SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
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Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ARCH WIRELESS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the Appropriate Box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
Amount Previously Paid:
1) Form, Schedule or Registration Statement No.:
2) Filing Party:
3) Date Filed:
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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 ten 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 transfer restrictions will prohibit certain transfers of our common
stock after there has been a cumulative change in ownership of more than 40% or
to the extent that a transfer would result in a cumulative change in ownership
of more than 42%.
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 submit a
proxy 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 ten 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, of which 450,000 shares will be
used to grant stock options with an exercise price of $.001 per
share to the non-employee directors who joined our board of
directors upon our emergence from bankruptcy.
3. To adopt an Agreement and Plan of Merger between our company and
Arch 382 Corporation, a wholly-owned subsidiary, that will result in
the imposition of transfer restrictions on our common stock to
maintain the tax benefits 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 Wednesday, April
16, 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 -, 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 PROPOSALS
TO BE CONSIDERED AT OUR 2003 ANNUAL MEETING
The following is a summary of the proposals to be considered at our 2003
annual meeting. This summary does not contain all of the information you should
consider before voting on the proposals. You should read the entire proxy
statement, including the attached appendices, carefully because the information
in this summary is not complete.
PROPOSAL 1 - ELECTION OF DIRECTORS (PAGE 4)
The board of directors has proposed the election of ten persons as our
directors, each to hold office until our 2004 annual meeting. The proxies
solicited by the board of directors will be voted FOR the election of each of
the following director nominees, unless the proxy is marked otherwise:
- C. Edward Baker, Jr. - Eric Gold - Richard A. Rubin
- William C. Bousquette - Carroll D. McHenry - Samme L. Thompson
- James V. Continenza - Matthew Oristano - Carroll E. Wetzel, Jr.
- William E. Redmond, Jr.
The board of directors recommends that you vote FOR the election of each
of the nominees for director named above.
PROPOSAL 2 - APPROVAL OF AMENDMENT TO 2002 STOCK INCENTIVE PLAN (PAGE 19)
The board of directors has approved 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, of which 450,000 shares
will be used to grant stock options with an exercise price of $.001 per share
to the non-employee directors who joined our board of directors upon our
emergence from bankruptcy. Stockholder approval is not required for either
the amendment to our 2002 stock incentive plan or for the grant of
nonstatutory stock options to our non-employee directors. Without stockholder
approval of the amendment, however, we will not be able to use the additional
150,000 authorized shares to grant incentive stock options under section 422
of the Internal Revenue Code. If the stockholders do not approve the grant of
these stock options to our non-employee directors, the board of directors
will reconsider the matter and will likely grant these directors an
alternative, appropriate equity-based compensation package. The board of
directors recommends that you vote FOR the approval of the amendment to the
2002 stock incentive plan.
PROPOSAL 3 - ADOPTION OF AN AGREEMENT AND PLAN OF MERGER PROVIDING FOR THE
MERGER OF OUR COMPANY WITH A WHOLLY-OWNED SUBSIDIARY THAT WILL
RESULT IN THE IMPOSITION OF TRANSFER RESTRICTIONS ON OUR COMMON
STOCK (PAGE 23)
The board of directors has approved, subject to stockholder approval, the
merger of our company with Arch 382 Corporation, a wholly-owned subsidiary,
that will result in the imposition of transfer restrictions on our stock. The
following is a summary of the proposal:
- Reason for the Merger (page 23). Our board of directors has approved the
merger agreement, 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
(pages 24-25). 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
by stockholders to any person, entity or group that, if consummated, would
result in their ownership of 5% or more of our outstanding stock. Such a
transfer will not be prohibited, however, if it
occurs prior to a cumulative change in ownership of our stock of more than
40% to the extent that it will not result in a cumulative change in
ownership of more than 42%. In addition, after there has been a cumulative
change in ownership of more than 40%, the board of directors may, in its
discretion, exempt from the transfer restrictions transfers that would
result in a cumulative change in ownership of 42% or less. The board
intends to exempt from the transfer restrictions transfers that it
determines in good faith would not increase the cumulative change in
ownership. 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 also 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 be
subject to conversion back into common stock without transfer restrictions
on a share-for-share basis.
- Tax and Accounting Consequences of the Merger (page 25). 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 (pages 25-26). The merger agreement must be adopted 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 Loss of Liquidity for Shares (page 26). If the merger is approved
and the transfer restrictions become effective, stockholders may encounter
difficulty in selling their shares because the following transfers will be
prohibited after there has been a cumulative change in ownership of more
than 40% or to the extent that such a transfer would result in a
cumulative change in ownership of more than 42%: (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 by stockholders to any
person, entity or group that, if consummated, would result in their
ownership of 5% or more of our outstanding stock. These transfer
restrictions could have the effect of decreasing the liquidity of your
shares.
- Possible Anti-Takeover Effects (page 26). 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 26). Stockholders do not have appraisal rights
in connection with the merger.
- Exchange of Stock Certificates (page 26). 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 26). 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 23). The board unanimously recommends that you
vote FOR the adoption of the merger agreement.
PROPOSAL 4 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS (PAGE 27)
The board of directors has selected the firm of PricewaterhouseCoopers LLP
as our independent public accountants for the year ending December 31, 2003.
Stockholder approval of the selection of PricewaterhouseCoopers LLP is not
required by law, but the board believes that it is advisable to give
stockholders an opportunity to ratify the appointment. If 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 that you vote FOR the ratification of the selection of
PricewaterhouseCoopers LLP as our independent public accountants.
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 Thursday, 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 or votes at the meeting.
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,
is being furnished to all stockholders along with this proxy statement. Exhibits
to the Form 10-K will be provided upon written request and payment of an
appropriate processing fee. Please address requests to Arch Wireless, Inc., 1800
West Park Drive, Suite 250, Westborough, Massachusetts 01581, Attention:
Investor Relations.
VOTING SECURITIES AND VOTES REQUIRED
On April 16, 2003, the record date for determination of stockholders
entitled to notice of and to vote at the meeting, there were 18,730,944 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 adoption of the merger agreement providing for 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).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information about the beneficial
ownership of our common stock as of April 16, 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
NAME APRIL 16, 2003 PERCENTAGE(1)
---- -------------- -------------
C. Edward Baker, Jr ................................... 254,700 1.4%
Lyndon R. Daniels ..................................... 147,400 *
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 ................................ -- *
Richard A. Rubin(3) ................................... 1,004,999 5.4%
Samme L. Thompson ..................................... -- *
Carroll R. Wetzel, Jr ................................. -- *
David C. Abrams(4) .................................... 1,345,969 7.2%
Contrarian Capital Management L.L.C.(5) ............... 1,665,263 8.9%
Franklin Resources, Inc.(6) ........................... 1,988,443 10.6%
Hawkeye Capital Management LLC(3) ..................... 1,004,999 5.4%
Putnam, LLC(7) ........................................ 1,065,624 5.7%
All current directors and executive officers as a group 634,079 3.4%
(13 persons)
* Less than 1%
(1) Our plan of reorganization provides that 20,000,000 shares of our common
stock will be issued to our former secured and unsecured creditors and
senior management. However, the number of shares of common stock to be
distributed to each former creditor, and the actual distribution of the
shares, is contingent upon the resolution of the individual claims of our
former creditors. The percentage listed in the table above is based on the
18,730,994 shares of our common stock that have been distributed to former
secured and unsecured creditors and senior management as of April 16, 2003.
(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.
2
(3) Based on a Schedule 13D, dated March 21, 2003, filed with the Securities
and Exchange Commission. The Schedule 13D was filed on behalf of Richard A.
Rubin, Hawkeye Capital Management LLC and Hawkeye Capital LP. Mr. Rubin is
the managing member of Hawkeye Capital Management LLC, which is the general
partner of Hawkeye Capital LP, a pooled investment vehicle. The shares are
reported to be beneficially owned by all three of the reporting persons,
but it is reported that Mr. Rubin has sole voting power and sole
disposition power over the shares.
(4) Based on a Schedule 13D, dated April 4, 2003, filed with the Securities and
Exchange Commission. The Schedule 13D was filed on behalf of David C.
Abrams and Abrams Capital, LLC. Abrams Capital, LLC is reported to be the
beneficial owner of 1,273,484 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 1,345,969 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.
(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 March 17, 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 disposition 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, Putnam, LLC, which is
One Post Office Square, Boston, Massachusetts 02109, Franklin Resources, Inc.,
which is One Franklin Parkway, San Mateo, California 94403 and Hawkeye Capital
Management LLC, which is 200 West 57th Street, New York, New York 10019.
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 deemed acquisition of common stock on November 5,
2002. These shares were actually issued on April 8, 2003 but were deemed issued
on November 5, 2002 because all conditions to their issuance had been satisfied
on that date.
3
PROPOSAL 1 -- ELECTION OF DIRECTORS
Pursuant to our by-laws, the board of directors has fixed at ten 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, as well as one additional nominee, 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
of the nominees has indicated his willingness to serve as a director if elected,
but if any of the nominees becomes unable, prior to the annual meeting, 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.
NAME AND PERIOD OF SERVICE POSITIONS WITH ARCH, PRINCIPAL OCCUPATIONS AND EMPLOYMENT
AS A DIRECTOR AGE OVER PAST FIVE YEARS, AND DIRECTORSHIPS
-------------------------- --- ---------------------------------------------------------
C. Edward Baker, Jr. 52 Chief executive officer of Arch since 1988 and chairman of
Director since 1986 the board of Arch since 1989.
William C. Bousquette(1)(3) 66 Senior vice president and chief financial officer of Texaco,
Director since 2002 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 since September 2002 of
Director since 2002 Teligent, Inc., a provider of fixed-wireless broadband
services that filed for bankruptcy protection in May 2001,
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, which was a division of The CIT Group, Inc., a
financial services 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 Senior vice president of CRT Capital Group LLC, a securities
Director since 2002 research and brokerage firm, since March 2003;
telecommunications analyst at Dresdner Kleinwort Wasserstein,
the investment bank of Dresdner Bank AG, from May 1997 to
March 2003.
4
Carroll D. McHenry(2)(3) 60 Chairman of the board, president, chief executive officer of
Director since 2002 Heartland Wireless Communications, Inc., a wireless cable
television company that filed for bankruptcy protection in
December 1998, and Heartland's successor company, Nucentrix
Broadband Networks, Inc., since April 1997.
Matthew Oristano(1) 46 President and chief executive officer of Alda Inc., an
Director since 2002 investment management company, since 1995; chairman of the
board and chief executive officer of People's Choice TV
Corp., a wireless communications company, from April 1993 to
September 1999.
William E. Redmond, Jr.(2) 43 President and chief executive officer from December 1996 to
Director since 2002 February 2003 and chairman of the board since 1999 of
Gardenway, Inc., a manufacturer of outdoor garden and power
equipment that filed for bankruptcy protection in July 2001
in order to facilitate a sale of substantially all of its
assets in August 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.
Richard A Rubin 39 President of Hawkeye Capital Management LLC, a provider of
Director nominee investment management services, since November 1999; engaged
in organizing Hawkeye Capital Management LLC between July
1998 and November 1999; principal at MHR Advisors LLC from
January 1997 to July 1998.
Samme L. Thompson(1)(3) 57 President of Telit Associates, Inc., a financial and
Director since 2002 strategic advisory firm, since April 2002; senior vice
president of Motorola Corporation from July 1999 until April
2002; chief financial officer of NetCom Solutions
International, Inc., a provider of network and logistics
integration services, 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 board
Director since 2002 of Safety Components International, Inc., a supplier of
automotive airbag fabric and cushions and technical fabrics,
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. Since our
emergence from bankruptcy in May 2002, 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.
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 and have nominated for
election an additional person who will, if elected, become our ninth
independent director;
- nominated for election as a director one person, Richard A. Rubin,
who requested that he be nominated pursuant to the procedures
described below under the caption "Stockholder Proposals for 2004
Annual Meeting";
- have committed to comply with Nasdaq Marketplace Rule 4350(i)(1)(D),
as described below under the caption "Stockholder Approval of
Certain Stock Issuances," even though our common stock is not listed
on the Nasdaq Stock Market;
- 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 without charge by writing to Arch Wireless, Inc., 1800 West Park Drive,
Suite 250, Westborough, Massachusetts 01581, Attention: Investors Relations.
STOCKHOLDER APPROVAL OF CERTAIN STOCK ISSUANCES
The board of directors believes that stockholders should have the
opportunity to approve certain additional issuances of stock that would result
in substantial dilution to existing stockholders. Accordingly, the board of
directors has adopted a resolution stating the commitment of our company to
comply with Nasdaq Marketplace Rule 4350(i)(1)(D), as such rule may be modified
or interpreted from time to time, even though our common stock is not listed on
the Nasdaq Stock Market. Nasdaq Marketplace Rule 4350(i)(1)(D), as currently in
effect, requires stockholder approval in connection with a transaction other
than a public offering involving:
6
- the sale, issuance or potential issuance by the issuer of common
stock (or securities convertible into or exercisable for common
stock) at a price less than the greater of book or market value
which together with sales by officers, directors or substantial
shareholders of the company equals 20% or more of common stock or
20% or more of the voting power outstanding before the issuance; or
- the sale, issuance or potential issuance by the company of common
stock (or securities convertible into or exercisable common stock)
equal to 20% or more of the common stock or 20% or more of the
voting power outstanding before the issuance for less than the
greater of book or market value of the stock.
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;
- 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.
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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 the caption "Stockholder Proposals for 2004
Annual Meeting." One of this year's nominees, Richard A. Rubin, was nominated by
the nominating and governance committee after he requested that he be nominated
pursuant to these procedures.
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 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.
8
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 Oristano
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 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.
STOCK OPTIONS
Subject to stockholder approval (Proposal 2 below), we will grant stock
options to purchase an aggregate of 450,000 shares of common stock, with an
exercise price of $.001 per share and vesting 50% on May 29, 2003 and 50% on May
29, 2004, to the non-employee directors who joined our board of directors upon
our emergence from bankruptcy. TD Securities (USA), Inc., on behalf of the
steering committee of our prepetition secured creditors, indicated its support
for the grant of these stock options to our non-employee directors when these
directors were recruited to serve on our board following our emergence from
bankruptcy. If the stockholders do not approve the grant of these stock options
to our non-employee directors, the board of directors will reconsider the matter
and will likely grant these directors an alternative, appropriate equity-based
compensation package.
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 1997.
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.
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
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ---------------------
OPTIONS
OTHER TO
ANNUAL RESTRICTED PURCHASE ALL OTHER
COMPEN- STOCK COMMON COMPEN-
NAME AND PRINCIPAL POSITION SATION AWARDS STOCK SATION
DURING 2002 YEAR SALARY ($) BONUS ($)(1) ($)(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 --
10
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 officer 2000 282,200 166,290 3,191 -- 452,000 --
Paul H Kuzia....................... 2002 236,000 215,000 3,666 73,223 -- --
Executive vice president, 2001 234,461 80,000 3,400 -- -- --
technology and regulatory 2000 216,000 121,485 3,509 -- 322,300 --
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 and 2000 206,773 100,620 1,516 -- 232,500 --
----------------
(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 " -- 2002 Stock Incentive Plan" 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.
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;
11
- 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 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 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
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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.
INCENTIVE COMPENSATION PLANS
Prior to our chapter 11 filing, we entered into an agreement with certain
of our secured creditors that referred to, among other things, the terms of the
retention and severance plans described above and incentive compensation plans
for 2002 and 2003 covering approximately 75 employees. For both 2002 and 2003,
incentive compensation was to be based on our actual levels of cash flow
available for debt service and earnings before interest, taxes, depreciation and
amortization compared to the projected levels contained in our plan of
reorganization. The terms of these arrangements, including a 2003 incentive
compensation plan contemplating payments in early 2004 based upon our fiscal
2003 financial and operating results, were communicated to participating
employees but were not included in our plan of reorganization. Based on the
achievement of the company performance measures for 2002, the maximum available
bonuses for 2002 were paid in March 2003.
The compensation committee of our board of directors, in consultation with
professional compensation advisors and with the intention to provide management
with market-competitive compensation, has modified the 2003 incentive
compensation plan and implemented a new long-term incentive plan. The modified
2003 incentive compensation plan adds as an additional factor our actual levels
of customer disconnects, or churn, in relation to planned levels, and measures
target bonuses against our 2003 operating plan as approved by the board rather
than the projected operating results contained in our plan of reorganization.
The new long-term incentive plan utilizes the same performance measures as the
modified 2003 incentive compensation plan and provides for payouts in "phantom
stock" units three years after the applicable incentive compensation is earned.
Together, the modified 2003 incentive compensation plan and new long-term
incentive plan will provide the potential for greater incentive compensation
than the original 2003 incentive compensation plan but may result in a reduction
in the cash compensation payable in 2004.
Our success will depend, to a significant extent, upon the continued
service of a relatively small group of key executive and management personnel.
The possibility that the amounts payable under these modified incentive
compensation arrangements could be substantially greater in total, but lower in
2004 than the amounts payable under the 2003 incentive compensation plan
previously communicated to participating employees, could result in the loss of
key personnel, which could result in a material adverse effect on our future
operating results, financial position and cash flows.
2002 STOCK INCENTIVE PLAN
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 exercise price of stock options, which may not be less
than the fair market value of our common stock on the date of grant in the case
of incentive stock options, 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.
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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 (May 29, 2003), 35.222% on the second anniversary of the effective date
(May 29, 2004) and 29.556% on the third anniversary of the effective date (May
29, 2005). On April 8, 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 (May 29, 2005). 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 immediately
vest 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 at our 2003 annual meeting, our board of
directors increased the size of the 2002 plan from 950,000 shares to 1,550,000,
of which 450,000 shares will be used to grant stock options with an exercise
price of $.001 per share to the non-employee directors who joined our board of
directors upon our emergence from bankruptcy. Subject to continued service as a
director, these stock options will vest 50% on May 29, 2003 and 50% on May 29,
2004 and will immediately vest upon a change in control of our company. TD
Securities (USA), Inc., on behalf of the steering committee of our prepetition
secured creditors, indicated its support for the grant of these stock options to
our non-employee directors when these directors were recruited to serve on our
board following our emergence from bankruptcy. If the stockholders do not
approve the grant of these stock options to our non-employee directors, the
board of directors will reconsider the matter and will likely grant these
directors an alternative, appropriate equity-based compensation package.
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.
14
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; and
- 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.
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.
15
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.
Prior to our chapter 11 filing, we entered into an agreement with certain
of our secured creditors outlining, among other things, the terms of the
retention and severance plans described above and incentive compensation plans
for 2002 and 2003 covering approximately 75 employees. For both 2002 and 2003,
incentive compensation was to be based on our actual levels of cash flow
available for debt service and earnings before interest, taxes, depreciation and
amortization compared to the projected levels contained in our plan of
reorganization. Based on the achievement of the company performance measures
contained in the 2002 incentive compensation, the compensation committee
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, and these bonuses were paid in March 2003.
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 an aggregate of 950,000 shares of common stock for
$.001 per share, vesting over three years through May 29, 2005, are being
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.
The compensation committee, in consultation with professional compensation
advisors and with the intention to provide management with market-competitive
compensation, has modified the 2003 incentive compensation plan referenced above
and implemented a new long-term incentive plan. The modified 2003 incentive
compensation plan adds as an additional factor our actual levels of customer
disconnects, or churn, in relation to planned levels, and measures target
bonuses against our 2003 operating plan as approved by the board rather than the
projected operating results contained in our plan of reorganization. The new
long-term incentive plan utilizes the same performance measures as the modified
2003 incentive compensation plan and provides for payouts in "phantom stock"
units three years after the applicable incentive compensation is earned.
Together, the modified 2003 incentive compensation plan and new long-term
incentive plan will provide the potential for greater incentive compensation
than the original 2003 incentive compensation plan but may result in a reduction
in the cash compensation payable in 2004.
EXECUTIVE EMPLOYMENT AGREEMENTS
We are a party to the executive employment agreements with Messrs. Baker,
Daniels and Pottle summarized above on pages 11-12 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 on page 12 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
16
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 on pages 12-13 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.
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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
[GRAPHIC OMITTED]
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.
18
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
our emergence from bankruptcy, as summarized above on pages 13-14 under the
caption "Information About Executive Compensation -- 2002 Stock Incentive Plan."
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, of which
450,000 shares will be used to grant nonstatutory stock options with an exercise
price of $.001 per share to the non-employee directors who joined our board of
directors upon our emergence from bankruptcy, and permitting the grant of
nonstatutory stock options with exercise prices below the fair market value of
the common stock on the date of grant.
Stockholder approval is not required for either the amendment to our 2002
plan or for the grant of stock options to our non-employee directors. Without
stockholder approval of the amendment, however, we will not be able to use the
additional 150,000 authorized shares to grant incentive stock options under
section 422 of the Internal Revenue Code. We are seeking stockholder approval of
both the amendment and the grant of stock options to our non-employee directors
because we believe doing so is consistent with good corporate governance
policies and practices, and we are seeking stockholder approval of the amendment
to permit us to use the additional 150,000 authorized shares to grant incentive
stock options under section 422 of the Internal Revenue Code. If the
stockholders do not approve the grant of these stock options to our non-employee
directors, the board of directors will reconsider the matter and will likely
grant these directors an alternative, appropriate equity-based compensation
package.
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. Incentive stock options must be granted at
an exercise price not less than the fair market value of the common stock on the
date of grant but, assuming the amendment is approved by the stockholders, the
exercise price of nonstatutory stock options may be 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.
19
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.
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 April 16, 2003, approximately 3,300 persons were eligible to receive
awards under the 2002 plan, including our executive officers and non-employee
directors. If the amendment to the 2002 plan is approved by stockholders,
450,000 shares will be used to grant stock options to our non-employee directors
as described below and 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. We do not plan to use any of these 150,000 shares for grants to the
members of our senior management who received restricted stock as part of our
plan of reorganization. Except as described below with respect to our
non-employee directors, 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 April 16, 2003, the last reported sale price of our common stock on the
OTC Bulletin Board was $ - per share.
STOCK OPTION GRANTS TO INCUMBENT 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 used to grant nonstatutory
stock options with an exercise price of $.001 per share to the non-employee
directors who joined our board of directors upon our emergence from bankruptcy.
Of these grants, Carroll R. Wetzel, Jr., our vice chairman of the board, will
receive a stock option for 100,000 shares and each other non-employee director
who joined our board of directors upon our emergence from bankruptcy will
receive a stock option for 50,000 shares. Subject to continued service as a
director, these stock options will vest 50% on May 29, 2003 and 50% on May 29,
2004 and will immediately vest upon a change in control of our company. TD
Securities (USA), Inc., on behalf of the steering committee of our prepetition
secured creditors, indicated its support for the grant of these stock options to
our non-employee directors when these directors were recruited to serve on our
board following our emergence from bankruptcy. If the stockholders do not
approve the grant of these stock options to our non-employee directors, the
board of directors will reconsider the matter and will likely grant these
directors an alternative, appropriate equity-based compensation package. Mr.
Rubin, as a new nominee for director, will not be eligible to receive a stock
option to purchase 50,000 shares.
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
20
- 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 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
the caption "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.
21
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 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.
22
PROPOSAL 3 -- ADOPTION OF AN AGREEMENT AND PLAN OF MERGER PROVIDING FOR THE
MERGER OF OUR COMPANY WITH A 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, an Agreement and Plan of Merger between our company and Arch 382
Corporation, a wholly-owned subsidiary, that will result in the imposition of
the restrictions on transfer of our stock described below. The Agreement and
Plan of Merger is attached as Appendix B. 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 C.
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 20%.
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 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 agreement providing for the merger
of our company with a wholly-owned subsidiary, as described below. In the
merger, outstanding shares of common stock will be converted into the right to
receive new shares of Class A common stock, which will be subject to the
transfer restrictions described below. The transfer restrictions will prohibit
certain transfers of our common stock after there has been a cumulative change
in ownership of more than 40% or to the extent that such a transfer would result
in a cumulative change in ownership of more than 42%. In addition, after there
has been a cumulative change in ownership of more than 40%, the board of
directors may, in their discretion, exempt from the transfer restrictions
transfers that would result in a cumulative change in ownership of 42% or less.
The board intends to exempt from the transfer restrictions transfers that it
determines in good faith would not increase the cumulative change in ownership.
23
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.
Our expectations for the timing of generating federal taxable income have
changed since the plan of reorganization for our chapter 11 bankruptcy was
developed. In addition, we believe that our secured creditors would have been
opposed to any effort to impose transfer restrictions and would not have
supported the plan of reorganization if it had contained such restrictions. As a
result, we did not seek to impose similar transfer restrictions as part of our
chapter 11 bankruptcy.
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 be subject to conversion back into common stock
without transfer restrictions on a share-for-share basis. We cannot predict if
or when the transfer restrictions will no longer be necessary to protect the
intended tax benefits or, as a result, if or when the Class A common stock will
be subject to conversion back into common stock, because this is dependent on,
among other things, the timing and amount of our future tax attributes and the
future value of our stock.
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
by stockholders 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, a transfer will not be prohibited to the
extent that it will not result in a cumulative change in ownership of our stock
of greater than 42% if the transferor or purported transferee gives us notice of
the transfer at least five business days prior to the transfer and (1) there has
not been a prior determination by our board of directors that a greater than 40%
cumulative change in ownership of our stock has occurred, (2) the transferor or
purported transferee obtains the prior written approval of the board of
directors for such transfer, which determination may be made or withheld in the
sole discretion of the board, or (3) the board of directors determines in good
faith upon the request of the transferor or purported transferee that such
transfer would not increase the cumulative change in ownership of our stock. If
more than one transferor or purported transferee gives us notice of a transfer,
they will be considered in the order in which they are received by us. As a
condition to granting its approval of or making determinations relating to any
transfer, the board of directors may require (at the expense of the transferor
and/or purported transferee) an opinion of counsel that such transfer could not
reasonably be determined to result in a change in ownership of our stock, as
well as the delivery of other certificates reasonably requested by the board.
In addition, transfers pursuant to any (1) merger, consolidation, or
similar transaction approved in advance by the board of directors or (2) tender
or exchange offer for any and all of our stock as to which a majority of our
outstanding stock is tendered, as long as the offeror has committed to acquire
any shares not tendered for the same
24
type and amount of consideration paid in the offer, will be exempt from these
restrictions. Certain rights to acquire stock will be treated as stock for
purposes of the foregoing transfer restrictions. Also, in certain circumstances,
a stockholder may be attributed the ownership of stock held by another person or
entity for purposes of determining whether the stockholder holds 5% or more of
our outstanding stock.
If Proposal 2 is approved and the stock options to purchase 450,000 shares
granted to our non-employee directors are fully exercised, our cumulative change
in ownership will increase to approximately 21%. At the request of Franklin
Resources, Inc., our largest stockholder, we are required to file a "shelf"
registration statement to permit Franklin to sell some or all of its common
stock at any time and from time to time. If Franklin sells all of its common
stock, our cumulative change in ownership will increase to approximately 31%.
Franklin may sell common stock under such registration statement for up to two
years after it is declared effective, and we cannot predict when sales by
Franklin, or by any other stockholder, will cause our cumulative change in
ownership to equal 40%.
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 will trade in the
over-the-counter market under the same symbol, AWIN, under which the common
stock traded prior to the merger. We have filed a listing application with, and
anticipate that the Class A common stock will trade on, the Boston Stock
Exchange under the same symbol, AWL, 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 significant 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 C. 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 and except for the commitment of our company to
comply with Nasdaq Marketplace Rule 4350(i)(1)(D), as described above on pages
6-7 under the caption "Corporate Governance -- Stockholder Approval of Certain
Stock Issuances." These shares could be issued for possible future financing
transactions, acquisitions, stock dividends and other corporate purposes. We
have no present intention to issue any additional shares other than the 600,000
shares that will become available under our 2002 stock incentive plan upon
stockholder approval of the proposed amendment to our 2002 stock incentive plan
(Proposal 2 above) and, if the proposed amendment is not approved by
stockholders, the intention of the board of directors to grant the non-employee
directors who joined our board of directors upon our emergence from bankruptcy
an alternative, appropriate equity-based compensation package. 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 pursuant to 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
pursuant to 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 agreement must be adopted 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 anticipate receiving this consent
prior to the annual meeting.
25
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 filed these applications on 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.
POSSIBLE LOSS OF LIQUIDITY FOR SHARES
If the merger is approved and the transfer restrictions become effective,
stockholders may encounter difficulty in selling their shares because the
following transfers will be prohibited after there has been a cumulative change
in ownership of more than 40% or to the extent that such a transfer would result
in a cumulative change in ownership of more than 42%: (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 by stockholders to any person, entity or group
that, if consummated, would result in their ownership of 5% or more of our
outstanding stock. These transfer restrictions could have the effect of
decreasing the liquidity of your shares.
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
because the common stock is traded on the Boston Stock Exchange.
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.
26
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, 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
========
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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.
28
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 13, 2004 and no later than March 14, 2004.
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.
By order of the board of directors,
Patricia A. Gray, Secretary
April -, 2003
Westborough, Massachusetts
29
APPENDIX A
ARCH WIRELESS, INC.
AND CONSOLIDATED SUBSIDIARIES (THE "COMPANY")
Audit Committee Charter
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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
be provided by the Company without further action
A-2
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.
A-3
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.
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.
A-4
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 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.
A-5
APPENDIX B
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated this ___ day of April, 2003, pursuant
to Section 251 of the General Corporation Law of the State of Delaware, between
Arch 382 Corporation, a Delaware corporation having its principal place of
business at 1800 West Park Drive, Suite 250, Westborough, Massachusetts 01581
(the "Subsidiary"), and Arch Wireless, Inc., a Delaware corporation having its
principal place of business at 1800 West Park Drive, Suite 250, Westborough,
Massachusetts 01581 (the "Surviving Corporation").
W I T N E S S E T H:
WHEREAS, the Subsidiary is a corporation duly organized and existing under
the laws of the State of Delaware and is authorized to issue 1,000 shares of
common stock, $.001 par value per share ("Subsidiary Shares"), of which 100
shares are issued and outstanding as of the date hereof;
WHEREAS, the Surviving Corporation is a corporation duly organized and
existing under the laws of the State of Delaware and is authorized to issue
50,000,000 shares of common stock, $.001 par value per share ("Common Shares"),
of which 18,730,994 shares are issued and outstanding and 1,269,006 shares are
reserved for issuance as of the date hereof;
WHEREAS, the Subsidiary desires to merge itself into the Surviving
Corporation;
WHEREAS, the Surviving Corporation desires that the Subsidiary be merged
into itself; and
WHEREAS, the Boards of Directors of the Subsidiary and the Surviving
Corporation have adopted resolutions approving and declaring the advisability of
this Agreement and Plan of Merger.
NOW THEREFORE, in consideration of the foregoing premises and the
undertakings herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Merger. The Subsidiary shall be merged with and into the Surviving
Corporation pursuant to Section 251 of the General Corporation Law of the State
of Delaware. The Surviving Corporation shall survive the merger herein
contemplated and shall continue to be governed by the laws of the State of
Delaware. The separate corporate existence of the Subsidiary shall cease
forthwith upon the Effective Date (as defined below). The merger of the
Subsidiary into the Surviving Corporation shall herein be referred to as the
"Merger."
2. Effective Date. The Merger shall be effective upon the filing of this
Agreement and Plan of Merger or a Certificate of Merger with the Secretary of
State of the State of Delaware, which filing shall be made as soon as
practicable after the execution of this Agreement and Plan of Merger and all
required stockholder approvals have been obtained. The time of such
effectiveness shall herein be referred to as the "Effective Date."
3. Capital Stock of the Subsidiary. On the Effective Date, by virtue of
the Merger and without any action on the part of the holders thereof, each
Subsidiary Share issued and outstanding immediately prior thereto shall be
cancelled without payment of any consideration therefor.
4. Capital Stock of the Surviving Corporation. On the Effective Date, by
virtue of the Merger and without any action on the part of the holder thereof,
each Common Share issued and outstanding immediately prior thereto shall be
converted into and represent the right to receive one (1) fully paid and
non-assessable share of Class A Common Stock, par value $.0001 per share, of the
Surviving Corporation (each, a "Merger Share" and collectively, the "Merger
Shares"). All such Common Shares, when so converted, shall no longer be
outstanding and shall automatically be cancelled; and from and after the
Effective Date each holder of a certificate representing any such Common Shares
(a "Certificate") shall cease to have any rights with respect thereto, except
the right to receive one (1) Merger Share for each Common Share formerly
represented thereby.
B-1
5. Exchange of Shares.
(a) Prior to the Effective Date, the Surviving Corporation shall
appoint an exchange agent (the "Exchange Agent") to effect the issuance of
Merger Shares in exchange for Certificates. Promptly following the
Effective Date, the Surviving Corporation shall deliver to the Exchange
Agent, in trust for the benefit of holders of Certificates, a stock
certificate (issued in the name of the Exchange Agent or its nominee)
representing the Merger Shares. As soon as practicable after the Effective
Date, the Surviving Corporation shall cause the Exchange Agent to send a
notice and a transmittal form to each holder of a Certificate advising
such holder of the effectiveness of the Merger and the procedure for
surrendering to the Exchange Agent such Certificate in exchange for the
Merger Shares issuable pursuant to Section 4. Each holder of a
Certificate, upon proper surrender thereof to the Exchange Agent in
accordance with the instructions in such notice, shall be entitled to
receive in exchange therefor the Merger Shares issuable pursuant to
Section 4. Until properly surrendered, each such Certificate shall be
deemed for all purposes to evidence only the right to receive the Merger
Shares issuable pursuant to Section 4. Holders of Certificates shall not
be entitled to receive the Merger Shares to which they would otherwise be
entitled until such Certificates are properly surrendered.
(b) If any Merger Shares are to be issued in the name of a person other
than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition to the issuance of such
Merger Shares that (i) the Certificate so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall be permitted under the
provisions of the Restated Certificate of Incorporation of the Surviving
Corporation, as amended on the Effective Date, (iii) such transfer shall
otherwise be proper, and (iv) the person requesting such transfer shall
pay to the Exchange Agent any transfer or other taxes payable by reason of
the foregoing or establish to the satisfaction of the Exchange Agent that
such taxes have been paid or are not required to be paid. Notwithstanding
the foregoing, neither the Exchange Agent nor any other party shall be
liable to a former holder of Common Shares for any Merger Shares issuable
to such former holder pursuant to Section 4 that are delivered to a public
official pursuant to applicable abandoned property, escheat or similar
laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, the Surviving
Corporation shall issue or cause to be issued in exchange for such lost,
stolen or destroyed Certificate certificates representing the Merger
Shares issuable in exchange therefor pursuant to Section 4. The Board of
Directors of the Surviving Corporation may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificate to give the Surviving Corporation a
bond in such sum as it may direct as indemnity against any claim that may
be made against the Surviving Corporation with respect to the Certificate
alleged to have been lost, stolen or destroyed.
(d) No dividends or other distributions that are payable to the holders
of record of Merger Shares as of a date on or after the Effective Date
shall be paid to former holders of Common Shares entitled by reason of the
Merger to receive Merger Shares until such holders surrender their
Certificates for the Merger Shares. Following surrender of any such
Certificate, there shall be paid to the holder of the certificate
representing the Merger Shares issued in connection therewith, without
interest, (i) at the time of such surrender, the proportionate amount of
any dividends or other distributions with a record date after the
Effective Date theretofore paid with respect to such Merger Shares, and
(ii) at the appropriate payment date, the proportionate amount of any
dividends or other distributions with a record date after the Effective
Date but prior to such surrender and a payment date subsequent to such
surrender payable with respect to such Merger Shares.
6. No Further Rights. From and after the Effective Date, no Common
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
7. Closing of Transfer Books. At the Effective Date, the stock transfer
books of the Surviving Corporation shall be closed and no transfer of Common
Shares shall thereafter be made. If, after the Effective Date, Certificates
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are presented to the Surviving Corporation or the Exchange Agent, they shall be
cancelled and exchanged for Merger Shares in accordance with Sections 4 and 5
hereof.
8. Succession. On the Effective Date, the Surviving Corporation shall
succeed to all of the rights, privileges, debts, liabilities, powers and
property of the Subsidiary in the manner of and as more fully set forth in
Section 259 of the General Corporation Law of the State of Delaware. Without
limiting the foregoing, upon the Effective Date, all property, rights,
privileges, franchises, patents, trademarks, licenses, registrations, and other
assets of every kind and description of the Subsidiary shall be transferred to,
vested in and devolved upon the Surviving Corporation without further act or
deed and all property, rights, and every other interest of the Subsidiary and
the Surviving Corporation shall be as effectively the property of the Surviving
Corporation as they were of the Subsidiary and the Surviving Corporation,
respectively. All rights of creditors of the Subsidiary and all liens upon any
property of the Subsidiary shall be preserved unimpaired, and all debts,
liabilities and duties of the Subsidiary shall attach to the Surviving
Corporation as though it had been the party thereto in lieu of the Subsidiary
and may be enforced against the Surviving Corporation to the same extent as if
said debts, liabilities and duties had been incurred or contracted by it.
9. Certificate of Incorporation and By-Laws. The Restated Certificate of
Incorporation of the Surviving Corporation in effect on the Effective Date shall
be amended by deleting Article FOURTH thereof in its entirety and inserting in
lieu thereof the text set forth on Exhibit A attached hereto and, as so amended,
shall continue to be the Restated Certificate of Incorporation of the Surviving
Corporation until further amended in accordance with the provisions thereof and
applicable law. The By-Laws of the Surviving Corporation in effect on the
Effective Date shall be the By-Laws of the Surviving Corporation until amended
in accordance with the provisions thereof and applicable law.
10. Directors and Officers. The members of the Board of Directors and the
officers of the Surviving Corporation on the Effective Date shall continue in
office until the expiration of their respective terms of office and until their
successors have been elected and qualified.
11. Further Assurances. From time to time, as and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of the Subsidiary such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other action,
as shall be appropriate or necessary in order to vest or perfect in or to
confirm of record or otherwise in the Surviving Corporation the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of the Subsidiary, and otherwise to
carry out the purposes of this Agreement and Plan of Merger, and the officers
and directors of the Subsidiary are fully authorized in the name and on behalf
of the Subsidiary or otherwise to take any and all such action and to execute
and deliver any and all such deeds and other instruments.
12. Abandonment. At any time prior to the Effective Date, this Agreement
and Plan of Merger may be terminated and the Merger may be abandoned by the
Board of Directors of either the Subsidiary or the Surviving Corporation or
both, notwithstanding approval of this Agreement and Plan of Merger by the
stockholders of the Subsidiary or the Surviving Corporation.
13. Amendment. This Agreement and Plan of Merger may be amended by the
Boards of Directors of the Subsidiary and the Surviving Corporation at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of either party, but, after any such approval, no amendment
shall be made which by law requires further approval by such stockholders
without such further approvals.
14. Governing Law. This Agreement and Plan of Merger and the legal
relations between the parties shall be governed by and construed in accordance
with the laws of the State of Delaware.
15. Counterparts. In order to facilitate the filing and recording of this
Agreement and Plan of Merger, the same may be executed in any number of
counterparts, each of which shall be deemed to be an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each of the Subsidiary and the Surviving Corporation
has caused this Agreement and Plan of Merger to be executed and attested on its
behalf by its officers thereunto duly authorized, as of the date first above
written.
ARCH WIRELESS, INC.
By:
--------------------------------
Name: Gerald J. Cimmino
Title: Vice President and Treasurer
ATTEST:
---------------------------------
Name: Patricia A. Gray
Title: Secretary
ARCH 382 CORPORATION
By:
--------------------------------
Name: Gerald J. Cimmino
Title: Vice President and Treasurer
ATTEST:
--------------------------------
Name: Patricia A. Gray
Title: Secretary
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Exhibit A
[SEE APPENDIX C]
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APPENDIX C
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
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 Section 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 of the Corporation 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 Section 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 Section 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 Section
1.382-2T(f)(18).
(5) "Excess Securities" mean any Class A Securities which are
the subject of a Prohibited Transfer.
(6) "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
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of Securities Dealers, Inc. on the date prior to making such calculation
or, if 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.
(7) "Five-Percent Shareholder" means a Person or group of
Persons that is a "5-percent shareholder" of the Corporation pursuant to
Treasury Regulations Section 1.382-2T(g) (or such other applicable
ownership threshold as may be contained therein).
(8) "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.
(9) "Percentage Stock Ownership" means a percentage stock
ownership interest as determined in accordance with Treasury Regulations
Section 1.382-2T(g), (h), (j) and (k).
(10) "Permitted Transfer" means an acquisition of Class A
Securities pursuant to any (i) merger, consolidation or similar
transaction approved in advance by the Board of Directors of the
Corporation or (ii) 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 clause (ii) of the
immediately preceding sentence.
(11) "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.
(12) "Prohibited Distribution" means any dividends or other
distributions received by a Purported Transferee in respect of Excess
Securities.
(13) "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.
(14) "Purported Transferee" means any purported transferee of
a Prohibited Transfer.
(15) "Restriction 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 there has occurred an ownership
change of the Corporation, as defined in Section 382, determined as if the
reference to "50 percentage points" in Section 382(g)(1) and Treasury
Regulations Section 1.382-2T(a)(1) were changed to a reference to "40
percentage points."
(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 and net unrealized built-in loss of the Corporation and any
direct or indirect subsidiary thereof.
(17) "Section 382" means Section 382 of the Code and any
comparable successor provision.
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(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 by or to the Corporation. A
Transfer also shall include the creation or grant of an option (including
an option within the meaning of Treasury Regulations
Section 1.382-4(d)(9)).
(21) "Transfer Notice" means the notice required by Section
2.B(5) of this Article FOURTH.
B. 5% Ownership Limit.
(1) Any attempted Transfer of Class A Securities shall be
prohibited and void ab initio (A) if the purported transferor is a
Five-Percent Shareholder or (B) to the extent that, as a result of such
Transfer (or any series of Transfers of which such Transfer is a part),
either (i) any Person or group of Persons would become a Five-Percent
Shareholder or (ii) the Percentage Stock Ownership in the Corporation of
any Five-Percent Shareholder would 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) such Transfer would occur pursuant to a Permitted
Transfer, (B) 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, or (C)
subject to Section 2.B(4) of this Article FOURTH, if both (i) prior to
such Transfer the transferor or the purported transferee has provided the
Transfer Notice as required by Section 2.B(5) of this Article FOURTH and
(ii) at least one of the following conditions shall be satisfied:
(I) The date of such Transfer would be prior to the
Restriction Date or the Board of Directors of the
Corporation had considered such proposed Transfer
as taking place when making its determination that
a Restriction Date had occurred;
(II) The transferor or purported transferee obtains the
prior written approval of the Board of Directors
of the Corporation or a duly authorized committee
thereof for such Transfer, which determination may
be made or withheld in the sole discretion of such
Board of Directors or committee; or
(III) Prior to a Transfer, the Board of Directors of the
Corporation or a duly authorized committee thereof
determines in good faith in accordance with
Section 382 upon the request of the transferor or
purported transferee that such Transfer would not
increase the percentage points by which,
immediately prior to such Transfer, the percentage
of Corporation Securities owned by one or more
Five-Percent Shareholders has increased over the
lowest percentage of Corporation Securities owned
by such shareholders at any time during the three
years prior to such Transfer (but after May 29,
2002).
(3) In making a determination as to whether the Restriction
Date has occurred, the Board of Directors of the Corporation may take into
account all facts and circumstances known to such Board of Directors,
including events reasonably likely to occur. As a condition to granting
its approval or making its determination under clauses (II) or (III) of
Section 2.B(2) of this Article FOURTH, the Board of Directors
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of the Corporation may, in its discretion, require (at the expense of the
transferor and/or purported transferee) an opinion of counsel selected by
such Board of Directors that such Transfer could not reasonably be
determined to result in an ownership change of the Corporation, as defined
in Section 382. The transferor and purported transferee shall deliver to
the Corporation such certificates as the Board of Directors of the
Corporation may reasonably require as a condition to granting its approval
or making such determination.
(4) Notwithstanding Section 2.B(2) of this Article FOURTH, any
attempted Transfer of Class A Securities that would result in an ownership
change of the Corporation, as defined in Section 382, determined as if the
reference to "50 percentage points" in Section 382(g)(1) and Treasury
Regulations Section 1.382-2T(a)(1) were changed to a reference to "42
percentAge points," shall be subject to the provisions of Section 2.B(1)
of this Article FOURTH and shall be prohibited and void ab initio to the
extent such attempted Transfer would result in an ownership change of the
Corporation, as defined in Section 382, determined as if the reference to
"50 percentage points" in Section 382(g)(1) and Treasury Regulations
Section 1.382-2T(a)(1) were changed to a reference to "42 percentage
points."
(5) At least five business days prior to any attempted
Transfer that is a 5% Transaction, the transferor or purported transferee
shall provide written notice of such proposed Transfer to the Secretary of
the Corporation at the Corporation's principal executive office. Such
notice shall set forth the number of Class A Securities being acquired,
the identity of the transferor and purported transferee and the date of
the proposed Transfer. Any such notice meeting the requirements of Section
2.B(5) of this Article FOURTH shall be recognized in the order in which it
is received by the Secretary of the Corporation.
(6) The Board of Directors may exercise the authority granted
by Section 2.B of this Article FOURTH through duly authorized committees
of the Board of Directors, or 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
purported 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 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
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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, together with any Prohibited Distributions, 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)
whether a Transfer is a 5% Transaction or a Prohibited Transfer, (C) the
Percentage Stock Ownership in the Corporation of any Five-Percent
Shareholder, (D) whether an instrument constitutes a Corporation Security,
(E) whether an instrument constitutes a Class A Security, (F) whether the
Restriction Date or the Restriction Release Date has occurred, (G) whether
a Transfer would occur pursuant to a Permitted Transfer, (H) whether an
attempted Transfer would result in an ownership change of the corporation,
as determined in Section 2.B(4) of this Article FOURTH, or increase the
percentage change, as determined in clause (III) of Section 2.B(2) of this
Article FOURTH, (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 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
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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 of this Article FOURTH. On the Mandatory
Conversion Date, subject to Section 2.E(4) of this Article FOURTH, 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 whole
shares of Common Stock into which such Class A Common Stock has been
converted, and payment of any declared but unpaid dividends thereon and
payment of cash in lieu of any fractional shares of Common Stock. 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
whole 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 (and the right to
receive a payment of cash in lieu of any fractional shares of 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.
(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 by 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
C-6
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.
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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 Thursday, 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
UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED "FOR" EACH OF THE
PROPOSALS LISTED BELOW.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSALS 1, 2, 3 AND 4.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE 2. Approve an amendment to our 2002 stock incentive
plan increasing the number of shares of common stock
1. Election of Directors. authorized for issuance under the plan from 950,000
NOMINEES: (01) C. Edward Baker, Jr. to 1,550,000, of which 450,000 shares will be used
(02) William C. Bousquette to grant stock options with an exercise price of
(03) James V. Continenza $.001 per share to the non-employee directors who
(04) Eric Gold joined our board of directors upon our emergence
(05) Carroll D. McHenry from bankruptcy.
(06) Matthew Oristano
(07) William E. Redmond, Jr. FOR AGAINST ABSTAIN
(08) Richard A. Rubin [ ] [ ] [ ]
(09) Samme L. Thompson
(10) Carroll R. Wetzel, Jr.
FOR WITHHELD 3. Adopt an Agreement and Plan of Merger between our
ALL [ ] [ ] FROM ALL company and Arch 382 Corporation, a wholly-owned
NOMINEES NOMINEES subsidiary, that will result in the imposition of
transfer restrictions on our common stock to
[ ] maintain the tax benefits described in the proxy
__________________________________________ statement.
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY
INDIVIDUAL NOMINEE, WRITE THE NOMINEE'S NAME IN THE FOR AGAINST ABSTAIN
SPACE PROVIDED ABOVE.) [ ] [ ] [ ]
4. Ratify the appointment of PricewaterhouseCoopers LLP
as independent auditors for year ending December 31,
2003.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE [ ] PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED
IF YOU PLAN POSTAGE PREPAID ENVELOPE.
TO ATTEND The signature on this Proxy should correspond exactly
THE MEETING with stockholder's name as printed to the left. In the
case of joint tenants, co-executors or co-trustees,
MARK HERE [ ] both should sign. Persons signing as Attorney,
FOR ADDRESS Executor, Administrator, Trustee or Guardian should
CHANGE AND give their full title.
NOTE BELOW
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK.
Signature__________________________ Signature__________________________
Date: ______________ Date: ______________