting date. Any
capital gain or loss will be long-term if the participant held the stock for
more than one year and otherwise will be short-term.
INCENTIVE STOCK OPTIONS
A participant will not have income upon the grant of an incentive stock
option. Also, except as described below, a participant will not have income upon
exercise of an incentive stock option if the participant has been employed by us
or one of our 50% or more-owned corporate subsidiaries at all times beginning
with the option grant date and ending three months before the date the
participant exercises the option. If the participant has not been so employed
during that time, then the participant will be taxed as described below under
"Nonstatutory Stock Options." The exercise of an incentive stock option may
subject the participant to the alternative minimum tax.
A participant will have income upon the sale of the stock acquired under an
incentive stock option at a profit (if sales proceeds exceed the exercise
price). The type of income will depend on when the participant sells the stock.
If a participant sells the stock more than two years after the option was
granted and more than one year after the option was exercised, then all of the
profit will be long-term capital gain. If a participant sells the stock prior to
satisfying these waiting periods, then the participant will have engaged in a
disqualifying disposition and a portion of the profit will be ordinary income
and a portion may be capital gain. This capital gain will be long-term if the
participant has held the stock for more than one year and otherwise will be
short-term. If a participant sells the stock at a loss (sales proceeds are less
than the exercise price), then the loss will be a capital loss. This capital
loss will be long-term if the participant held the stock for more than one year
and otherwise will be short-term.
NONSTATUTORY STOCK OPTIONS
A participant will not have income upon the grant of a nonstatutory stock
option. A participant will have compensation income upon the exercise of a
nonstatutory stock option equal to the value of the stock
21
on the day the participant exercised the option less the exercise price. Upon
sale of the stock, the participant will have capital gain or loss equal to the
difference between the sales proceeds and the value of the stock on the day the
option was exercised. This capital gain or loss will be long-term if the
participant has held the stock for more than one year and otherwise will be
short-term.
OTHER STOCK-BASED AWARDS
The tax consequences associated with any other stock-based award granted
under the 2002 plan will vary depending on the specific terms of such award.
Among the relevant factors are whether or not the award has a readily
ascertainable fair market value, whether or not the award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the award, and the participant's holding
period and tax basis for the award or underlying common stock.
TAX CONSEQUENCES TO US
There will be no tax consequences to us except that we will be entitled to
a deduction when a participant has compensation income. Any such deduction will
be subject to the limitations of section 162(m) of the Internal Revenue Code.
PROPOSAL 3 -- APPROVAL OF MERGER WITH WHOLLY-OWNED SUBSIDIARY THAT WILL RESULT
IN THE IMPOSITION OF TRANSFER RESTRICTIONS ON OUR COMMON STOCK
To help protect the tax benefits associated with our federal income tax
attributes, the board of directors has approved, subject to stockholder
approval, the merger of our company with a wholly-owned subsidiary that will
result in the imposition of the restrictions on transfer of our stock described
below. The complete text of the transfer restrictions will be contained in
Article FOURTH of our certificate of incorporation, which will be amended in the
merger. The text of the amended Article FOURTH is set forth in Appendix B.
The board of directors believes that the merger, and the resultant transfer
restrictions, is in the best interests of our company and stockholders and
recommends that stockholders vote FOR this proposal.
REASON FOR THE MERGER
We currently anticipate generating taxable losses for the next several
years and estimate that, at December 31, 2003, our tax net operating losses will
be between $175 million and $200 million. Under current tax law, these net
operating losses will not expire until December 31, 2023. We currently
anticipate that we will have sufficient tax deductions from our operations
following our emergence from chapter 11 proceedings, including from the federal
income tax attributes that we retained after our emergence from chapter 11, to
offset future federal taxable income (before these deductions) for the next
several years. The extent to which these tax attributes will be available to
offset future federal taxable income depends on certain factual and legal
matters that are subject to varying interpretations. Therefore, despite our
expectations, it is possible that we may not have sufficient tax attributes to
offset future federal taxable income.
A change in ownership, as defined in sections 382 and 383 of the Internal
Revenue Code, of our stock could significantly limit the amounts and timing of
the use of various tax attributes that existed as of our emergence from chapter
11 and of any tax attributes generated between our emergence from chapter 11 and
the date of such change in ownership, including our tax net operating losses at
December 31, 2003. Generally, a change in ownership will occur if a greater than
50% cumulative change in ownership of our stock occurs over any three-year
period beginning at any time after we emerged from chapter 11. We believe, based
on available information, that since our emergence from chapter 11 we have
undergone a cumulative change in ownership of approximately 22%.
If the deductions associated with future activities including from tax
attributes that we retained after our emergence from chapter 11 are insufficient
to offset future federal taxable income, or if a change in
22
ownership occurs and such deductions are limited, whether due to circumstances
within or beyond our control, we would likely generate taxable income and would
be required to make current income tax payments. Any such payments would result
in lower net cash provided by operating activities, which would have otherwise
been available to repay our outstanding debt. In addition, depending on the
timing of any such change in ownership and the amount of taxable income
generated, the required tax payments could result in insufficient cash being
available to service our debt obligations. If we were to fail to make required
debt repayments, creditors could accelerate repayment of our outstanding debt.
In this circumstance, it is unlikely that we would have sufficient liquidity to
repay the debt, which could ultimately result in our having to file for
bankruptcy protection.
To help protect these tax benefits, the board of directors has approved,
subject to stockholder approval, the merger of our company with a wholly-owned
subsidiary, as described below. Outstanding shares of common stock will be
converted into new shares of Class A common stock subject to certain
restrictions on transfer.
However, we cannot assure you that the merger, even if it receives all
required approvals, will prevent a change in ownership or otherwise enable us to
avoid significant limitations on the amounts and timing of the use of our tax
attributes.
TERMS OF THE MERGER AND CLASS A COMMON STOCK
In the merger, Arch Wireless, Inc. will merge with a wholly-owned
subsidiary. The subsidiary will be newly-formed for the specific purpose of the
merger and will have conducted no operations and have no assets or liabilities.
Arch Wireless, Inc. will be the surviving entity in the merger, and will
continue to engage in the business of providing one and two-way wireless
messaging and information services.
In the merger, each issued and outstanding share of common stock, $.001 par
value, will be converted into the right to receive one share of a new class of
security called Class A common stock, $.0001 par value. The rights of the Class
A common stock, $.0001 par value, will be identical in all respects to the
common stock, $.001 par value, except for the transfer restrictions described
below and the different par value. Immediately following the merger, no shares
of common stock, $.001 par value, will be outstanding. Once the transfer
restrictions are no longer necessary to protect the intended tax benefits, the
Class A common stock will automatically convert back into common stock on a
share-for-share basis.
TRANSFER RESTRICTIONS
If the merger is approved by stockholders and becomes effective, all
outstanding common stock will be converted into the right to receive Class A
common stock, which will be subject to restrictions which prohibit the following
transfers: (1) transfers of Class A common stock by stockholders to a
stockholder that holds 5% or more of our outstanding stock, (2) transfers of
Class A common stock by stockholders who hold 5% or more of our outstanding
stock to any person, entity or group and (3) transfers of Class A common stock
to any person, entity or group that, if consummated, would result in their
ownership of 5% or more of our outstanding stock. Any such prohibited transfer
would not be given effect and in general the shares would instead be transferred
to an agent that would dispose of the shares to other purchasers that would not
own 5% or more of our outstanding stock following the transfer. Notwithstanding
the foregoing, transfers of Class A common stock by stockholders who hold 5% or
more of our outstanding stock would not be prohibited if the board of directors
determines prior to such a transfer, at the request of the transferor, that (1)
the transferor was a holder of 5% or more of our outstanding stock on the date
of the amendment of our certificate of incorporation incorporating these
transfer restrictions and (2) the Class A common stock to be transferred was
owned by such holder on such date. Certain rights to acquire stock will be
treated as stock for purposes of the foregoing transfer restrictions. The board
of directors may exempt any transfer from these restrictions, including mergers
to acquire all of our outstanding stock. In addition, transfers pursuant to any
tender or exchange offer for any and all of our stock as to which a majority of
our outstanding stock is tendered will be exempt from these restrictions, as
long as the offeror
23
has committed to acquire any shares not tendered for the same type and amount of
consideration paid in the offer.
OTHER CONSEQUENCES OF THE MERGER
The merger will not change the proportionate equity interest of any
stockholder in our company. The Class A common stock, $.0001 par value, will
trade in the over-the-counter market and on the Boston Stock Exchange under the
same symbol, AWIN, under which the common stock traded prior to the merger. We
will continue to file periodic and other reports with the Securities and
Exchange Commission. The merger will not result in any changes to our
certificate of incorporation, except as described in the following paragraph, or
any changes to our by-laws.
In the merger, Article FOURTH of our certificate of incorporation will be
amended to read in its entirety as set forth in Appendix B. As a result of the
merger, we will be authorized to issue a total of 50,000,000 shares of Class A
common stock, of which 20,600,000 shares will be outstanding or reserved for
future issuance, assuming the proposed increase in our 2002 stock incentive plan
(Proposal 2) is approved by stockholders. Following the merger, the authorized
shares of Class A common stock that are not outstanding or reserved for future
issuance, and the 50,000,000 authorized shares of common stock, will be
available for future issuance without further action by stockholders except as
required by applicable law. These shares could be issued for possible future
financing transactions, acquisitions, stock dividends and other corporate
purposes, although we have no present commitments to issue any additional shares
other than the 450,000 shares of Class A common stock to be issued to our
non-employee directors upon stockholder approval of the proposed increase in our
2002 stock incentive plan. Stockholders do not have preemptive or other similar
rights to acquire the additional authorized shares.
The exchange of common stock for Class A common stock in the merger will
not be taxable to our stockholders. The tax basis and holding period for the
shares of Class A common stock received by stockholders will be the same as the
tax basis and holding period of the shares of common stock exchanged in the
merger.
The merger will not have any significant accounting consequences to us and
will not have any significant tax consequences to us other than the intended
benefits described above.
REQUIRED APPROVALS
The merger must be approved by the affirmative vote of the holders of a
majority of the issued and outstanding shares of common stock.
The merger must also be approved by the holders of a majority in principal
amount of the outstanding 10% notes and 12% notes issued by our wholly-owned
subsidiary, Arch Wireless Holdings, Inc. We have sought that consent and
anticipate receiving it prior to the annual meeting.
The merger requires prior Federal Communications Commission approval of the
transfer of control of certain of our licenses. These applications are typically
processed and granted by the Federal Communications Commission within 45 days of
the applications being filed. We anticipate filing these applications by
approximately March 21, 2003. Although no prior Federal Communications
Commission approval is required for the pro forma transfer of control of the
remainder of our licenses, we must notify the Federal Communications Commission
within 30 days of closing on the merger that the merger has occurred.
No other federal or state regulatory approvals are required to complete the
merger, other than the filing of a certificate of merger in Delaware following
receipt of the approvals described above.
If we obtain the required stockholder approval, we plan to complete the
merger promptly following receipt of the other approvals required for the
merger.
24
POSSIBLE ANTI-TAKEOVER EFFECTS
The transfer restrictions resulting from the merger, if approved by the
stockholders, could have the effect of preventing or delaying a change in
control of our company. However, the transfer restrictions are not being
proposed in response to any specific effort to acquire control of our company
and should not interfere with any merger or any other business combination
approved by the board of directors or any tender or exchange offer for any and
all of our stock, provided that such offer is accepted by the holders of a
majority of our outstanding stock and the offeror has committed to undertake a
second-step merger to acquire the remainder of our outstanding stock for the
same type and amount of consideration paid in the offer.
NO APPRAISAL RIGHTS
Stockholders do not have appraisal rights in connection with the merger.
EXCHANGE OF STOCK CERTIFICATES
If the merger is approved, stock certificates representing common stock
will be exchanged for new certificates representing Class A common stock.
Following the merger, instructions for exchanging stock certificates will be
mailed to all stockholders. Please do not submit any stock certificates at this
time.
PROPOSAL 4 -- RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors, on the recommendation of the audit committee, has
selected the firm of PricewaterhouseCoopers LLP as our independent public
accountants for the year ending December 31, 2003. Although stockholder approval
of the board of directors' selection of PricewaterhouseCoopers LLP is not
required by law, the board of directors believes that it is advisable to give
stockholders an opportunity to ratify this appointment. If the stockholders do
not ratify the selection of PricewaterhouseCoopers LLP as our independent public
accountants, the board of directors will reconsider the matter.
The board of directors recommends a vote "FOR" the ratification of the
selection of PricewaterhouseCoopers LLP as our independent public accountants.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the annual meeting and will have the opportunity to make a statement, if
desired, and will be available to respond to appropriate questions from
stockholders.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
On June 27, 2002, our board of directors and our audit committee dismissed
Arthur Andersen LLP as our independent auditors and engaged
PricewaterhouseCoopers LLP to serve as our independent auditors for the fiscal
year ending December 31, 2002, effective June 27, 2002. Arthur Andersen LLP's
audit report on our consolidated financial statements for each of the fiscal
years ended December 31, 2000 and 2001, respectively, contained an explanatory
paragraph regarding our ability to continue as a going concern. Except as stated
above, Arthur Andersen LLP's reports on our consolidated financial statements
for each of the fiscal years ended December 31, 2000 and 2001 did not contain
any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2000 and 2001 and through June
2002, there were no disagreements with Arthur Andersen LLP on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Arthur Andersen LLP's satisfaction,
would have caused them to make reference to the subject matter in conjunction
with their report on our consolidated financial statements for such years; and
there were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.
We requested Arthur Andersen LLP to furnish us with a letter addressed to
the Securities and Exchange Commission stating whether or not it agrees with the
above statements. A copy of that letter,
25
dated June 28, 2002, was included with our current report on Form 8-K, filed
with the Securities and Exchange Commission on June 27, 2002.
Prior to their engagement, neither we, nor anyone acting on our behalf,
consulted PricewaterhouseCoopers LLP with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our consolidated
financial statements, or any other matters or reportable events as set forth in
Items 304(a)(2)(i) and (ii) of Regulation S-K.
INDEPENDENT AUDITORS FEES
Aggregate fees of PricewaterhouseCoopers LLP for professional services
rendered to us for the year ended December 31, 2002 were:
Audit....................................................... $541,061
Audit-related............................................... 58,000
Tax......................................................... 52,500
All other................................................... --
--------
Total....................................................... $651,561
========
The audit fees were for professional services rendered for the audits of
our consolidated financial statements and for reviews of our consolidated
financial statements included in our quarterly reports on Form 10-Q for the
quarters ended June 30, 2002 and September 30, 2002. The audit-related fees were
for assurance and related services related to the audit of our 401(k) plans. The
tax fees were for services related to tax compliance, including the review and
preparation of tax returns and consultations relating to tax planning and tax
advice.
The audit committee authorized our management to incur fees for non-audit
services, including audits of benefit plans, assistance with Securities and
Exchange Commission filings and tax preparation and planning consultations not
to exceed, in the aggregate, 50% of annual audit fees. The audit committee
further delegated authority to its chairman to approve fees in excess of the 50%
limitation and to approve fees for non-audit services not specifically listed
above.
STOCKHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 2004 annual
meeting of stockholders must be submitted to our corporate secretary at our
offices, 1800 West Park Drive, Suite 250, Westborough, Massachusetts 01581, no
later than December 3, 2003 in order to be considered for inclusion in the proxy
statement relating to that meeting.
In addition, our by-laws require that we be given advance notice of
stockholder nominations for election to the 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 our proxy statement in accordance
with SEC Rule 14a-8. The required notice must be made in writing and received by
our corporate secretary at our principal executive offices not less than 60 days
nor more than 90 days prior to the first anniversary of the preceding year's
annual meeting of stockholders. However, in the event that the annual meeting of
stockholders in any year is advanced by more than 20 days, or delayed by more
than 60 days, from the first anniversary of the preceding year's annual meeting
of stockholders, a stockholder's notice must be received no earlier than 90 days
prior to such annual meeting and not later than the close of business on the
later of (A) the 60th day prior such annual meeting and (B) the 10th day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
occurs first. The date of our 2004 annual meeting of stockholders has not yet
been established, but assuming it is held on May 13, 2004, in order to comply
with the time periods set forth in our by-laws, appropriate notice for the 2004
annual meeting would need to be provided to our corporate secretary no earlier
than February 16, 2004 and no later than March 16, 2004.
26
OTHER MATTERS
The board of directors knows of no other business which will be presented
for consideration at the annual meeting other than that described above.
However, if any other business should come before the annual 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.
We will bear the costs of soliciting proxies. In addition to solicitation
by mail, our directors, officers and regular employees may, without additional
remuneration, solicit proxies by telephone, telegraph, facsimile and personal
interviews. We have retained MacKenzie Partners, Inc., a proxy solicitation
firm, for assistance in connection with the annual meeting for a fee of
approximately $8,000 plus expenses. We 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. We 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 CARD 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 OUR CORPORATE SECRETARY.
By order of the board of directors,
Patricia A. Gray, Secretary
April 1, 2003
Westborough, Massachusetts
27
APPENDIX A
ARCH WIRELESS, INC.
AND CONSOLIDATED SUBSIDIARIES (THE "COMPANY")
Audit Committee Charter
--------------------------------------------------------------------------------
AUDIT COMMITTEE MISSION
The primary mission of the audit committee is to assist the board in
fulfilling its oversight responsibilities by reviewing the financial information
that will be provided to shareholders and others, the systems of internal
controls that management and the board of directors have established and all
audit processes.
MEMBERSHIP
The audit committee shall be comprised of at least three (3) members. All
members shall be able to read and understand fundamental financial statements,
have knowledge of financial matters sufficient to discharge their
responsibilities and be diligent in the exercise of their responsibilities
hereunder. At least one member of the audit committee shall have accounting or
related financial management expertise, as the board of directors interprets
such qualification in its business judgment. Unless otherwise determined by the
board of directors (in which case disclosure of such determination shall be made
in the Company's filings with the Securities and Exchange Commission ("SEC")),
at least one member of the audit committee shall be a "financial expert" (as
defined by applicable SEC rules). Unless a chairperson is elected by the board
of directors, the committee shall choose a chairperson annually. Only
independent directors will serve on the audit committee, except as otherwise
permitted under the Sarbanes-Oxley Act of 2002 (the "2002 Act"), and rules
promulgated by the Securities and Exchange Commission ("SEC"), and the National
Association of Securities Dealers, Inc. and The Nasdaq Stock Market, Inc.
(collectively, "Nasdaq"). An independent director is free of relationships that
could adversely influence his or her independent judgment as a committee member.
An independent director may not be associated with a major vendor to, or
customer of, the Company, may not receive payments from the Company other than
for board or committee service or reimbursement of expenses in connection with
such service or otherwise be considered an "affiliated person" of the Company
under the 2002 Act and shall otherwise meet the definition of independent
director under the 2002 Act and applicable law, and rules, regulations and
standards promulgated by the SEC and Nasdaq.
GENERAL RESPONSIBILITIES
1. The audit committee shall assist the board of directors in fulfilling
their responsibilities to shareholders concerning the Company's accounting and
reporting practices, and shall facilitate open communication among the internal
auditors and other Company management, the independent accountant and the board
of directors.
2. The audit committee shall keep a record of its meetings and provide
reports of such meetings and its activities to the full board of directors and
may make appropriate recommendations.
3. The audit committee is authorized to engage independent counsel and
other advisers, as it determines necessary to carry out its duties, and
determine the appropriate funding therefor to be provided by the Company without
further action from the board of directors. The audit committee shall have
complete and unrestricted access to Company management and other employees, and
such of the Company's books and records, as it determines necessary to fulfill
its responsibilities hereunder and under applicable laws and listing standards.
4. The audit committee has the power to conduct or authorize
investigations into matters within the committee's scope of responsibilities.
The committee is authorized to retain independent counsel, accountants or other
advisers to assist in an investigation.
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5. The audit committee shall meet at least four times each year, unless
otherwise determined by the committee, and more frequently if circumstances make
that preferable. The committee shall prepare a schedule of its meetings, and
agendas therefor, at least annually. The audit committee chairman is authorized
to convene a committee meeting whenever he or she deems it necessary. An audit
committee member should not vote on any matter in which he or she is not
independent. The committee may ask members of management or others to attend the
meeting and is authorized to receive all pertinent information from management.
The actions of the committee shall be governed by the Delaware General
Corporation Law and the Company's charter and bylaws.
6. The audit committee shall perform the functions indicated in the
charter and such other functions and carry out such other responsibilities as
may be required under the Company's charter or bylaws, applicable laws and
listing standards, or as requested by the Board of Directors not otherwise set
forth herein, including, without limitation, the following:
6.1 The audit committee shall establish procedures as appropriate or
required for: (A) the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls,
or auditing matters; and (B) the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matters;
6.2 Prior to engaging the auditor for such services, the audit
committee shall be responsible for reviewing and approving any of the
following services proposed to be performed by the Company's auditors: (A)
all auditing services (including comfort letters in connection with any
underwriting), and (B) all non-audit services, including tax services,
permitted under the 2002 Act. The audit committee may delegate this
responsibility to one or more of its members. The audit committee will
cause the Company to disclose its approval of any such non-audit services
in the Company's periodic report filed with the SEC if and when determined
required or appropriate.
7. The audit committee shall discharge its responsibilities, and shall
assess information provided by the Company's management and the outside auditor
and advisers, in accordance with its business judgment. In exercising its
business judgment, the audit committee may rely on the information and advice
provided by the Company and the outside auditor and advisers.
8. The audit committee shall be responsible for reviewing and approving
any related party transactions as may be defined from time to time under
applicable listing standards, SEC rules or otherwise defined by the board of
directors, except to the extent delegated to another committee of the board.
9. Prior to the Company's issuance of any earnings release, the audit
committee shall review and approve such release.
10. The audit committee shall review all audits, examinations and comment
letters of all regulatory agencies and third parties delivered to the Company.
11. The audit committee shall be responsible for ensuring, or, upon
appointment of any other committee of the Board charged with such
responsibility, coordinating with such committee to ensure, that the Company has
an effective system for monitoring compliance with applicable laws, regulations
and listing standards pertaining to financial reporting and audit functions.
RESPONSIBILITIES FOR ENGAGING INDEPENDENT ACCOUNTANTS
1. The audit committee shall be directly responsible for the appointment,
compensation and oversight of the work of any public accounting firm employed by
the Company (including resolution of disagreements between management and the
auditor regarding financial reporting) for the purpose of preparing or issuing
an audit report or related work, and each such registered public accounting firm
shall report directly to the audit committee. The audit committee, in its sole
discretion, may determine to recommend to the board of directors that the
selection of the outside auditor be proposed for ratification by shareholders in
any proxy statement. The audit committee shall determine the appropriate funding
to
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be provided by the Company without further action from the board of directors
for payment of compensation to the registered public accounting firm employed by
the Company for the purpose of rendering or issuing an audit report. The audit
committee shall take appropriate actions to oversee the independence of the
independent accountant selected as auditor, including a review of all services
provided by the independent accountant and the fees paid for them at least
annually. The committee shall also ensure that they receive from such outside
auditor the written disclosures and letter from the outside auditor required by
Independence Standards Board Standard No. 1. The audit committee shall actively
engage in a dialogue with the auditor with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the auditor and take appropriate action to ensure the outside auditor is
independent. Without limiting the foregoing, the committee shall obtain and
review any reports on the auditor issued by the Public Company Accounting
Oversight Board pursuant to the 2002 Act annually, if and when such reports are
issued.
2. The audit committee shall consider, in consultation with the
independent accountant and such of the Company's management as the audit
committee requests, the audit scope and procedural plans for the audit made by
the internal auditors and the independent accountant.
3. The audit committee shall take appropriate actions to coordinate the
activities of the internal auditor and the independent accountant. The purpose
of coordinating these efforts is to maximize coverage, reduce redundancy and use
audit resources effectively.
RESPONSIBILITIES FOR REVIEWING INTERNAL AUDITS, THE ANNUAL EXTERNAL AUDIT,
QUARTERLY AND ANNUAL FINANCIAL STATEMENTS, AND OTHER PUBLIC DOCUMENTS
1. The audit committee shall ascertain that the independent accountant
views the audit committee as its client, that it shall be available to the audit
committee and the full board of directors at least annually and that it shall
provide the committee with a timely analysis of significant financial reporting
issues.
2. The audit committee shall periodically ask management, the internal
auditor and the independent accountant about significant risks and exposures and
shall assess management's steps to minimize them.
3. The audit committee shall take appropriate actions to oversee and shall
periodically evaluate, the independence of the internal auditor. Without
limiting the foregoing, the audit committee shall review and, prior to any such
action by the Company, approve, any proposed personnel related action to hire,
dismiss or perform any annual or other formal evaluation of the performance, of
the Director of Internal Audit.
4. The audit committee shall review the following with the independent
accountant and the internal auditor periodically and at least once a year:
4.1 The adequacy of the Company's internal controls, including
computerized information system controls and security, and any fraud
involving management or other employees having a significant role in the
Company's internal controls.
4.2 Any significant findings and recommendations made by the
independent accountant or internal auditor, together with management's
responses to them.
4.3 Any deficiencies in disclosure controls and procedures.
5. The audit committee shall consider and review with management and the
internal auditor periodically and at least once a year:
5.1 Any significant findings and recommendations made by the internal
auditor during the year and management's response to them.
5.2 Any difficulties the internal auditor encountered while
conducting audits, including any restrictions on the scope of their work or
access to required information.
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5.3 The planned scope of management's internal audit plan that the
audit committee thinks advisable.
5.4 The Internal Audit Department charter.
5.5 The Internal Audit budget and staffing.
6. Following each SAS 71/100 and quarterly financial statement review, the
audit committee shall review the Company's financial statements and related
footnotes with management and the independent accountant.
7. After the annual financial statement audit is completed, the audit
committee shall review the following with management and the independent
accountant.
7.1 The Company's annual financial statements and related footnotes.
The audit committee shall determine, based on its review and discussions
referred to in this section, whether it recommends to the board of
directors that the audited financial statements be included in the
Company's annual report on Form 10-K for the last fiscal year for filing
with the SEC.
7.2 The independent accountant's audit of and report on the financial
statements.
7.3 Any serious difficulties or disputes with management encountered
during the course of the audit.
7.4 Anything else about the audit procedures or findings that AICPA
SAS 61 or GAAS requires the auditors to discuss with the committee or that
the audit committee in its business judgment deems relevant.
8. After each SAS 71/100 and quarterly financial review and each annual
financial statement audit is completed, the audit committee shall review the
following with management and the independent accountant:
8.1 Critical accounting policies and practices used, alternative
treatments of financial information within GAAP that have been discussed
with management, ramifications of the use of such alternative disclosures
and treatments, and the treatments preferred by the auditor, and other
material written communications between the auditor and management, such as
any management letter or schedule of unadjusted differences.
8.2 The auditor's qualitative judgments about the appropriateness,
not just the acceptability, of accounting principles and financial
disclosures and how aggressive (or conservative) the accounting principles
and underlying estimates are, together with the auditor's explanation of
complex or judgmental accounting entries.
8.3 Prior to the deadline for filing the Company's periodic reports
with the SEC, the audit committee shall review with the Chief Executive
Officer and the Chief Financial Officer their evaluation of the
effectiveness of the Company's disclosure controls and procedures, and
internal controls and procedures for financial reporting as required or
appropriate.
9. The audit committee shall review annual filings with the SEC and other
published documents containing the Company's financial statements and shall
consider whether the information in the filings is consistent with the
information in the financial statements.
10. The audit committee shall review the interim financial reports with
management, the independent accountant before those interim reports are released
to the public or filed with the SEC or other regulators.
11. The audit committee shall prepare a report for inclusion in the proxy
statement relating to the annual meeting of stockholders at which directors are
to be elected that describes the committee's composition and other matters
required under item 306 of regulation S-K or any other rules and
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regulations of the SEC or Nasdaq or other laws applicable to financial statement
reporting or the audit committee.
PERIODIC RESPONSIBILITIES
1. Review and update the audit committee's charter annually.
2. Perform an assessment of the audit committee's performance of its
responsibilities hereunder at least annually in coordination with any committee
appointed by the Board charged with the responsibility for conducting and/or
monitoring Board and Board committee evaluations.
3. Meet with the internal auditor, the independent accountant and
management in separate executive sessions to discuss any matters the audit
committee or these groups believe should be discussed privately with the audit
committee.
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APPENDIX B
AMENDED ARTICLE FOURTH OF CERTIFICATE OF INCORPORATION
FOURTH:
1. Capital Stock. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 100,000,000 shares, of
which (a) 50,000,000 shares shall be shares of Common Stock, $.001 par value per
share ("Common Stock"), and 50,000,000 shares shall be shares of Class A Common
Stock, $.0001 par value per share ("Class A Common Stock").
Except as otherwise set forth below in Section 2 of this Article FOURTH,
the powers, rights, preferences, limitations and restrictions of the Common
Stock and the Class A Common Stock shall be identical in all respects. Except as
otherwise provided by law, the holders of outstanding shares of Common Stock and
the holders of outstanding shares of Class A Common Stock, voting together as a
single class, shall possess the voting power for the election of directors and
for all other purposes, each holder of record of shares of Common Stock and each
holder of record of shares of Class A Common Stock being entitled to one vote
for each share of Common Stock or Class A Common Stock, respectively, standing
in its name on the books of the Corporation.
2. Restrictions on Class A Common Stock. In order to preserve the Tax
Benefits to which the Corporation is entitled pursuant to the Internal Revenue
Code of 1986, as amended, or any successor statute (collectively, the "Code")
and the regulations thereunder, the Class A Common Stock shall be subject to the
following restrictions:
A. Definitions.
As used in this Article FOURTH, the following capitalized terms have the
following meanings when used herein with initial capital letters and not
otherwise defined herein (and any references to any portions of Treasury
Regulations sec.1.382-2T shall include any amendments thereto and any successor
provisions):
(1) "5% Transaction" means any Transfer of Class A Securities
described in Section 2.B(1) of this Article FOURTH.
(2) "Agent" means any agent designated by the Board of Directors
pursuant to Section 2.C(2) of this Article FOURTH.
(3) "Class A Securities" means (i) shares of Class A Common Stock and
(ii) warrants, rights or options (including options within the meaning of
Treasury Regulations sec.1.382-4(d)(9)) to purchase Class A Common Stock.
(4) "Corporation Securities" means (i) shares of Common Stock, (ii)
warrants, rights or options (including options within the meaning of
Treasury Regulations sec.1.382-4(d)(9)) to purchase Common Stock, (iii)
Class A Securities and (iv) any other interest that is treated as "stock"
of the Corporation pursuant to Treasury Regulations sec.1.382-2T(f)(18).
(5) "Effective Date" means the date of filing with the Secretary of
State of the State of Delaware of a Certificate of Merger effecting an
amendment to the Corporation's Restated Certificate of Incorporation
containing this Section 2 of Article FOURTH.
(6) "Excess Securities" mean any Class A Securities which are the
subject of a Prohibited Transfer.
(7) "Fair Market Value" shall mean, with respect to Class A Securities
on any specified date, the value thereof (1) calculated on the basis of the
closing market price for the Class A Securities on the date prior to making
such calculation or, (2) if the Class A Securities are not listed or
admitted to trading on any stock exchange but are traded in the
over-the-counter market, calculated based upon the average of the highest
bid and lowest asked prices, as such prices are reported by the National
Association of Securities Dealers, Inc. on the date prior to making such
calculation or, if
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none, on the last preceding day prior to making such calculation for which
such quotations exist, or (3) if the Class A Securities are neither listed
nor admitted to trading on any stock exchange nor traded in the
over-the-counter market, as determined in good faith by the Board of
Directors.
(8) "Five-Percent Shareholder" means a Person or group of Persons that
is identified as a "5-percent shareholder" of the Corporation pursuant to
Treasury Regulations sec.1.382-2T(g) (or such other applicable ownership
threshold as may be contained therein).
(9) "Mandatory Conversion Date" means the date on which the transfer
agent for the Class A Common Stock receives a written determination by the
Board of Directors of the Corporation that the Restriction Release Date has
occurred.
(10) "Percentage Stock Ownership" means a percentage stock ownership
interest as determined in accordance with Treasury Regulations
sec.1.382-2T(g), (h), (j) and (k).
(11) "Permitted Transfer" means an acquisition of Class A Securities
pursuant to any tender or exchange offer made pursuant to the applicable
rules and regulations of the Securities Exchange Act of 1934, as amended,
for any and all outstanding Class A Securities in which a majority of the
outstanding Class A Securities have been validly tendered and not withdrawn
and in which offer the offeror or an affiliate thereof has committed to
consummate a merger with the Corporation in which all of the Class A
Securities not so acquired in such offer are (subject to any applicable
appraisal rights) converted into the same type and amount of consideration
paid for Class A Securities accepted in such tender or exchange offer.
Permitted Transfer shall include the acquisition of Class A Securities
pursuant to any merger referred to in the immediately preceding sentence.
(12) "Person" means any individual, trust, estate, partnership,
association, company, firm, corporation or other legal entity, and includes
any successor (by merger or otherwise) of such entity.
(13) "Prohibited Distribution" means any dividends or other
distributions received by a Purported Transferee in respect of Excess
Securities.
(14) "Prohibited Transfer" means any purported Transfer of Class A
Securities to the extent that such Transfer is prohibited and/or void under
Section 2.B of this Article FOURTH.
(15) "Purported Transferee" means any purported transferee of a
Prohibited Transfer.
(16) "Restriction Release Date" means the earlier of (i) the repeal,
amendment or modification of Section 382 in such a way as to render the
restrictions imposed by Section 382 no longer applicable to the Corporation
or (ii) the date on which the limitation amount imposed by Section 382 in
the event of an ownership change of the Corporation, as defined in Section
382, would not be less than the net operating loss carryforward or net
unrealized built-in loss of the Corporation or any direct or indirect
subsidiary thereof.
(17) "Section 382" means Section 382 of the Code and any comparable
successor provision.
(18) "Section 501(c)(3)" means Section 501(c)(3) of the Code and any
comparable successor provision.
(19) "Tax Benefits" means the net operating losses, net operating loss
carryovers, capital losses, capital loss carryovers, general business
credit carryovers, alternative minimum tax credit carryovers and foreign
tax credit carryovers, as well as, without duplication, any loss or
deduction attributable to a "net unrealized built-in loss" within the
meaning of Section 382, of the Corporation or any direct or indirect
subsidiary thereof.
(20) "Transfer" means, any direct or indirect sale, transfer,
assignment, conveyance, pledge, or other disposition, including without
limitation by merger, operation of law, bequest or pursuant to any domestic
relations order, other than a sale, transfer, assignment, conveyance,
pledge, or other disposition (i) by or to the Corporation or (ii) to an
entity wholly-owned by the transferor or, if the transferor is wholly-owned
by a Person, to such Person or to an entity wholly-owned by such Person.
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A Transfer also shall include the creation or grant of an option (including
an option within the meaning of Treasury Regulations sec.1.382-4(d)(9)).
B. 5% Ownership Limit.
(1) Any attempted Transfer of Class A Securities shall be prohibited
and void ab initio to the extent that, as a result of such Transfer (or any
series of Transfers of which such Transfer is a part), either (1) any
Person or group of Persons shall become a Five-Percent Shareholder or (2)
the Percentage Stock Ownership in the Corporation of any Five-Percent
Shareholder shall be increased.
(2) The restrictions set forth in Section 2.B(1) of this Article
FOURTH shall not apply to an attempted Transfer that is a 5% Transaction if
(A) the date of such Transfer would be after the Restriction Release Date,
provided such Transfer would not occur pursuant to an agreement entered
into prior to the Restriction Release Date, (B) the transferor or the
transferee obtains the prior written approval of the Board of Directors of
the Corporation or a duly authorized committee thereof, which determination
may be made or withheld in the sole discretion of the Board of Directors or
the duly authorized committee thereof, (C) prior to the Transfer that would
be a 5% Transaction, the Board of Directors or a duly authorized committee
thereof determines in good faith upon request of the transferor that such
Transfer would be a Transfer by a holder of five percent or more of the
outstanding Corporation Securities as of the Effective Date of Corporation
Securities owned by such holder on the Effective Date, or (D) the Transfer
would occur pursuant to a Permitted Transfer.
As a condition to granting its approval pursuant to Section 2.B(2)(B) of
this Article FOURTH above, the Board of Directors may, in its discretion,
require (at the expense of the transferor and/or transferee) an opinion of
counsel selected by the Board of Directors that the Transfer shall not result in
the application of any Section 382 limitation on the use of the Tax Benefits.
The Board of Directors may exercise the authority granted by Section 2.B of this
Article FOURTH through duly authorized officers or agents of the Corporation.
Nothing in Section 2.B of this Article FOURTH shall be construed to limit or
restrict the Board of Directors in the exercise of its fiduciary duties under
applicable law.
C. Treatment of Excess Securities.
(1) No employee or agent of the Corporation shall record any
Prohibited Transfer, and the Purported Transferee shall not be recognized
as a stockholder of the Corporation for any purpose whatsoever in respect
of the Excess Securities. The Purported Transferee shall not be entitled
with respect to such Excess Securities to any rights of stockholders of the
Corporation, including, without limitation, the right to vote such Excess
Securities and to receive dividends or distributions, whether liquidating
or otherwise, in respect thereof, if any. Once the Excess Securities have
been acquired in a Transfer that is not a Prohibited Transfer, the Class A
Securities shall cease to be Excess Securities. For this purpose, any
Transfer of Excess Securities by a Purported Transferee not in accordance
with the provisions of Section 2.C of this Article FOURTH shall also be a
Prohibited Transfer.
(2) If the Board of Directors determines that a purported Transfer of
Class A Securities constitutes a Prohibited Transfer then, upon written
demand by the Corporation, the Purported Transferee shall transfer or cause
to be transferred any certificate or other evidence of ownership of the
Excess Securities within the Purported Transferee's possession or control,
together with any Prohibited Distributions, to an Agent. The Agent shall
thereupon sell to a buyer or buyers, which may include the Corporation,
such Excess Securities in one or more arms'-length transactions (over any
stock exchange on which the Class A Securities are listed or admitted to
trading or in the over-the-counter market or any other recognized public
market on which the Class A Securities may be traded, if possible, or
otherwise privately (but, if sold privately, sold at a purchase price equal
to the Fair Market Value of the Excess Securities)); provided, however,
that the Agent shall effect such sale or sales in an orderly fashion and
shall not be required to effect any such sale within any specific time
frame if, in the Agent's discretion, such sale or sales would disrupt the
market for the Class A Securities or otherwise would adversely affect the
value of the Class A Securities. If the Purported Transferee has resold the
Excess Securities before receiving the Corporation's demand to surrender
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the Excess Securities to the Agent, the Purported Transferee shall be
deemed to have sold the Excess Securities for the Agent, and shall be
required to transfer to the Agent any Prohibited Distributions and proceeds
of such sale, except to the extent that the Corporation grants written
permission to the Purported Transferee to retain a portion of such sales
proceeds not exceeding the amount that the Purported Transferee would have
received from the Agent pursuant to Section 2.C(3) of this Article FOURTH,
if the Agent rather than the Purported Transferee had resold the Excess
Securities. Any purported Transfer of Excess Securities by the Purported
Transferee other than a Transfer described in this Section 2.C(2) of
Article FOURTH shall not be effective to transfer any ownership of the
Excess Securities.
(3) The Agent shall apply any proceeds of a sale by it of Excess
Securities and, if the Purported Transferee had previously resold the
Excess Securities, any amounts received by it from a Purported Transferee,
as follows: (x) first, such amounts shall be paid to the Agent to the
extent necessary to cover its costs and expenses incurred in connection
with its duties hereunder; (y) second, any remaining amounts shall be paid
to the Purported Transferee, up to the amount paid by the Purported
Transferee for the Excess Securities (or, in the case of a gift,
inheritance or similar Transfer, the Fair Market Value thereof at the time
of the Prohibited Transfer to the Purported Transferee); and (z) third, any
remaining amounts shall be paid to one or more organizations qualifying
under Section 501(c)(3) of the Code selected by the Board of Directors. The
recourse of any Purported Transferee in respect of any Prohibited Transfer
shall be limited to the amount payable to the Purported Transferee pursuant
to clause (y) of the immediately preceding sentence. In no event shall the
proceeds of any sale of Excess Securities pursuant to Section 2.C of this
Article FOURTH inure to the benefit of the Corporation.
(4) If the Purported Transferee fails to surrender the Excess
Securities or the proceeds of a sale thereof to the Agent within forty-five
days from the date on which the Corporation makes a demand pursuant to
Section 2.C(2) of this Article FOURTH, then the Corporation shall use its
commercially reasonable efforts to enforce the provisions hereof, including
the institution of legal proceedings to compel the surrender.
(5) The Corporation shall make the demand described in Section 2.C(2)
of this Article FOURTH within forty-five days of the date on which the
Board of Directors determines that the attempted Transfer would result in
Excess Securities.
D. Board Authority.
(1) The Board of Directors of the Corporation shall have the power to
determine all matters necessary for determining compliance with Sections
2.A, 2.B, 2.C and 2.E of this Article FOURTH, including, without
limitation, (A) the identification of Five-Percent Shareholders, (B) the
identification of holders of five percent or more of the outstanding
Corporation Securities as of the Effective Date and the Corporation
Securities owned by such holders on such date, (C) whether a Transfer is a
5% Transaction or a Prohibited Transfer, (D) the Percentage Stock Ownership
in the Corporation of any Five-Percent Shareholder, (E) whether an
instrument constitutes a Corporation Security, (F) whether an instrument
constitutes a Class A Security, (G) whether the Restriction Release Date
has occurred, (H) whether a Transfer would occur pursuant to a Permitted
Transfer, (I) the amount or Fair Market Value due to a Purported Transferee
pursuant to clause (y) of Section 2.C(3) of this Article FOURTH, and (J)
any other matters which the Board of Directors determines to be relevant;
and the good faith determination of the Board of Directors on such matters
shall be conclusive and binding for all the purposes of Sections 2.A, 2.B,
2.C and 2.E of this Article FOURTH.
(2) Upon a determination by the Board of Directors that there has been
or is threatened a Prohibited Transfer to a Purported Transferee, the Board
of Directors may take such action in addition to any action required or
permitted by Sections 2.B and 2.C of this Article FOURTH as it deems
advisable to give effect to the provisions of this Section 2 of Article
FOURTH, including
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without limitation, refusing to give effect on the books of this
Corporation to such Prohibited Transfer or instituting proceedings to
enjoin such Prohibited Transfer.
(3) Nothing contained in this Section 2 of Article FOURTH shall limit
the authority of the Board of Directors to take such action to the extent
permitted by law as it deems necessary or advisable to protect the
Corporation and the interests of the holders of its securities in
preserving the Tax Benefits. The Board of Directors may, to the extent
permitted by law, from time to time establish, modify, amend or rescind, by
By-law, resolution or otherwise, regulations and procedures not
inconsistent with the provisions of this Section 2 of Article FOURTH for
determining whether any acquisition of the Class A Securities would
jeopardize the Corporation's ability to preserve and use the Tax Benefits,
and for the orderly application, administration and implementation of the
provisions of this Section 2 of Article FOURTH. Such procedures and
regulations shall be kept on file with the Secretary of the Corporation
and, upon request, shall be provided to any holder of the Class A
Securities.
E. Mandatory Conversion.
(1) Upon the Mandatory Conversion Date, each outstanding share of
Class A Common Stock shall automatically be converted into one share of
Common Stock (subject to appropriate adjustment in the event of any
dividend, stock split, combination or similar recapitalization affecting
the Class A Common Stock in a manner differently than it affects the Common
Stock).
(2) All holders of record of shares of Class A Common Stock shall be
given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Class A Common
Stock pursuant to Section 2.E of this Article FOURTH. Such notice need not
be given in advance of the occurrence of the Mandatory Conversion Date.
Such notice shall be sent by first class or registered mail, postage
prepaid, or given by electronic communication in compliance with the
provisions of the General Corporation Law of the State of Delaware, to each
record holder of Class A Common Stock. Upon receipt of such notice, each
holder of shares of Class A Common Stock shall surrender his or its
certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates
for the number of shares of Common Stock to which such holder is entitled
pursuant to Section 2.E(1) of this Article FOURTH. On the Mandatory
Conversion Date, all outstanding shares of Class A Common Stock shall be
deemed to have been converted into shares of Common Stock, which shall be
deemed to be outstanding of record, and all rights with respect to the
Class A Common Stock so converted, including the rights, if any, to receive
notices and vote (other than as a holder of Common Stock) will terminate,
except only the rights of the holders thereof, upon surrender of their
certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Class A Common Stock has
been converted, and payment of any declared but unpaid dividends thereon.
If so required by the Corporation, certificates surrendered for conversion
shall be endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his or its attorney duly authorized in writing. As
soon as practicable after the Mandatory Conversion Date and the surrender
of the certificate or certificates for Class A Common Stock, the
Corporation shall cause to be issued and delivered to such holder, or on
his or its written order, a certificate or certificates for the number of
shares of Common Stock issuable on such conversion in accordance with the
provisions hereof.
(3) All certificates evidencing shares of Class A Common Stock which
are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be
deemed to have been retired and cancelled and the shares of Class A Common
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender
such certificates on or prior to such date. Such converted Class A Common
Stock may not be reissued, and the Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be
necessary to reduce the authorized number of shares of Class A Common Stock
accordingly.
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(4) Notwithstanding any other provision in Section 2.E of this Article
FOURTH, each holder of shares of Class A Common Stock converted into shares
of Common Stock who would otherwise have been entitled to receive a
fraction of a share of Common Stock (after taking into account all shares
of Class A Common Stock owned such holder and the aggregate number of
shares of Common Stock into which such shares have been converted) shall
receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a share of Common Stock multiplied by the Fair
Market Value of the Class A Common Stock on the Mandatory Conversion Date.
F. Miscellaneous.
(1) Any provision in this Section 2 of Article FOURTH which is
prohibited or unenforceable under Delaware law shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Section 2 of Article FOURTH and of the
Corporation's Restated Certificate of Incorporation.
(2) The Corporation shall use its commercially reasonable efforts to
legend all share certificates representing outstanding shares of Class A
Securities in order to note conspicuously the restrictions on transfers set
forth in this Section 2 of Article FOURTH.
(3) The Corporation may require as a condition to the registration of
the transfer of any Class A Securities that the Purported Transferee
furnish to the Corporation all information reasonably requested by the
Corporation with respect to all of the Purported Transferee's direct or
indirect ownership interests in, or options to acquire, Corporation
Securities.
B-6
PRELIMINARY COPIES
PROXY
ARCH WIRELESS, INC.
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 8, 2003.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Patricia A. Gray, J. Roy Pottle 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 Wireless, Inc. which
the undersigned is entitled to vote at the annual meeting of stockholders to be
held on Tuesday, May 8, 2003, at 11:00 a.m. (local time) at Hale and Dorr LLP,
26th floor, 60 State Street, Boston, Massachusetts 02109.
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the annual meeting or any adjournment
thereof.
Please return your cards in the enclosed envelope to the following
address:
Arch Wireless, Inc.
c/o EquiServe
P.O. Box 9398
Boston, MA 02205-9398
CONTINUED AND TO BE DATED AND SIGNED ON REVERSE SIDE
SEE REVERSE SEE REVERSE
SIDE SIDE
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE 3. Approve our merger with a wholly-owned subsidiary
that will result in the imposition of transfer restrictions
1. Election of Directors. on our common stock as described in the proxy
NOMINEES: (01) C. Edward Baker, Jr. statement.
(02) William C. Bousquette
(03) James V. Continenza FOR AGAINST ABSTAIN
(04) Eric Gold [ ] [ ] [ ]
(05) Carroll D. McHenry
(06) Matthew Oristano
(07) William E. Redmond, Jr.
(08) Samme L. Thompson
(09) Carroll R. Wetzel, Jr.
FOR WITHHELD MARK HERE[ ] 4.Ratify the appointment of PricewaterhouseCoopers
[ ] [ ] IF YOU PLAN LLP as independent auditors for year ending
TO ATTEND December 31, 2003.
THE MEETING
FOR AGAINST ABSTAIN
MARK HERE[ ] [ ] [ ] [ ]
FOR ADDRESS
CHANGE AND
NOTE BELOW
[ ]
------------------------------------------
INSTRUCTION: To withhold authority for any
individual nominee, write the nominee's name in the
space provided above.
2. Approve an amendment to our 2002 stock incentive
plan increasing the number of shares of common
stock authorized for issuance under the plan from
950,000 to 1,550,000 and providing for the
issuance of an aggregate of 450,000 shares of
restricted stock for $.001 per share to our
non-employee directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PLEASE SIGN, DATE AND RETURN THIS PROXY
IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
The signature on this Proxy should
correspond exactly with stockholder's
name as printed to the left. In the
case of joint tenants, co-executors or
co-trustees, both should sign. Persons
signing as Attorney, Executor,
Administrator, Trustee or Guardian
should give their full title.
VOTES MUST BE INDICATED (X) IN BLACK OR
BLUE INK.
Signature__________________________ Signature__________________________
Date: ______________ Date: ______________